The UDAY Scheme, or Ujwal DISCOM Assurance Yojana, was launched by the Government of India on 5th November 2015, under the Ministry of Power. The primary objective of this scheme is the operational and financial turnaround of state-owned power distribution companies (DISCOMs).
DISCOMs are responsible for purchasing electricity from generation companies and distributing it to consumers. Financially weak DISCOMs have historically affected electricity supply reliability, affordability, and overall economic development. The UDAY Scheme was designed to reduce their debt burden, enhance operational efficiency, and ensure 24×7 power availability to all consumers.
The scheme also aims at improving revenue-side efficiency and cost-side efficiency, thereby making DISCOMs financially viable and sustainable.
What is UDAY 2.0?
Launched in 2021, UDAY 2.0 aims to further modernize power distribution through:
- Installation of smart prepaid meters.
- Prompt payment mechanisms by DISCOMs.
- Ensuring coal availability for short-term power generation.
- Reviving gas-based plants for better electricity supply.
UDAY 2.0 builds upon the original scheme with reform-based, result-linked strategies, ensuring long-term sustainability of power distribution companies.
Why was the UDAY Scheme Needed?
India’s DISCOMs were facing huge financial losses due to several factors:
- High Aggregate Technical & Commercial (AT&C) losses, caused by transmission inefficiencies and theft.
- Supplying power at subsidized rates below cost, leading to revenue gaps.
- Accumulation of debt from banks and financial institutions to meet operational costs.
- Poor billing efficiency and revenue collection, further aggravating losses.
These issues created a vicious cycle of debt, low infrastructure investment, and poor service quality. UDAY was initiated to break this cycle, improve operational efficiency, and reduce the debt burden on DISCOMs and state governments.
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What are the Objectives of the UDAY Scheme?
The UDAY Scheme focuses on multiple objectives:
- Financial Turnaround of DISCOMs: Reduce debt burden by taking over 75% of DISCOM debts by state governments.
- Operational Efficiency: Mandate smart metering, transformer and meter upgrades, and energy-efficient measures.
- Reduce AT&C Losses: Target reduction from 22% to 15% by 2018-19.
- Close ACS-ARR Gap: Ensure that the average cost of supply (ACS) and average revenue realized (ARR) gap is minimized.
- Affordable and Reliable Power Supply: Ensure 24×7 electricity for all consumers.
- Promotion of Renewable Energy: Encourage adoption of energy-efficient technologies and renewable power.
- State Participation Incentives: Offer incentives to states performing well in meeting operational milestones.
What are the Key Features of the UDAY Scheme?
The key features of the UDAY Scheme are as follows:
- Voluntary Scheme: States can opt-in by signing an MoU with the Union Government.
- Debt Restructuring: State governments absorb 75% of DISCOM debt; remaining 25% managed through DISCOM bonds.
- Operational Milestones: Performance-based incentives are provided to states.
- Energy Efficiency Measures: Promotion of LED bulbs, energy-efficient agricultural pumps, fans, and ACs.
- Improved Infrastructure: Upgradation of transformers, meters, and installation of smart meters.
- Priority Funding: Participating states receive priority for central assistance under various programs.
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Who can Participate in the UDAY Scheme?
All state-owned DISCOMs and their respective state governments can choose to join the UDAY scheme on a voluntary basis.
Jharkhand was the first state to participate in the scheme. However, private sector DISCOMs are not included under the UDAY program and cannot take part in it.
What are the Benefits of the UDAY Scheme?
The benefits of the UDAY Scheme are as follows:
| Category | Details |
| For States and DISCOMs | Financial Relief: Reduced debt burden and interest costs Operational Efficiency: Better infrastructure and energy management Increased Revenue: Improved billing efficiency and collection Affordable Power Supply: Lower electricity costs for consumers |
| For the Power Sector | Enhanced Capital Investment: Funds freed up for infrastructure development Renewable Energy Promotion: Supports energy-efficient solutions Transparent Power Purchase: Encourages competitive bidding and better fuel management |
| Coal and Transmission Benefits | Coal Linkage Rationalization: Rationalization of coal linkages and prices Additional Coal Supply: Coal provided at notified prices Transmission Lines: Faster completion of interstate transmission lines |
What is the Impact of the UDAY Scheme?
The details of the impact of the UDAY Scheme are as follows:
- Financially Sound DISCOMs: Reduction in stressed assets and better financial health.
- Improved Power Supply: Reliability and affordability of electricity.
- Renewable Energy Growth: Increased investment in clean energy solutions.
- Capital Investment: Cheaper funds allow infrastructure modernization.
- Operational Improvement: Reduced AT&C losses and better PLF of generating plants.
What challenges has the UDAY Scheme Faced?
The challenges that were being faced by the UDAY scheme are as follows:
- Cross-Subsidy and Power Procurement Costs: Not fully addressed.
- Geographical and Demographic Constraints: Large rural or hilly states face difficulties.
- State and DISCOM Capacity: Limited financial and operational capacities.
- Persistent AT&C Losses: Some states still have high losses, e.g., Arunachal Pradesh (56%).
- Billing Inefficiencies: Poor billing and collection practices remain a challenge.
Despite these challenges, UDAY has helped reduce debts and initiated reforms in the distribution sector. However, the ACS-ARR gap and AT&C losses still need continuous monitoring and improvement.
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Key Takeaways
| Aspect | Key Points |
| Full Form | Ujwal DISCOM Assurance Yojana |
| Launch Date | 5th November 2015 |
| Ministry | Ministry of Power, GOI |
| Aim | Financial and operational turnaround of DISCOMs |
| Participation | Voluntary for state governments |
| Debt Takeover | 75% by states, 25% through DISCOM bonds |
| AT&C Loss Reduction | Target from 22% to 15% |
| ACS-ARR Gap | Minimized through operational reforms |
| Incentives | Priority funding, coal linkages, fiscal benefits |
| Challenges | Cross-subsidy, billing inefficiency, geographical constraints |
Questions on UDAY Scheme
Q1. What is the full form of UDAY?
A. Universal Distribution Assurance Yojana
B. Ujwal DISCOM Assurance Yojana
C. Unified DISCOM Annual Yojana
D. Utility Development Assistance Yojana
E. None of the above
Q2. When was UDAY Scheme launched?
A. November 2014
B. November 2015
C. January 2016
D. December 2015
E. June 2015
Q3. Which ministry launched UDAY Scheme?
A. Ministry of Finance
B. Ministry of Energy
C. Ministry of Power
D. Ministry of Renewable Energy
E. Ministry of Home Affairs
Q4. What percentage of DISCOM debt is taken over by states under UDAY?
A. 50%
B. 60%
C. 75%
D. 25%
E. 100%
Q5. What is the target AT&C loss under UDAY?
A. 25%
B. 22%
C. 15%
D. 18%
E. 12%
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Q6. Which was the first state to join UDAY?
A. Rajasthan
B. Jharkhand
C. Gujarat
D. Kerala
E. Maharashtra
Q7. What is UDAY 2.0 focused on?
A. Only debt takeover
B. Smart prepaid meters, prompt payment, coal availability
C. Increasing coal prices
D. Privatization of DISCOMs
E. Renewable energy only
Q8. What type of bonds are issued under UDAY?
A. State Development Loans (SDL) and Non-SLR Bonds
B. Corporate Bonds
C. Foreign Bonds
D. Convertible Bonds
E. Municipal Bonds
Q9. Which of the following is NOT an objective of UDAY?
A. Reduce AT&C losses
B. Close ACS-ARR gap
C. Privatize DISCOMs
D. Improve operational efficiency
E. Promote renewable energy
Q10. What is the major challenge faced by UDAY Scheme?
A. Lack of electricity supply
B. Cross-subsidy and billing inefficiency
C. Coal shortage
D. Over-production of electricity
E. Excessive investment
Answer Key
| Question No. | Correct Option | Question No. | Correct Option |
| Q1 | B | 6 | B |
| Q2 | B | 7 | B |
| Q3 | C | 8 | A |
| Q4 | C | 9 | C |
| Q5 | C | 10 | B |
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