Temasek Holdings Pte, the Singapore state investment company, agreed to invest US$200 million ($279 million) in India’s GMR Energy to tap growing demand for power in the world’s second-fastest growing major economy.

Temasek will invest through its Claymore Investments (Mauritius) Pte Ltd. unit by buying debt that’s compulsorily convertible into equity, according to a joint statement today from the companies. The power company is a part of the Bangalore-based GMR Group, whose assets range from airports to highway development projects.

Temasek, manager of about $172 billion of assets, is betting Indian utilities will ramp up generation in the next seven years to overcome power shortages that are constraining economic growth. GMR Energy plans to increase its power generation capacity more than eightfold to over 6,500 megawatts over the next 3 years to 4 years, it said.

“The energy sector within the infrastructure space is an attractive long-term investment area,” Manish Kejriwal, head of Temasek Holdings India, said in the statement. “We believe that enabling regulations and private sector participation will allow the sector to add substantially to India’s GDP growth rate.”

The 17-stock Bombay Stock Exchange Power Index has climbed 58 percent in the past year, lagging behind the 66 percent gain in the benchmark Sensitive Index.

Indian utilities plan to increase generation capacity to 313,572 megawatts by March 2017, from 156,092 megawatts as of Dec. 31, to curb peak-hour shortages. One megawatt is enough to power about 200 middle class Indian homes.

Growth in the US$1.2 trillion economy may accelerate to as much as 8.75% in the year ending March 2011 from an estimated 7.2% in the previous financial year, Finance Minister Pranab Mukherjee said on April 2.