Obama's nuclear gift to Modi is shrewd investment

About 4 GW of new nuclear power capacity is under construction in India

Barack Obama's nuclear gift to India looks like a shrewd investment. By agreeing to a workaround that protects power station builders from civil liabilities in the event of a meltdown, the US president has effectively unblocked New Delhi's reactor programme. The bigger bet is on ending India's energy crisis.

The agreement, struck on the first day of Obama's visit to Indian Prime Minister Narendra Modi, could bring new orders for equipment makers like GE-Hitachi , Toshiba's Westinghouse and France's Areva. About 4 gigawatts (GW) of new nuclear power capacity is under construction in India; another 40GW is planned over the next 10 years. Even if only half of it gets built, that's worth $35 billion in contracts.

But a more potent opportunity for US businesses may be the jolt to Prime Minister Narendra Modi's "Make in India" campaign. Lack of power is the single biggest obstacle to making India a manufacturing force. Electricity supply in northern parts of the country, which are poor and bursting with surplus labour, fell 6 per cent short of demand in December.

Mining more coal will remain Modi's first priority. But nuclear power will play an important supporting role. Currently it accounts for just 3 per cent of India's total electricity consumption; a legacy of the country's pariah status in the global market for fissionable materials. That ended in 2008 with a civilian nuclear agreement with the United States. But the reactors that were conceived got stuck after India passed a law in 2010 making global equipment makers liable for accidents.

Obama has cut Modi some slack by agreeing to a compromise whereby state-run Indian insurers share the liability. Though it's unclear how much they will charge for that insurance, this looks like a transfer of risk from manufacturers to Indian taxpayers. The President also dropped the U.S. demand that it retain the right to inspect Indian facilities that are under international safeguards.

Doubling India's 5GW of nuclear power capacity could make low-cost manufacturing in India a viable option before Modi is due for re-election in 2019. By backing a man who until last year wasn't welcome in the United States, Obama is betting big on the India opportunity.

Andy Mukherjee is a Reuters Breakingviews columnist. The opinions expressed are his own.