In a scenario where foreign direct investment levels in India
are ebbing, it is very encouraging to note that renewable
energy is proving to be a meritorious exception. According
to latest statistics released by the Department of Industrial
Policy & Promotion, Ministry of Commerce & Industry,
Government of India, FDI inflows in the renewable energy
sector more than trebled during the first seven months (April
to October) of FY13 when compared to the corresponding
level of FY12. FDI inflows in renewable energy stood at $414
million (Rs.2,230 crore) in FY13 as against $155 million
(Rs.700 crore) a year ago. It is also worthwhile observing that
FDI inflows in the renewable energy sector accounted for 2.8
per cent of the total FDI inflow received by the country in the
first seven months of FY13. The corresponding share in FY12
was much lower at 0.76 per cent.
Industry experts attribute this increase to the confidence of
foreign investors in India’s renewable energy story. Although
DIPP does not provide finer details on the investment, it is
most likely that much of this investment in the area of solar
energy, which is currently driven by the Jawaharlal Nehru
National Solar Mission, and complemented by solar schemes
run by state governments like Rajasthan, Gujarat, West
Bengal, etc.
Under the first phase of JNNSM that was launched in
January 2010 and which will end in March 2013, a total of 1.04
GW of grid-connected solar power capacity has been achieved
and another 160.8 mw of off-grid systems have been
commissioned. This has by and large been in tune with the
targets set.
The second phase of the solar mission, as experts point out,
could be more successful than the first because it factors in
some payment security mechanism and also a viability gap
funding (VGF) scheme. Financing of solar power projects had
been a contentious issue given the high capital costs and the
general high-risk perception. However, there are recent
reports indicating that financial institutions have
progressively lowered the high interest rates earlier levied by
them for solar power projects.
Untitled Document
FOREIGN DIRECT INVESTMENT INFLOWS: APR-OCT |
|
2011 |
2012 |
|
$
mln |
Rs.
crore |
%
share |
$
mln |
Rs.
crore |
%
share |
Electrical Equipment |
372 |
1,687 |
1.83 |
80 |
435 |
0.54 |
Boilers & Steam Generators |
32 |
156 |
0.16 |
20 |
104 |
0.14 |
Power |
1,286 |
5,816 |
6.34 |
357 |
1,946 |
2.14 |
Renewable Energy |
155 |
700 |
0.76 |
414 |
2,230 |
2.80 |
Total for all industries |
20,297 |
91,986 |
100.00 |
14,787 |
80,427 |
100.00 |
Power sector suffers: While the renewable energy offered
cause to celebrate, other power-related areas faced investor
apathy. Take the electrical equipment industry for instance.
FDI inflows in the April-October period of FY13 stooped to
$80 million from $373 million in the same period of FY12 – a
decline of over 70 per cent. It is not only about lack of FDI
inflows, the domestic electric equipment industry is in very
bad shape even with respect to production and capacity
utilization. Lack of FDI inflows only reflects the surfeit of idle
capacity, an analyst pointed out. An independent study by
industry body IEEMA suggested that in the first half of FY13,
the electrical equipment industry declined by 3.6 per cent as
against a 7.7 per cent growth in the same period of FY12.
Lower production was the result of not only depressed
demand but also the onslaught of cheaper imports, mainly
from China and Taiwan. Within the electrical equipment
segment, FDI inflows are likely to be witnessed in very
specialized areas like high-voltage power transformers, EHV
cables, etc.
The power generation sector — setting up of private power
plants — also saw a massive drop in FDI inflows. From $372
million in the first seven months of FY12, FDI inflows in
power generation plummeted to a paltry $80 million in FY13.
It is felt that equity investors are shying away from
conventional power generation projects, preferring
renewable energy projects for two counts; there are virtually
no concerns involving fuel (unlike in thermal power plants)
and there has been proactive government support in recent
times to clean energy ventures.