Introduction

To achieve its net-zero targets without hindering energy security or economic growth, India needs to tap into all possible sources of low-carbon energy. The country reached a milestone of 200 GW of renewable power in October 2024, comprising almost half of India’s total energy capacity. However, nuclear power capacity remains relatively small.

Across the world, nuclear power is increasingly being viewed as indispensable to make the necessary transition from fossil fuels to alternative sources of power for the purpose of combating global warming and climate change. Other than to address issues of intermittency, uncertainty and storage typically associated with renewable sources of power (e.g., solar or wind), the use of nuclear energy involves certain additional advantages because it: (i) is dispatchable on demand, (ii) provides consumers better control over supply, delivery and price stability (since the fuel is on-site and represents a low proportion of power cost), (iii) can be ramped up quickly, (iv) makes the power grid stable (by bolstering voltage support), and (v) have a longer life-cycle. Given current projections of global demand and population growth, nuclear energy promises to be a reliable source of power for the future, including for industrial use.

Recognizing such potential, the Indian government has renewed its recent focus on revitalizing the nuclear sector in the budget announced on February 1, 2025, where it announced a Nuclear Energy Mission with an outlay of INR 200 billion for the purpose of achieving at least 100 GW of nuclear energy generation by 2047. The Indian government further aims to operationalize at least five indigenously developed small modular reactors (“SMRs”) by 2033. By providing a flexible, scalable and cost-effective alternative to conventional large nuclear reactors, SMRs can play a transformative role in terms of instrumentalizing India’s proposed blueprint to achieve self-sufficiency, energy reliability and technological leadership, including by complementing renewable sources. Further, their modular design allows for factory-based manufacturing and reduced construction timelines and costs, making SMRs suitable for both on-grid and off-grid applications, including through deployment in remote locations.

India’s plans to promote investment, innovation and growth in the nuclear sector require certain changes to its existing legal regime – especially on liability – for the purpose of assuaging private sector concerns regarding participation and commercial feasibility. In that regard, the government reportedly intends to introduce necessary legislative amendments soon. This note aims to discuss current challenges and potential modifications with respect to such laws.

Enhancing Private Sector Participation

Nuclear power generation in India is governed by the provisions of the Atomic Energy Act, 1962, as amended (the “1962 Act”). Pursuant to the 1962 Act, the Central Government (“Government”) has the power to produce, develop, use and dispose of ‘atomic energy’ (i.e., energy released from atomic nuclei as a result of any process, including through nuclear fission or fusion) by itself or through any authority/corporation established by the Government or a ‘Government company’ (i.e., a company in which at least 51% of the paid-up share capital is held by the Government, or the whole of such share capital is held by one or more of such companies where the Government can (re)constitute their boards). For an overview of the current Indian legal framework for private/foreign investment in nuclear energy, see our note here.

Currently, all nuclear power plants in India are owned and operated by Nuclear Power Corporation of India Limited (“NPCIL”), a public sector enterprise/undertaking (“PSU”) under the administrative control of the Government’s Department of Atomic Energy (“DAE”), and Bharatiya Nabhikiya Vidyut Nigam Limited (BHAVINI), an NPCIL subsidiary and PSU under the DAE’s control. 

The 1962 Act prohibits private control of nuclear power generation. With the aim to help NPCIL secure funding for new projects, while legislative amendments to the 1962 Act in 2016 allowed NPCIL to form joint ventures with other PSUs for nuclear power generation (e.g., Anushakti Vidhyut Nigam Limited (ASHVINI), a 51:49 JV between NPCIL and NTPC Limited), such amendments did not allow private sector participation other than participation through the supply chain. As a consequence, FDI in nuclear energy is impermissible.

In 2024, in a significant move towards promoting public-private partnerships in the Indian nuclear sector, NPCIL invited proposals from Indian industries to develop ‘Bharat Small Reactors’ (“BSRs”) – i.e., compact, 220 MW pressurized heavy water reactors tailored for captive use in power plants near hard-to-abate industries such as steel, aluminum and metals. Pursuant to the terms of such Request for Proposal dated December 31, 2024 (“RfP”), the role of the industrial party/user will be limited to the development and construction of BSRs under NPCIL’s supervision with a right to consume the electrical output produced in such power plant, the assets of which will get transferred to NPCIL post-construction. During the operational phase, costs will be borne by the private entity while NPCIL will run the plant. Thus, users will be required to provide land, water and funding, and NPCIL will handle design, quality assurance and O&M.

While the user may use the generated power for its own captive requirements, it can also sell such electricity to other customers at a tariff determined by the DAE subject to applicable law and regulations. According to the RfP, such law includes the 1962 Act. Section 22 of the 1962 Act empowers the Government to inter alia fix rates for, and regulate the supply of, electricity from atomic power stations in consultation with the Central Electricity Authority. Section 22 of the 1962 Act further provides that provisions of Indian electricity laws, rules, and regulations will have no effect to the extent that they are inconsistent with the 1962 Act.

Pursuant to the terms of the RfP, industrial users may have limited scope to maintain profitability through project sale proceeds received from NPCIL. Increased operational freedom may enable private entities to generate higher profits, including by selling nuclear energy to other commercial players through an auction process.

With respect to foreign investment, while there are no restrictions for equipment manufacturing and providing supplies for nuclear power plants and related facilities, India’s FDI policy currently prohibits FDI in sectors not open to private investment and cites atomic energy as one such sector. Hence, the FDI policy in this regard would need to be amended to allow the atomic energy sector to be opened up.

Supplier Liability 

While the 1962 Act is silent on nuclear accident-related liability or compensation, certain provisions of the Civil Liability for Nuclear Damage Act, 2010 (“CLNDA”) deter private sector participation. Obligations under the CLNDA are more stringent than international standards and (potentially) impose unlimited liability on foreign suppliers, dissuading participation and insurance coverage (despite India’s Nuclear Insurance Pool). The Civil Liability for Nuclear Damage Rules, 2011 (“Rules”) define a ‘supplier’ as a person who: (i) manufactures and supplies a system, equipment, component or structure based on functional specifications; (ii) provides build to print or detailed design specifications to a vendor for manufacturing a stem, equipment or component and is responsible to the operator for design and quality assurance; or (iii) provides quality assurance or design services. Accordingly, the system designer and technology owner with respect to a nuclear power project will be treated as a supplier.

Introduced in the political context of the Bhopal Gas Tragedy as India’s national law on nuclear liability in purported compliance with the Convention on Supplementary Compensation for Nuclear Damage (“CSC”), the CLNDA is meant to provide prompt and adequate compensation to victims of nuclear damage through a no-fault liability regime (i.e., the injured party is not required to prove fault or negligence). Consistent with CSC standards, the CLNDA imposes strict or absolute liability on the operator for nuclear accidents but caps it at INR 15 billion (for nuclear reactors with 10 MW or higher thermal power) and INR 1 billion (for research reactors with less than 10 MW thermal power), respectively, or such higher amount as the Government may notify. Any liability above such threshold will be borne by the Government, while the maximum compensation payable in respect of a nuclear incident is limited to the rupee equivalent of 300 million Special Drawing Rights (“SDRs”). In case the total liability exceeds 300 million SDRs, international funds under the CSC framework may need to be accessed.

Once an operator pays compensation for nuclear damage, Section 17 of the CLNDA allows it to have legal recourse to the supplier if the underlying incident occurs due to such supplier’s actions, including through patent or latent defects in the supplied material/equipment or sub-standard services. This provision exposes suppliers to the risk of open-ended claims, contrary to fundamental principles on nuclear liability under international conventions, including the 1997 Amended Vienna Convention and the CSC, respectively, which place liability for nuclear damage exclusively upon the operator. Accordingly, while India signed the CSC in 2010 and ratified it in 2016, concerns about liability have remained on account of the CLNDA’s provisions, including on recourse.

Such right of recourse is limited to the operator’s liability under Section 6 of the CLNDA or the value of the contract between operator and supplier, whichever is lesser, and it cannot exceed the actual amount paid by the operator as compensation until the filing of its recourse claim. Rule 24 of the Rules limits this right to the duration of the initial license issued under the Atomic Energy (Radiation Protection) Rules, 2004 or the product/service liability period, whichever is longer.

However, Section 46 of the CLNDA specifies that the provisions of the CLNDA will be in addition to, and not in derogation of, any other law in force, and therefore, the CLNDA’s provisions alone will not exempt an operator from any proceeding which might be instituted against it under any other law. Accordingly, if an operator exercises its right of recourse under Section 17 of the CLNDA, additional liabilities stemming from other laws may also be shifted to the supplier. Thus, from a supplier’s perspective, in the event of a nuclear accident, the eventual quantum of liability and other adverse consequences are indeterminable upfront. Although insurance is available, questions have arisen regarding the adequacy of its coverage.

The Way Forward

While current evidence and economics support India’s pivot towards enhancing nuclear power, including for the purpose of balancing decarbonization with growth, the country’s existing regulatory regime may need revisions, as indicated in the latest budget announced on February 1, 2025, which sets out a target of at least 100 GW of nuclear energy by 2047 as a means to reach energy transition goals as well as amendments to the 1962 Act and the CLNDA to enable active participation by the private sector. The budget speech preceded the Indian Prime Minister’s visit to France and the US. French and American nuclear power companies, including those with long-stalled projects in Maharashtra and Andhra Pradesh, may seek favorable outcomes in the future.

In particular, the 2008 India-US agreement (the “123 Agreement”) pursuant to bilateral initiatives on civil nuclear cooperation may now get strengthened, including through the deployment of emerging SMR technologies. In turn, major Indian conglomerates appear keen to use SMRs as part of their decarbonization strategies. The 123 Agreement was signed, among other things, for the purpose of helping US nuclear companies contribute towards India’s economic growth by expanding their low-carbon energy supply. Despite recognized hurdles in the past, recent joint statements have referred to (i) plans of building US-designed nuclear reactors in India through localization and technology transfer, and (ii) arrangements in accordance with the CLNDA to address the issue of liability and facilitate bilateral collaboration with respect to the production and deployment of nuclear reactors.

Given persisting concerns about supplier liability (despite past Government efforts to clarify ambiguities in the law through Rules and non-binding FAQs), certain key provisions of the CLNDA may need to be amended to reassure foreign suppliers, including in terms of addressing uncertainties associated with judicial interpretation and timelines. For the purpose of boosting India’s nuclear power capabilities and SMR technology deployment, it is important to make the CLNDA consistent with international norms on channeling third-party liability to operators, as reflected in the CSC. Once such necessary legislative and policy changes have been put in place, private and foreign entities are likely to find it easier to participate in India’s nuclear energy sector, both from a commercial and legal/risk perspective.

This insight has been authored by Rajat Sethi, Aakanksha Joshi, Dr. Deborshi Barat and Divyanshu Sharma from S&R Associates. They can be reached at [email protected], [email protected], [email protected] and [email protected], respectively, for any questions. This insight is intended only as a general discussion of issues and is not intended for any solicitation of work. It should not be regarded as legal advice and no legal or business decision should be based on its content.