Duty Free?

Solar industry in flux after the expiry of the safeguard duty

India’s solar PV market is heavily dependent on imports with a major portion of solar cells and modules being sourced from countries such as China. Domestic manufacturing has historically been unable to meet the massive demand imposition of the country’s expanding solar project capacity. Further, solar cells and modules imported from China have traditionally been cheaper than domestic ones. Thus, local players have struggled to match these price points and have had to satisfy themselves with the modest demand offered by domestic content requirement tenders. To offer a level-playing field to local and foreign manufacturers, the government has taken significant steps over the past few years, including the imposition of a safeguard duty followed by a basic customs duty (BCD).

Safeguards and import duty

Anti-dumping or safeguard duty is essentially a protectionist measure typically used to prevent “dumping”, that is, when manufacturers from a foreign country sell goods in the importing country at prices lower than the normal value. Meanwhile, customs duty is a tax imposed on the import and export of goods purely to raise revenue for the country. Thus, the imposition of safeguard duty on imported solar cells and modules has been a key measure to raise their prices and curb solar imports in India.

Safeguard duty was imposed in July 2018 for a period of two years. Starting from 25 per cent in 2018, it was progressively reduced to 15 per cent by July 2020. In 2020, the government decided to extend the provisions of safeguard duty till July 2021, much to the satisfaction of domestic manufacturers. During the period from July 30, 2020 to January 29, 2021, a duty of 14.9 per cent was levied, which was reduced to 14.5 per cent from January 30, 2021, until the end of its tenure on July 31, 2021. Thus, as of July 31, 2021, the safeguard duty has expired, and no further extension has been announced. Instead, a BCD of 25 per cent on solar cell imports and 40 per cent on solar module imports has been imposed. All implementing agencies and stakeholders have been directed to consider this BCD in their tender documents, and bidders will take it into account while quoting tariffs in all their future bids. Further, the imposition of BCD is not to be considered as a “change in law” in future bids. The announcement of BCD imposition on solar cells and modules does not allow grandfathering of projects already auctioned as the new duty will be applicable from April 2022, giving developers enough time to assess and adjust their supply route accordingly. However, there is no clarity on the tenure of the new BCD as of today.

Duty or no duty?

With the expiry of the safeguard duty in July 2021 and the coming into effect of BCD from April 1, 2022, there would seem to be a long duty-free period for solar cell and module imports in India. However, recently, the Directorate General of Trade Remedies (DGTR) launched an anti-dumping investigation concerning the import of solar cells, whether assembled into modules or panels, originating in or exported from China, Thailand and Vietnam. If the DGTR finds cause for concern, it might lead to another duty on solar cells and modules in the near future.

Since the implication of safeguard duty in 2018, there has been a constant flux and uncertainty amongst manufacturers and developers regarding changes in taxation and duty implications in the Indian solar market. The situation remains the same even now, with a seemingly long duty-free period shadowed by clouds of another anti-dumping duty that may or may not be imposed. Thus, manufacturers are unhappy with the duty-free period due to concerns that developers might shift to imported cells or modules for this period, affecting the sales volume of local manufacturers. They are awaiting the imposition of anti-dumping duty, which will safeguard their interests during this period till BCD comes into effect.

Meanwhile, developers might want to make the most of this duty-free period by procuring large volumes of imported solar cells and modules especially as Covid-19 has delayed many supply orders and projects. Even with the latest production-linked incentive scheme for high-efficiency solar modules, local manufacturers will take another two-three years to adequately develop a competitive domestic capacity that can meet the country’s massive requirement for solar cells and modules. Thus, as the domestic manufacturing industry is not large enough to cater to market requirements, developers might not be in favour of another anti-dumping duty.

In a nutshell, in this high-stakes game, a lot rides on the results of DGTR’s investigation. A “yes” to anti-dumping duty might lead to a rise in solar project costs and tariffs but a reduction in imports, which would help domestic manufacturing. A “no” to duty and a duty-free period might provide respite to developers even if it is for a short time.

 

By Khushboo Goyal

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