New Delhi: The government may increase the annual allocation for the Improved Distribution Sector System (RDSS) to ₹18,000 crore in the FY27 budget, which is due to be presented on February 1, according to two people aware of the matter.
Launched in 2021, the program aims to transform the country’s electricity distribution sector by making it more efficient and financially sustainable.
“This year, the Ministry of Energy proposed the allocation of approx ₹18,000 crore on the RDSS under consideration. The installation of smart meters is gaining momentum, with about 1.5 million meters installed per month. With this momentum, funding needs to be increased,” said the first of the two people quoted earlier, both of whom spoke on condition of anonymity.
For the current financial year ending March 31 (FY26), the scheme was allocated approx ₹16,000 million crowns. The proposed hike comes at a time when power distribution companies (discoms) remain under pressure and are saddled with cumulative debt over ₹7 trillion despite multiple government efforts to boost their financial health. These initiatives include the Ujjwal Discom Assurance Yojana (UDAY), which was launched in 2015, and the proposed Electricity Act, 2025, which aims to introduce reforms such as greater competition in power distribution, stricter performance norms for discoms and more choice for consumers.
Key things
- The government is considering increasing the annual allocation for the Enhanced Distribution Sector System (RDSS) to ₹ 18,000 crore for FY27.
- This is an increase from ₹ 16,000 crore allocated in the current financial year (FY26).
- This increase is intended to maintain momentum as smart meter installations pick up pace.
- For the first time in over a decade, power distribution companies (discoms) have returned to cumulative profitability.
- The RDSS, which aims to install 250 million smart meters, has been extended to FY28 due to slow initial progress.
- Several major policy changes are expected during the upcoming budget session of Parliament, which will be convened from January 28 to April 2.
The bill is likely to be tabled during the budget session of Parliament, which begins on January 28 and runs until April 2.
The Group of Ministers on Financial Viability of Discoms has also suggested to encourage privatization of discotheques. On Wednesday, the Ministry of Energy came up with a draft of the National Energy Policy until 2026, which proposes a number of reform measures, including a mandatory review of tariffs and the introduction of an automatic annual review of tariffs based on the index.
The government is taking a final call on several budget proposals closer to the budget presentation date for sure. Queries emailed to the Union Ministries of Power and Finance remained unanswered till press time.
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Experts suggest that a higher allocation is needed to ensure speedy installation of smart meters and availability of capital. Smart meters are digital meters that automatically measure, record and transmit energy consumption data between consumers and discoms. They improve billing accuracy, reduce power theft, reduce overall technical and commercial (AT&C) losses and support discom financing by enabling real-time monitoring and prepaid billing.
“The higher allocation directly addresses key constraints in smart meter implementation, particularly availability of capital. Adequate funding improves the confidence of AMISP (advanced metering infrastructure service provider) as it enables timely release of payments (part of the grant) to discoms, thereby reducing foreclosure and financial risk,” said Vinit Mishra, technology advisory partner at EY India. “Adequate funding also enables discoms to support change management, capacity building and training, as well as invest in related smart metering IT applications such as data analytics platforms,” Mishra said, adding that these capabilities enable discoms to effectively utilize smart metering data and generate actionable insights for operational and financial improvement.
Aid in recovery
RDSS was launched with a cumulative cost ₹3 trillion to help discoms revive their financial health through implementation of smart meters and other reform schemes by FY26. However, amid slow progress in smart meter rollout, the scheme has been extended till FY28. A total of 250 million meters are planned to be installed under the scheme, of which only 52.8 million have been set up so far, according to the National Smart Grid Mission. Contracts were also signed for the installation of about 150 million smart phones.
The government introduced this system when it pushed for universal household electrification. Two earlier electrification schemes – Pradhan Mantri Sahaj Bijli Har Ghar Yojana (Saubhagya) and Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY) – ended in 2022. Over the years, the Center has come up with a number of initiatives to revive discoms, including the Reform Reformed PowerAP (UjRP) and the UjRP programme. Yojana (UDAY) which were in force before the ongoing RDSS.
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In March last year, the Parliamentary Standing Committee on Energy expressed concern over the lack of progress in the rollout of smart meters under a flagship scheme to revive the electricity distribution sector and expand electrification, warning that the shortage had contributed to rising losses at discotheques.
In its report on subsidy requirements for the Department of Energy, the panel said that of the total no ₹30,065 crore allocated to RDSS in the first four years of the scheme – FY22 to FY25 – about ₹As of February 10, 2025, 25,664 million crowns were used. Installing 250 million smart meters in India is expected to require a cumulative investment of $30 billion.
Two elements
RDSS has two elements – financial support for prepaid smart metering and system metering and modernization of distribution infrastructure.
The scheme is ₹3 trillion expenditure includes expenditure by the Center and states, apart from funding from state power sector lenders such as Power Finance Corp and REC Ltd. The center itself plans to spend a total of more than ₹97,000 crore on the scheme.
The Ministry of Power recently said that after more than a decade, discoms in the country have returned to profits on a cumulative basis. For FY25, the discoms posted a net profit of approx ₹2,701 crore compared to a loss ₹25,553 crore in FY24.
In its statement, the ministry attributed this recovery to reform measures including the RDSS program.
Jitendra Kumar Agarwal, Joint Managing Director of Genus Power Infrastructure, a smart meter manufacturer and service provider, said, “The smart metering journey has reached a critical inflection point and is beginning to fundamentally reform India’s power distribution sector. The return of discoms to profitability is a strong signal and initiatives like RDSS along with smart meter adoption have played a vital role in this turnaround.”
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“We’re already seeing an increase in billing efficiency and distribution efficiency across utilities, and that’s just the tip of the iceberg. We’ve touched, I’d say, only a small part of the overall consumer base in India, and as deployment continues to grow, the impact on operational efficiency, financial stability and consumer confidence will only grow exponentially,” he added.
The RDSS scheme also aims to reduce AT&C losses to pan-India level by 12-15% by 2024-25. Although the deadline for achieving the A&C loss target was not met, according to recent data from the Department of Energy, losses stood at 15.04% in FY25 compared to 17.6% in FY24.
Likewise, the target of eliminating the gap between average cost of supply and average realized revenue (ACS–ARR) by FY25 was not met. By the end of the last fiscal, the gap narrowed to 6 paise per unit from 48 paise in FY24.
