Reliability appraisal is the most important factor in designing and planning the power delivery system, and it must operate economically with minimal disruption without any burden to the customers. The distribution system provides the ultimate connection between an application exchange system and its customers. It is observed that more than 80% of all customer interruptions occur (i.e. power quality issues) due to component failures in the distribution system. This report quantifies the expected reliability indices, such as interruption frequency and interruption duration during the entire year. Many researches assess the reliability of the power system. Further, due to the wide growth of distributed generation in electrical power, investigating their impact on system reliability becomes a key area of research. In this paper, the reliability evaluation of distribution system using a minimal cut set method based on the FMEA technique is described and applied to the IEEE RBTS Bus-2 and Indian practical distribution system (33/11 kV). Development of ETAP software is presented for calculating reliability indices. Further more the improvement of reliability with introduction of Distributed Generation (DG) is presented. Reliability indices comprises of load point indices and system indices, which includes System Average Interruption Frequency Indices (SAIFI), System Average Interruption Duration Indices (SAIDI), Customer Average Interruption Frequency Indices (CAIFI), Customer Average Interruption Duration Indices (CAIDI), Energy Not Supplied (ENS), Average Energy Not Supplied (AENS), etc. These indices show the performances of reliability of the system.