The impact of Ujwal DISCOM Assurance Yojana (UDAY) on operational efficiency and financial performance of DISCOMs in India:Evidence from a difference-in-differences based approach

We critically examine the performance of power distribution companies (DISCOMs) in India after the implementation of debt restructuring plan under Ujwal DISCOM Assurance Yojana (UDAY). Using a difference-in-difference (DiD) approach, we compare pre- and post- UDAY implementation to investigate whether debt restructuring provisions involving transfer of DISCOMs debt and issuance of bonds to the state governments, effectively reduced interest burden and stabilized cash flows. We further explore the broader question of whether such a policy intervention has significantly improved the financial health in terms of operational efficiency and profitability of DISCOMs. We contribute to the ongoing debate on the nature of power sector reforms and their effectiveness in India. Thus, we highlight the success of debt restructuring in revitalizing the power sector, and more importantly, underscore the need to build on these gains to ensure sustained financial viability of DISCOMs. Through a detailed assessment of financial metrics post-UDAY implementation, we demonstrate that the UDAY policy played a critical role in stabilizing DISCOMs' finances; making a compelling case for the effectiveness of targeted power sector reforms in addressing deep-rooted financial challenges.