Drop in FDI delays power projects

For the first time in seven years, foreign direct investment (FDI) inflows into the power sector failed to register any growth in the previous financial year ended March 31. The sector attracted foreign investments to the tune of $1,252 million during the year, a 12.8 per cent decline compared to $1,437 million registered in the previous year, according to latest data released by the Department of Industrial Policy and Promotion (see table).

Foreign investment inflows have not only fallen but also continue to be in the range of 5-6 per cent of the overall investments in the sector. For instance, foreign investments in rupee terms stood at Rs 6,908 crore, just 5.4 per cent of the overall investments worth Rs 1,25,958 crore in the power sector in 2009-10.

According to experts, this is a pointer to the overall dip in investor confidence fuelled by issues of historic coal shortages coupled with enormous delays in clearances. “The dropping FDI in power is impacting the sector’s growth. The current issues have made it difficult for the investors to deliver infrastructure projects.

The issue of dropping FDI in infrastructure sectors has been flagged by the industry in its meetings with the government,” said Gokul Chaudhri, partner, BMR Advisors.

The concerns in the power sector have prompted Prime Minister Manmohan Singh to call a high-level meeting on Tuesday to take stock of the deteriorating fuel supply situation. The meeting would be attended by Power Minister Sushilkumar Shinde, Coal Minister Sriprakash Jaiswal and Finance Minister Pranab Mukherjee along with Planning Commission Deputy Chairman Montek Singh Ahluwalia.

The review meeting would focus on the progress made in the two sectors in the current Plan period so far and set the course-correction agenda for this year, according to a senior government official.

The meeting comes in the backdrop of Environment Minister Jairam Ramesh calling the 12th Plan’s power capacity target of 100,000 Mw “ecologically unsustainable” during a full meeting of the Planning Commission in April