Mumbai

PRIME Minister Narendra Modi's efforts to rescue India's ailing power sector and end the country's notorious blackouts are creating an unforeseen headache for state governments: Investors are suddenly shying away from their debt.

Foreign bond investors, who were falling over each other to buy state government debt just a few months ago, are now giving it a wide berth as Mr Modi's plan calls for states to take over 75 per cent of the debts of their utility companies over two years. Those debts have swelled to 4.3 trillion rupees (S$91.8 billion) after years of undercharging customers for electricity as state governments sought to win votes.