The parliament on Monday approved a bill to open up the country's $150 billion nuclear power market, sealing legislation crucial for the entry of U.S. firms like General Electric and Westinghouse Electric.
The legislation, which Prime Minister Manmohan Singh said was critical for India's energy security, was backed by the main opposition after the government agreed to tougher provisions which a business lobby said could hinder the sector's growth.
Opening up the sector will facilitate the building of nuclear plants and narrow energy deficits in a country where lack of adequate power has been a drag on economic growth.
India, which has a total installed power generation capacity of 164 giga watts (GW), aims to raise it up to 186 GW by end-March 2012.
Of this, its total installed nuclear power generation capacity is at 4.56 GW, which is set to go up to 7.3 GW by end-March 2012. By 2020, the country hopes to have over 20 GW of nuclear power generating capacity.
"Passage of the new bill... paves the way for greater private sector participation in the still-nascent nuclear energy space in India," Citigroup's Rohini Malkani and Anushka Shah wrote in a note to clients.
"Current targets allow sufficient space for both international and domestic companies to expand," they said, adding a greater role for nuclear energy would help India achieve 9 percent GDP growth in the coming years.
The law caps compensation that can be claimed from a plant operator in case of a nuclear accident at around $320 million and extends liability to suppliers for the life of the plant.
These provisions -- imposed by the opposition -- were harsher than originally proposed and could keep domestic and foreign suppliers away, according to the business lobby Confederation of Indian Industry, as there is no provision for supplier insurance.
Apart from this, more hurdles remain. Land has increasingly become a politically charged issue and there has been a series of violent protests against farmland being acquired for industrial purposes.
