Top sector for foreign direct investment in India

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Power shortage has been identified as a major obstacle to India's economy. That's precisely why the government accords top priority to foreign investment in this capital-intensive sector.

Electricity generation

Points to be noted:

  • The power sector is India's top infrastructure priority. Shortage of power has been cited as one main problem of the economy and it is realised that the future is bleak unless enough power is generated for industrial and consumer use.

  • An estimated 70,000-80,000 MW of new capacity is required in the next 10-15 years.

  • At least, US$30 billion is required required over the next 10 years from the private sector and foreign investors for the development of new power projects.

  • Power generation companies are required to supply to state electricity boards (SEBs) who in turn will distribute the power.

  • The government invites competitive bids for new power projects. Some 40 proposals for adding more than 20,000 MW have been obtained through competitive bidding.

  • A total of some 80 projects for about 38,000 MW of new power have been cleared in principle by the Government, which means that their promoters must file their detailed project reports with the Central Electricity Authority, and outline plans for funding, fuel supplies and power purchase agreements.

  • Private power projects are based on a 16-18 per cent return on equity, so their costs are high. Since they have to sell their power to the financially weak state electricity boards, there were concerns about whether the foreign investors would get their money back. To allay these fears, the government provides guarantees to foreign investors in projects found viable.

  • The World Bank has advised that the state electricity boards be restructured into smaller units. The bank has also recommended creation of smaller units for privatisation. This has been done in Greater Noida in north Indian state of Uttar Pradesh and the general mood is to do the same in parts of the country.

  • These developments have made foreign investors confident of investing in India.

  • A series of approvals are required for power projects. These include 'in principle' endorsement of a project followed by approvals of techno-feasibility reports, funding plans, clearance by environmental authorities, Foreign Investment Promotion Board etc.

  • The first supplies of private power from new projects is likely to be available in the year 2,000.

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