Even local players investing billions to bridge a widening supply gap are frustrated by government apathy towards infrastructure investment and a tendency to dole out free power to appease key voters, making foreign investors even more wary.

"India may not see any significant foreigners in the power sector as long as the government continues to protect its state electricity boards (SEBs)," said Adi Engineer, director of Tata Power Company Ltd., a leading private sector utility.

"Why should private utilities enter the sector when all you have is a bankrupt customer (SEBs) to cater to?"

Long dominated by the state, the power sector was opened to private parties in 1991 but still remains at least 7 percent short of its daily electricity needs.

Since India's federal government spends nearly half its revenue servicing debt, it has little left to invest in key parts of Asia's third-largest economy.

Analysts say India needs up to $75 billion of investment in the power sector alone, and with a fiscal deficit of 9 percent of gross domestic product, private and foreign money will be crucial.