The power sector is high on India’s priority as it offers
tremendous potential for investing companies based on the sheer size of
the market and the returns available on investment capital. Since
independence in 1947, the power generating capacity in India has
increased over 59-fold, from 1,362 megawatts (MW) to 81,000 MW in 1995.
Presently thermal plants account for 74% of total power generation,
hydroelectric plants for 24% and nuclear plants generate the remaining
2%. Currently approximately 85% of India's 560,000 villages have
electricity and there is a nationwide network for the transfer and
distribution of power to all parts of the country.
The Central Government has identified a number of new initiatives to
give a new thrust to the power sector. The government has agreed to set
up a power trading corporation, which would be a centralized
agency to trade in power. The proposed corporation could purchase power
from large projects and trade in it at the inter-state level.
In view of the paucity of resources and the need to bridge the gap
between the rapidly growing demand and supply, the Government has
undertaken a policy to encourage greater investments by private
enterprises in this sector. Incentives include:
- Generation and distribution power projects of any type and size
are allowed.
- Foreign equity participation can be as high as 100%.
- Return on equity of up to 16% is assured at 68.5% PLF for thermal
power plants (with the possibility of earning higher returns for
higher PLF). Similar incentives are provided for hydroelectric power
projects.
- A renewable license period of 30 years has been set.
- Import duty at the concessional rate of 20% has been set for
import of equipment.
- The Government allows a 5-year tax holiday for power generating
projects with an additional 5 years in which a deduction of 30% of
taxable profits is allowed.
