Nuclear energy is unique among infrastructure sectors because its defining risk is not operational volatility but catastrophic tail risk, ie, low-probability, extreme-consequence events that overwhelm conventional tort-based liability systems. In such domains, markets fail unless liability is carefully channelled, capped, and backstopped by the sovereign. Without this architecture, neither insurers nor lenders can price risk, and private capital rationally stays away.
India’s earlier framework under the Civil Liability for Nuclear Damage Act (CLNDA), 2010, recognised this in form but undermined it in substance. While the Act adopted a no-fault regime with strict and capped liability on the operator (aligned in principle with global norms), it introduced a fatal distortion through Section 17(b), which created a statutory right of recourse against suppliers for latent defects or substandard services. This single provision broke liability channelling. By reopening supplier exposure without clear temporal limits, evidentiary thresholds, or contractual override, it transformed a capped regime into one with unbounded contingent liability.
From the standpoint of financial economics, this made nuclear risk uninsurable. Nuclear accidents are characterised by fat-tailed distributions, deep (Knightian) uncertainty, and correlated losses across geography and time. Private insurance markets rely on diversification and pooling; nuclear risk violates both conditions. Globally, this problem is solved not by forcing private actors to internalise the impossible, but by socialising catastrophic risk through statute-backed insurance pools and sovereign guarantees. Section 17(b) short-circuited that solution by injecting unquantifiable supplier risk upstream. The result was predictable: global vendors exited, domestic suppliers hesitated, insurers retreated, and lenders demanded sovereign guarantees that negated the very purpose of private participation.
The Shanti Act decisively dismantles this architecture. It repeals both the Atomic Energy Act, 1962, and the CLNDA, 2010. It also removes the statutory supplier liability clause in its entirety. Thus, the Act restores exclusive legal liability to the operator. Supplier responsibility is now a matter of private contract, not public tort. This distinction is decisive. Ex post statutory liability is unpriceable; ex ante contractual allocation is priceable. The former kills markets; the latter enables them.
In doing so, India has aligned its domestic law with established international practice under the Vienna Convention and the Convention on Supplementary Compensation (CSC), to which India is already a party. The operator liability cap, set at 300 million Special Drawing Rights (SDR), is not an arbitrary dilution of accountability but a deliberate insurance-calibrated threshold. Its purpose is to ensure that liability remains within the envelope of what insurance markets can credibly cover. Indexing or judicially expanding this cap would not enhance justice; it would destroy insurability and collapse investment.
Crucially, the Shanti Act does not stop at liability channelling. It provides for the establishment of a Nuclear Liability Fund, introducing a second layer of risk pooling beyond the operator cap. This mirrors the logic of the US Price–Anderson Act, where primary operator insurance is supplemented by industry-wide pooling and, beyond that, a federal backstop. At the international level, the CSC adds a further layer of cross-border mutualisation. These mechanisms recognise a basic economic truth. Catastrophic nuclear risk is a public bad with non-excludable spillovers. It cannot be efficiently borne by individual firms without collapsing the market. Socialising tail risk then acts towards proving an enabling infrastructure.
The financial consequences of this correction are substantial. Under the previous regime, nuclear projects faced an artificially inflated weighted average cost of capital (WACC), driven not by technology or construction risk but by legal uncertainty at the tail. Insurers priced conservatively or withdrew, suppliers embedded large risk premia into EPC contracts, and lenders insisted on sovereign guarantees. The outcome was not higher tariffs but project non-viability. Shanti collapses this risk premium by converting nuclear power from an uninsurable legal anomaly into a financeable infrastructure asset.
This correction is especially consequential for small modular reactors (SMRs). While SMRs may reduce absolute risk through passive safety systems and smaller core inventories, their economic model depends on serial manufacturing, standardised contracts, and fleet-wide replication. Under the old regime, a single latent defect claim could contaminate an entire reactor fleet. Shanti’s clean liability channel is therefore not merely compatible with SMRs; it is a precondition for their commercial deployment.
Critics argue that the Act “privatises profit while socialising liability.” This critique misunderstands the nature of the risk in question. Routine operational risks remain firmly with private operators, who are subject to strict safety regulation, licensing conditions, and capped liability. What is socialised is only the catastrophic tail risk that no private balance sheet can absorb and no insurance market can price. Refusing to socialise such risk does not protect the public; it simply ensures underinvestment in clean, firm baseload power and pushes the system toward more polluting or geopolitically exposed alternatives.
Shanti also draws a clear boundary between commercial and strategic domains. While private entities may operate reactors, enrichment, spent-fuel management, and heavy-water production remain sovereign preserves. This division limits private exposure to weapon-sensitive risks while preserving state control over the most security-critical elements of the fuel cycle, consistent with global practice in countries such as France and South Korea.
Two implementation imperatives now determine whether Shanti realises its full economic potential. First, the Nuclear Liability Fund must be credibly capitalised, transparently governed, and structured to provide long-term certainty aligned with reactor lifetimes. Second, the Atomic Energy Regulatory Board, now placed on a statutory footing, must be insulated from discretionary interference and regulatory capture. Financial markets price regulatory credibility as much as statutory text, especially for assets with 40–60-year horizons.
India’s return to nuclear power is not a retreat from renewables but a complement to them. As AI, advanced manufacturing, and electrification drive demand for firm, low-carbon baseload power, nuclear energy becomes a strategic necessity. Openness to imported reactors and fuel enhances speed and scale; continued investment in indigenous fast-breeder and thorium pathways preserves long-term autonomy. The two strategies are complements, not substitutes.
Liberalising nuclear power without fixing liability would have been akin to opening aviation without airworthiness certification or insurance. Shanti completes the liability architecture that India left unfinished in 2010. It transforms nuclear power from a fiscally constrained strategic programme into a bankable infrastructure sector. The legal door is now open. Capital, technology, and execution will determine how far India walks through it.
(The author (X: @adityasinha004) writes on macroeconomic and geopolitical issues. Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect Firstpost’s views.)
