Power sector reforms and efficiency of Indian distribution companies

Purpose The authors investigate the impact of various reforms undertaken by the central and state governments in India on the productivity and performance of Power Sector Distribution Companies (DISCOMs) across 22 major states during the period 2010–2023. Design/methodology/approach We examine the impact of reforms on the efficiency and productivity performance of DISCOMs using Stochastic Frontier Analysis (SFA). We specifically evaluate the effects of privatisation and the adoption of the UDAY scheme on productivity and financial performance. Our paper contributes to the literature by analysing the effects of reforms on the performance of Indian DISCOMs and their efficiency. Findings We find that output is not significantly influencing the average total cost, implying the absence of economies of scale for the DISCOMS. We also find that the degree of privatisation significantly and positively impacts cost efficiency. This underlines the postulation of the New Classical Economics that espouse role of privatisation in performance management and profitability in all producing sectors of an economy. UDAY scheme, which was introduced as part of reforms to restructure the power sector DISCOMs, is found to be playing an insignificant role, implying its limited impact on cost efficiency. As expected, the AT&C loss is found to be the most influential among all the parameters, which is consistent with findings in the literature. Subsidies, counterintuitive to our expectations, are positively and significantly associated with cost inefficiency. Finally, the inclusion of UDAY does not affect the parameter coefficients in all the 4 models. Research limitations/implications The study could not consider individual discoms across states at a more disaggregated level because of consistency in data reporting for the period of our study. Practical implications The policies in it can be generalized to other developing economies, where they have a similar setting of power sector distribution companies. Social implications Inefficiency should be checked and therefore it has social implications. Originality/value First, this study estimates the cost efficiency for a large panel of Indian states, which is conspicuous by its absence in the literature. Second, it contributes to the literature by explicitly modelling the ownership unbundling and privatisation of DISCOMS. Third, it evaluates the performance of privately owned DISCOMs vis-à-vis public sector DISCOMs. Fourth, our study considers the heterogeneity of the cost structure of individual DISCOMs based on their scale of operations in the model to assess their efficiency. Fifth, we rank the state utilities based on their efficiency, which provides benchmarking for performance management of other state utilities to emulate. Highlights