Determinants of Foreign Direct Investment in Indian Power Sector

Abstract

Foreign Direct Investment (FDI) and its infrastructure development potential has been the newlinefocus of management scholars for long. Indian power sector, marked by years of under investment newlineand ever increasing demands can also leapfrog by infusion of FDI. It is newlineconsidered as a vehicle for technology transfer and dissemination of contemporary newlinecleaner technologies. India has the potential to attract far more FDI in the power sector as newlinecompared to 6.5 percent of the nation s total FDI that it attracts at present. The root of the newlineproblem is as much a question of inadequate reforms as it is of insufficient investment newlineinflow. The purpose of this study was to examine the (1) determinants of FDI in order to newlineenable Indian power sector to attract more FDI and to benefit from these capital inflows newlineand (2) identifying potential impacts of FDI on Indian Power sector. newline newlineFindings indicated that Size of the market, Labour cost, Economic stability, Infrastructure newlinefacility, Trade openness, and Regulatory Quality are the factors determining FDI flows in newlineIndian Power Sector. Effective Policy and Regulatory Environment, Country Performance, newlinePace and Sequencing of Power Sector Reform, and Project Management Process affect newlineFDI flows in Indian Power Sector. It also confirms that the group of stakeholders differs newlineon the factor whether Government Guarantees affects FDI inflows. This study is unique newlineas it identifies the strong association between project management process and FDI newlineflows. Power sector projects have long gestation period coupled with capital intensity. newlineThe bureaucratic system of long list of clearances required for initiation of the project in newlineitself acts as deterrent to the foreign investors. newline newlineThe outcomes from impacts of FDI on Indian Power Sector indicates that energy newlineefficiency, adoption of global best practices, Renewable sources of energy, demand supply newlinegap and socio-economic development are identified as potential impacts of FDI on newlineIndian power sector by all the stakeholders.