The power surge
Bussiness line correspondent
New Delhi
If there is one sector in which policymakers can definitely sense a surge, it is electricity, an area in which the country is perennially in deficit. What is clearly discernible is the rush of foreign investments into an activity that private investment has traditionally kept away from. According to data released by the Department of Industrial Policy and Promotion, power has seen the greatest draw of global investments between April and October 2009, a period of depressed business sentiment the world over; inflows into the sector climbed an impressive 106 per cent beating hollow that in the IT and software segment at 67 per cent.

Happily, the trend has continued in the current fiscal with private entities entering the sector in a big way. The latest is the Singapore-based Sembcorp Utilities picking up a 49 per cent stake in the 1,320 MW coal-fired plant of Thermal Powertech Corporation India Ltd, a subsidiary of Gayatri projects. In fact, the power sector has seen a quantum jump in private investments, up from 8 per cent of the capacity barely two years ago to 25 per cent today and has overtaken investments in other infrastructure segments such as roads or railways. According to the Power Minister, Mr Sushilkumar Shinde, global investors have scented a vast opportunity in the power demand-supply gap in India. But there is slightly more to it, for after all India's power deficit is an old and well-known story. So what has changed?

Clearly, the policy environment. All through the 1990s, policymakers tried to woo global investors but either with no luck or disastrous results as in the Enron case. But between 2003 and 2005, a series of policy tweaks altered the investment climate. New pieces of legislation such as the Electricity Act of 2003 and the National Electricity Policy two years later set a new tone; allowing foreign direct investments up to 100 per cent in power generation, transmission and distribution, a ten-year income-tax holiday, and Customs duty waiver on capital goods for projects of over 1,000 MW helped enormously. The results have been dramatic. Just in the first two years of the Eleventh Plan three-fourths of the investment target for the entire Plan were achieved. All this does not mean the country has got over its power shortages; investors still cavil at delays in clearances but the figures do tell a powerful tale. What they tell is a story other core sectors would do well to heed: Capital needs the right sort of climate change.