By Xiong Jin, Jin Yi and Hu Haipan King & Wood Mallesons’ Corporate & Securities group

xiong_jinBackground: Development of Renewable Energy

In India, coal still provides the lion’s share (up to 60%) of national energy production. As the world’s largest coal consumer and the third largest producer, India is faced with a great challenge in adjusting its energy structure.

India began to realize the importance of renewable energy during the 1970s. The Ministry of New and Renewable Energy (MNRE) has vigorously promoted the industry’s development.  According to the Intended Nationally Determined Contribution, India is committed to promoting the long-term sustainable development of clean energy. It aims to increase the use of non-fossil fuel for power generation to 40% by 2030.

Renewable energy capacity rose from 2% to 13% between 2002 to 2016[1]. As of April 2016, India became the world’s third largest electricity market with installed capacity exceeding 300GW and renewable energy capacity of more than 40GW[2]

As shown in the chart below, India is expected to become the third largest renewable energy market by 2040, preceded by China and the United States [3]



The Rise of the Solar Photovoltaic (PV) Industry in India

India’s Prime Minister Narendra Modi wishes to build a giant solar park to facilitate India’s shift from “carbon credit” to “green credit”. Goals include directing $100 billion to solar PV investments by 2022 and tripling renewable energy capacity.

These policies will bring a great amount of capital to the Indian market. SoftBank Group Corporation, a Japanese telecom giant and major investor, together with its co-investors, have revealed plans to invest $20 billion in the solar energy market in India. According to data from Energy Trend and Livemint (an Indian media company), India, following China, the United States and Japan, was the world’s fourth largest solar market in 2016. With an increased PV capacity of 8.8GW, it has the potential to surpass Japan and become the world’s third largest solar PV market in 2017.


The growth of India’s solar PV energy market has been stimulated by adequate sunshine, government policies, booming overseas investment and new finance channels (such as loans from the New Development Bank). Rooftop solar power devices are experiencing the fastest growth in India’s renewable energy sector due to a rapid rise in demand from both industrial and commercial users. India is home to the world’s largest solar PV power plant, Kamuthi. Its capacity exceeds that of existing plants by over 100MW.

Gradually Liberalized Foreign Investment Environment

India is gradually liberalizing access for foreign investors. This creates a better investment environment and facilitates the development of a renewable energy industry chain. The manufacturing and transport industries serve as important energy-consuming sectors. They not only invigorate the renewable energy market, but also improve supporting infrastructure through their own development.

Foreign investors may invest in most sectors in India. Prohibited sectors are lotteries, gambling, banking and foreign exchange, urban real estate development and rural housing construction, tobacco and industries where private capital is not allowed (such as nuclear energy development and rail transport save for large scale rapid transit systems).

There are two ways that foreign investors can enter the Indian market – via the “automatic” route or the “government approval” route. These are similar to the “filing” and “approval” requirements in China.

Foreign direct investment (FDI) policies restrict investment in certain industries. If foreign investment is below the threshold (usually identified by acquired shares or contribution to registered capital), no prior approval is required. Investment exceeding the threshold is either prohibited or requires government approval. Thresholds vary across sectors. For example, FDIs with an investment of over 74% in green-field airport projects, over 49% in national defense projects and over 49% in telecommunications services are subject to prior government approval.

In June 2016, the Indian government introduced reforms in some government approval route sectors, which significantly liberalized FDI limits in local purchasing. These reforms affected retail, national defense and civil aviation, pharmaceuticals, agriculture, broadcasting, cable television media and other key sectors.

With respect to energy industry, except the nuclear energy sector which is prohibited for private investment and foreign investment, foreign investors can invest in renewable energy industries such as solar PV under the “automatic route “. There is no government approval requirement or investment limit.

Advantages of the Indian solar PV industry

India has the following advantages for developing a successful solar PV industry:

  • Adequate illumination: India has the highest average sunshine amongst the world’s top 20 economies, particularly in Rajasthan which has a large area of desert;
  • Governmental policy support: India has developed an ambitious plan around solar energy and is implementing its policies[4] through the INDC and its agencies, including
  1. Funding: feed-in tariffs, solar bundling, adaptive compensation funds, classification incentives, tax free period, renewable energy procurement obligations, low-cost financing, etc.;
  2. Production: an investment promotion plan, amendment of incentive plan, national manufacturing policy, etc.;
  3. Indian states are both promoting and supporting development through solar parks, renewable energy infrastructure development funds, green energy tax funds and other incentives.
  • India’s domestic PV industry is decentralized and without monopoly power. This is a friendly environment for foreign investors.

The Belt and Road: New Opportunity

Lots of new energy enterprises, particularly those in the solar PV sector, were promoted during the “Belt and Road Forum for International Cooperation” in Beijing. India, as a major market with great potential, has drawn a lot of attention from these enterprises. Investors such as Hareon Solar, Trina Solar and GCL-Poly, who already have a presence in India have shown interest in the sector.

The “Belt and Road National Strategy” supports relevant enterprises and overseas investment projects. They can enjoy the following unique preferential conditions when investing in India’s solar energy sector:

  • Regulatory approval: the Belt and Road investment policy enables relevant enterprises to obtain approvals from the Development and Reform Commission and the Commerce Commission, and  complete cross-border fund transfers (despite tightened approval criteria for outbound investment since the end of 2016);
  • Infrastructure: The biggest challenge for renewable energy investment in India  is their outdated public distribution system. This will be one of the major obstacles for India in achieving their capacity and climate goals. The Belt and Road projects promote the construction of oil and gas pipelines, cross-border electricity and power transmission channels in countries along the route;
  • Funding: The Belt and Road strategy provides financial support for relevant enterprises. China Development Bank and the Export-Import Bank will provide special loans equivalent to RMB 250 billion and 130 billion respectively. Other financial institutions have also promised to provide financing for supporting infrastructure construction and cooperation on capacity and finance in countries along the route;
  • Taxation: The State Administration of Taxation has established a bilateral tax cooperation mechanism with India. They have published an Indian Investment Tax Guide[5] on their website;
  • Investment environment: Transaction costs have been reduced by various agreements, including visa facilitation agreements and other agreements between China and countries along the route. This creates a more favorable environment for capacity and investment cooperation.


The Belt and Road Initiative and India’s clean energy plan create new opportunities for Chinese investors. We believe that we will see rising Chinese investment in India, especially in the solar PV sector.


[1] Source:

[2] China Power: Indian Clean Energy Market Outlook Source:

[3] Source:

[4] Suresh Prabhu (former power minister of India), Poulami Choudhury (official of India’s Council On Energy, Environment and Water(CEEW)), Arunabha Ghosh (Chief Executive Officer of India’s Council On Energy, Environment and Water(CEEW)): India’s Clean Energy Policy, Progress and Prospects

[5] For more information, please refer to the website: