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The severity of arc fault can be reduced by reducing the fault clearing time. Protection engineers coordinate the protective devices keeping in view the bolted fault currents. To ensure the coordination between the devices sufficient discrimination margins are provided as well. The scheme works well for bolted faults but takes comparatively longer time for clearing arc faults. If the discrimination margins used by protection engineers are carefully reduced without disturbing the coordination between various devices, the arc fault clearing time can be reduced. In this paper, ETAP software has been used to model a smart distribution network using actual field settings for protective devices on distribution feeders, distributors and industrial units. Arc flash analysis is performed to check arc fault severity level at different system locations. Locations with extremely high arc fault energy level are identified. The protective device settings are revised with reduced discrimination margins and incorporated in protective device models in ETAP. Short circuit analysis performed afterwards showed circuit analysis that coordination is not disturbed and scheme works well for all fault conditions. Since the discrimination margins have been reduced, this results in reduced arc fault clearing time in distribution networks.