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.

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.