Investment Opportunities in India

January 28, 2013

August 29, 2012

Scenario of Power Sector in India

Infrastructure refers to all those services and facilities that constitute the basic support system of an economy. The development of an adequate infrastructure is essential for sustainable growth of the Indian economy. Power is one of the most important components of infrastructure that affects economic growth and well-being of nations.

India is the fifth largest electricity producing nation in the world. Power generation has grown over 100 fold since independence. The total installed capacity in India is above 1, 50,000 MW, of which majority of capabilities is with public sector companies. Only 15 per cent capacity is from the private sector, though this is now starting to increase.

The power sector is normally divided into three sub-systems:

Generation: It is done at power plants or stations that convert some form of mechanical, chemical, or nuclear energy into electrical energy.

Transmission: It is the process of transferring the generated power to a distribution system.

Distribution: It is the final stage in the delivery of electricity to end users. It involves providing the transmitted power to individual homes, commercial areas, etc.

Growth and Performance

The Indian Ministry of Power has set a goal, “Mission 2012: Power for all”. Along with providing cent per cent access to electricity, the main aim is to provide reliable and good quality power to enhance commercial feasibility.

Due to rapid urbanisation and industrialisation, there is a huge demand for power in India. This creates enormous opportunities for private players because of high energy shortage. Government is inviting private investment in power infrastructure in India by providing various incentives to set up power plants, according to research report of Indian Power Sector Analysis.

A massive capital investment of around US$ 200 billion is required to meet Mission 2012 targets. The Indian electricity sector, will add nearly 45,000 megawatt (MW) to its total installed capacity by 2013-14, to the existing production, according to a RNCOS research report. This has welcomed several global companies to establish their operations in India under the public-private partnership programs.

Investment Policy

Government of India has initiated several reform measures to create a favourable environment for investment in the country. Some of the measures are:

  • There is no requirement of licenses to set up new power plants in India. According to the Ministry of Power, 100 per cent FDI is permitted in generation, transmission and distribution system of power sector in India.
  • Indian Government provides income tax holiday for a block of 10 years in the first 15 years of operation and waiver of capital goods’ import duties on mega power projects (above 1,000 MW generation capacities).
  • Power procurement is permitted through a transparent bidding process. There is no customs duty on the import of capital goods for mega power projects.
  • The Government of India has also constituted independent regulatory commissions in 22 states, so that each State has its own electricity regulatory commission. Distribution reforms have been initiated with distribution being privatised in few states like Mumbai, Orissa and Delhi.

June 19, 2012

Investment Scenario in Indian Power Sector

Indian power industry has a long way to go. India’s fast-paced economic growth and its rapid rate of industrialisation and urbanisation have fuelled an increased demand for energy.

India has made remarkable progress in the power sector during the eleventh plan. The sector ranked sixth among the leading sectors of the Indian economy and has attracted US$ 4.6 billion in foreign direct investment since 2000. There are three major pillars of the sector – generation, transmission, and distribution. Generation is further divided into central sector (Public Sector Undertakings), state sector, and private sector, which constitutes total installed capacity of 31.21 per cent, 47.49 per cent and 21.17 per cent respectively.

Investment in Power Sector

With the population increasing at a rapid pace and a wide gap between demand and supply, the Indian energy sector offers strong opportunity to industry participants. After China and the US, India has been ranked as the third best investment destination in renewable energy sector.

The power sector in India requires an investment of up to US$ 400 billion in a span of five years to end on March 2017, according to P. Uma Shankar, Secretary, Ministry of Power, India.

The organised trading business in energy sector is set to be opened up for NRI invest in India. This attracts foreign funds to invest in the Indian power industry. 26 per cent FDI will be allowed at par with the level of commodity exchanges in the sector.

Investment Opportunities and Future Prospects

If India continues to grow at the current rate, the Indian economy would emerge as the second largest in the world, next only to China, by the year 2050. It is therefore expected that, the demand for energy would also rise substantially in the future.

US companies investing in India’s green energy market will have good prospects and it will be a win-win situation for both the countries.

The generation capacity of the country stands at over 180 MW (as in August, 2011) with a dominant share of the state sector. The private sector, which currently contributes around 22 per cent of the generation capacity, is expected to increase its share to 52 per cent by 2017.

Government Initiatives

Indian Government has proposed various proposals in the budget 2012 to stimulate investments in power sector in India, which provides a massive opportunity to the American companies.

In order to attract NRI invest in India, FDI up to 100 per cent is permitted under automatic route for projects of electricity generation (except atomic energy), transmission, distribution and power trading.

The Government of India is working on the plan to generate 470 gigawatts (GW) of nuclear energy by 2050, announced in 2009. Thus, it opens the door for huge opportunities in the sector.

The Government has planned to set up four solar thermal power projects through the solar energy corporation of India.

Being one of the fastest growing economies and the second largest populated country, India represents an attractive investment destination for the power industry.

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