March 2021

India’s solar power capacity has grown by leaps and bounds in the past few years to reach 39 GW as of February 2021. Unfortunately, the solar domestic manufacturing industry has failed to keep pace with project development as much of the capacity has been deployed using imported cells and modules. To put things in perspective, India imports roughly 80 per cent of its solar equipment, a large part of which comes from China.

The Indian government has tried time and again to promote local manufacturing through various schemes and taxes on imports, as a part of its Make in India initiative, but these efforts have been largely unsuccessful in getting the desired results.

The scenario is slowly changing now. The Covid-19 pandemic led to severe disruptions in solar supply chains due to lockdowns across the globe and restricted imports. Almost all construction activity was halted in the initial months of the lockdown, and even after restrictions were eased it took time for supply to normalise. India’s solar deployment plans took a significant hit due to its overdependence on imports. Further, border tensions with China escalated with the Galwan Valley standoff. In this scenario, the diversification of supply chains and the expansion of domestic manufacturing capabilities are no longer just a need, but a necessity.

Recognising the urgency to become self-reliant, the government has been taking several initiatives under its Atmanirbhar Bharat  Abhiyan. To this end, in July 2020, it announced a one-year extension of the safeguard duty on solar cells and modules. Thus, a duty of 14.9 per cent has been applicable from July 30, 2020 to January 29, 2021, which has been reduced to 14.5 per cent from January 30, 2021 to July 29, 2021 on all solar cells and modules imported from China, Thailand and Vietnam. More recently, a basic customs duty (BCD) of 25 per cent on solar cell imports and 40 per cent on solar module imports has been announced by the Ministry of New and Renewable Energy. This BCD will come into effect from April 1, 2022. Both these measures are expected to increase import prices and make local products more cost competitive. Further, production-linked incentives for manufacturing high efficiency modules have been announced.

In view of this, domestic manufacturers such as Vikram Solar, Adani Solar and Premier Energies have announced capacity expansion plans. Moreover, large IPPs such as ReNew Power and Azure Power have decided to foray into the manufacturing space, with massive facilities in the pipeline.

The lack of long-term policy incentives has been a key deterrent in the enhancement of India’s solar manufacturing capabilities. The Covid-19 crisis has given the required impetus to both the government and Indian companies to tap this massive opportunity and build self-reliance.

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