Tariff hike as high as 20-40% is required to liquidate the existing ~Rs. 3 trillion regulatory assets across key states, in line with the Supreme Court’s order. 23 of the 28 states have issued tariff orders thus far for FY2026. However, tariff hikes remain modest in most states over the last two years.

• The performance of state-owned distribution utilities (discoms) remains constrained by weak operating efficiencies, as reflected by higher-than-regulator-approved aggregate technical and commercial (AT&C) losses, inadequate tariffs relative to the cost of supply, a high debt burden and delays in payments from state government departments for power supply. Except for discoms in states like Gujarat, state-owned discoms in most large states remain loss-making, despite recent reduction in AT&C losses.
  
  
• Regulatory assets (RAs) remain high at Rs. 3 trillion, led by Tamil Nadu, Uttar Pradesh, and Rajasthan due to cost-recovery gaps. While some states avoid RA creation, others are pursuing phased recovery via tariffs and state support. A Supreme Court order now mandates liquidation of legacy RAs in four years and caps new RAs at 3% of the annual revenue requirement, reinforcing cost-reflective tariffs. This would require implementing steep hikes of 20–40% in ICRA’s assessment, which may be politically difficult, therefore, state aid remains key.