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This paper presents an efficient approach to estimate the failures of various components in an induction motor using motor current signature analysis. Conventional sensor-based fault detection methods lead to huge manpower and require greater number of sensors. To overcome these drawbacks, current signature base fault detection is proposed. An advanced spectral analysis, namely discrete wavelet transform (DWT), is used for frequency domain analysis. This paper also presents fault severity estimation using feature extraction-based evaluation of DWT coefficients. As the DWT gives many coefficients at higher level decomposition which is essential for high resolution, fault classification and severity index become challenging. To address this issue, artificial neural network (ANN) algorithm is used after DWT decomposition. The fault severity is predicted by proposed fault indexing parameter of various features like energy, standard deviation, skewness, variance, RMS values. Conventional algorithms like support vector machine, k‐nearest neighbour, local mean decomposition-singular value decomposition and extreme learning machine have given maximum of 98–99% accuracy, Whereas the proposed DWT-based ANN has given 100% accuracy with tanh function. Moreover, the testing loss with this function is also very less. Experimental results have affirmed the accuracy of proposed fault detection of various faults in induction motor of rating 3—Phase, 1. 5KW, 440 V and 50 Hz. [ABSTRACT FROM AUTHOR]