India’s solar industry is at present heavily dependent on imported solar modules and cells. The government has been making significant efforts to promote domestic manufacturing of these products as a part of its Make in India initiative. The most recent one is the announcement of a basic customs duty (BCD) of 25 per cent on solar cell imports and 40 per cent on solar module imports by the Ministry of New and Renewable Energy (MNRE). This will make imports more expensive and create a more level playing field for domestic manufacturers. The duty will come into effect from April 1, 2022. The Ministry of Finance has agreed to this proposal and is expected to issue the customs notification at an appropriate time.
The ministry has also directed all implementing agencies and stakeholders to consider this BCD in their tender documents and for bidders to take it into account while quoting tariffs in all their future bids. Further, the notification clearly mentions that the imposition of BCD will not be considered as “change in law” in their future bids. The announcement to impose BCD on solar cells and modules does not allow grandfathering of projects already auctioned as the new duty will be applicable from April 2022, which gives developers enough time to assess and adjust their supply route accordingly. However, the notification did not specify for how long the new duty will apply.
The new BCD imposition comes just a few months after a one-year extension on safeguard duty was announced in July 2020. Thus, a duty of 14.9 per cent was applicable from July 30, 2020 to January 29, 2021, which would be reduced to 14.5 per cent from January 30, 2021 to July 29, 2021, for all solar cells and modules imported from China, Thailand and Vietnam.
Pros and cons
Needless to say, the recent BCD imposition has led to contradictory views in the solar industry. The developer community is obviously worried about its implication on project costs and tariffs. Echoing the sentiment, Ritu Lal, senior vice-president and head, institutional relations, Amplus Solar, says, “High import duties will certainly lead to a significant increase in the generation cost across all solar segments. Import barriers can only be temporary measures. Eventually, Indian manufacturing will succeed only if we are able to compete in the global marketplace – in terms of price, technology and scale.”
In contrast, domestic manufacturers have welcomed this directive as it would help in providing them a level playing field with their cheaper foreign counterparts. Gyanesh Chaudhary, managing director, Vikram Solar remarks, “We welcome the MNRE’s announcement of the BCD implementation on imported solar cells (25 per cent) and modules (40 per cent) starting April 1, 2022. It is a testament to the government’s intent towards enabling Atmanirbhar Bharat and making India the global manufacturing hub for solar energy. BCD implementation will provide the necessary impetus to creating a self-sustaining ecosystem for solar equipment manufacturing in India, creating jobs and reducing solar imports.” However, there is the issue of safeguard duty as the present BCD notification does not confirm whether this duty would be further extended (after July 2021) or not. Any further extension of the safeguard duty, along with the imposition of BCD, would make the price of solar imports extremely high, making them highly unaffordable for developers. A respite for developers – there is going to be a short duty-free window between the lapse of the safeguard duty in July 2021 (in case of no further extension) and the imposition of customs duty from April 2022 onwards. A significant surge in cell and module imports can be expected during this nine-month period, which will impact module prices, and thereby, solar power tariffs.
Moreover, the lack of a timeline on BCD also creates uncertainty. For developers, there is no clear visibility on managing supply routes. It will take some time to build domestic manufacturing capabilities, which are insufficient to cater to the high expected demand in solar cells and modules over the next few years. Meanwhile, from the manufacturers’ standpoint as well, clear timelines will help them in planning their capacity expansion accordingly. As it is, with extensive manufacturing capacity slated to be added by China in the coming months, there is bound to be overcapacity in global markets, along with shortage of raw materials including glass.
With India targeting 280 GW of solar power capacity by 2030, a huge domestic demand is expected for solar cells and modules over the next decade. This creates a huge opportunity for local manufacturers, which can capitalise on technology advancements and production-linked incentives to make globally competitive solar products. However, the quality of solar modules needs attention so as to compete at a global level, especially with the increasing focus on cost efficiency. Further, domestic capabilities need to be developed rapidly, in order to continue the growth momentum of solar power development in the country.
By Khushboo Goyal