Long Road Ahead

Need to plug policy gaps to promote domestic solar manufacturing

By Sarthak Takyar

To promote domestic manufacturing and reduce the dependence on solar imports from various countries, especially China, the Indian government has ta­ken a number of policy initiatives. These include the production-linked incentive (PLI) scheme, basic customs duty (BCD), Approved List of Models and Manu­fac­turers (ALMM) and the domestic content re­quirement (DCR) scheme. How­ever, the­se policies are facing some legacy iss­ues as well as new challenges.

This article highlights the gaps in the policies relating to domestic manufacturing…

Gaps in the PLI scheme and domestic manufacturing

In order to promote domestic manufacturing and exports under the Atmanirbhar Bharat initiative, the government introdu­ced the PLI scheme for key sectors including high efficiency solar PV modules. It is a positive scheme that has provisions for incentives. The scheme also supports the ambitious climate goals set by India at the COP26. Of the targeted 500 GW non-fossil fuel energy capacity by 2030, the majority has been set aside for the solar sector. In this scenario, it is viable to source solar modules domestically to meet the dema­nd rather than depend on imports, primarily from China, which has been a cause of major supply chain disruptions post the Covid-19 pandemic.

The initial capital outlay of the PLI scheme was Rs 45 billion, which was later increa­sed to Rs 240 billion. The initial capital out­lay was too low to manufacture the quantum of capacity needed to meet the demand. This would have also led to lo­wer profit margins for manufacturers and lower R&D investments.

The first tender under this scheme recei­ved an impressive response and around 54.8 GW of capacity was bid. However, only about 8.7 GW was sanctioned. Wh­en the outlay of the scheme increas­ed, the stakeholders debated whether a second tender should be floated or the wait-listed bidders under the first tender sh­ou­ld be only accommodated. Now, fresh bids are being planned with new eligibility requirements.

In a response to an unstarred question in the Lok Sabha, dated November 28, 2019, regarding the reasons for the de­pendence on China for solar hardware, the then minister of state (I/C) for new and renewable en­ergy, R.K. Singh, had respon­ded that do­mestic solar cell and module manufacturers had the following disadvantages:

  • The country does not have a manufacturing base for polysilicon, ingots and wafers, the upstream stages of the solar PV manufacturing chain, which are en­ergy and capital intensive.
  • Lack of an integrated set-up, economies of scale and modern technology, resulting in higher cost of production.
  • High cost of land and electricity, low ca­pacity utilisation, high cost of financing, and lack of a skilled workforce.

The above factors lead to the high cost of domestic solar products as compared to those imported from China, according to the minister. While the PLI scheme does try to resolve some of these problems, ot­her issues persist. Even if the new PLI tender is floated soon and a successful auction takes place, it is still doubtful that the domestic manufacturing will be able to match Chinese products in terms of co­s­ts. China’s manufacturing base grew wi­th the help of huge government incentives directly and efficient logistics indire­ctly. Manufacturers in China were able to manufacture products using cheap and reliable electricity. This is not the case in India where manufacturers complain of high grid tariffs and unfirm power supply, which adversely impact their operations.

At a webinar organised by Renewable Wat­ch, a senior executive from a leading re­ne­wable energy firm made an interesting policy suggestion. The executive noted that while they produce solar energy at a very cheap rate, they will have to purchase ele­c­tricity from the grid at exorbitant prices (in­dustrial tariffs) to manufacture the solar mo­dules. Thus, solar energy developers di­ver­sifying into manufacturing should be incentivised by being given electricity at the same rate at which they produce it. The executive’s suggestion is a testament to the key issue of high power tariffs which deters manufacturing in India.

Overall, given that different risks are posing a threat to the success of the PLI sc­he­me, it should be debated whether the Rs 240 billion outlay is justified for the so­lar manufacturing space.

Concerns with BCDs

With effect from April 1, 2022, 40 per cent and 25 per cent BCD was applied on solar modules and solar cells respectively. While domestic manufacturers applau­ded this move, import duties in the form of BCD (and earlier safeguard duties) have become a major pain point for developers, who find imported modules not only cheaper but also of better quality.

Further, the effectiveness of BCD is still being debated as, according to some developers, imported modules tend to be cheaper than domestically produced mo­dules, despite import duties. In addition, developers with huge warehouses may have already stockpiled imported modules by capitalising on the loophole in the policy. “The increase in the BCD on solar cells and modules (effective April 1) is ill-timed as the existing capacity is inadequate to fulfil the demand. Further, the hike in BCD may push up the cost of solar manufacturing,” says Saon Ray, professor, ICRIER.

The other issue with import duty hikes is that it harms economic prospects. This is be­cause economic theory suggests that low duties boost the economy, and this was also witnessed post India’s 1991 ec­o­nomic reforms.

Contradictory policies on ALMM

While BCD is a tariff barrier, ALMM acts as a non-tariff barrier. According to the sc­heme, only the models and manufacturers included in this list are eligible for use in government-assisted projects and those set up for supply of electricity to the government.

At a recent CII event, “India @2030: A Roadmap for Atmanirbhar Bharat in RE”, Indu Shekhar Chaturvedi, secretary, Mi­nis­try of New and Renewable Energy (MNRE), mentioned that in some sectors that are strategic for India, self-reliance is needed, especially against the backdrop of current geopolitical constraints as well as excessive reliance on one country for imports. He added that capacity development could be given less importance in the short term if it means greater holistic growth in the long term.

However, recent media reports state that some central public sector enterprises (CPSEs) such as NTPC will be allowed to import components from China for their solar projects to give them a level playing field with private players. Meanwhile, private industry continues to face such restrictions. Does this indicate the end of the ALMM policy or will it be a temporary waiver and will this be extended to private players as well?

It is also difficult to appreciate the ALMM compliance mandate for open access or rooftop solar projects to be applicable fr­om October 2022. A petition has been filed con­testing this mandate in the Delhi High Court. The main contention is that C&I projects do not get any government subsidy, and hence should not come under the mandate of the ALMM. The industry has strongly criticised this move and sees it as a major dampener to the uptake of solar projects in India. Overall, allowing imports to CPSE on the one hand while applying ALMM on the other, even to verticals that do not get any subsidy, contradicts the initial policy directive.

Slow progress of DCR schemes

The government has also mandated DCR of more than 36 GW of solar cells and mo­dules through the CPSU Scheme Phase II, PM-KUSUM and Grid-Connected Roof­top Solar Programme Phase II. A key concern of this policy has been the slow progress vis-à-vis the target and limited participation of CPSUs. The latter issue has even been flagged by the Standing Committee on Energy (2021-22) report titled “Action Taken by the Government on Observa­tio­ns/Recommendations Contained in Se­ven­­teenth Report (17th Lok Sabha)” on the subject “Action Plan for Achievement of 175 GW Renewable Energy Target”. The­re­fore, the report recommends that the MNRE take proactive steps and encourage more CPSUs/government organisations to participate in the CPSU scheme and increase the target for setting up grid-connected solar PV power projects.


According to the report by the Standing Committee on Energy (2021-22), the an­nual manufacturing capacity in India is around 3 GW for solar PV cells; 10-15 GW for solar PV modules; 5 GW for solar in­verters; and nil for polysilicon, wafers and ingots. To meet the ambitious solar energy targets set by the government for 2030, the demand expected per annum (approximately 30 GW) is significantly higher than the current manufacturing base.

Data provided by the union power and new and renewable energy minister, R.K. Singh, to a Lok Sabha question dated Ma­­r­­ch 31, 2022 shows that India’s total value of solar imports in 2018-19, 2019-20, 2020-21 and 2021-22 (April to Janu­ary) was $2,160 million, $1,684 million, $572 million and $3,447 million respectively. For the same time periods, the val­ue of solar imports from China was $1,694.04 million, $1,307.03 million, $494.87 million and $3,117.78 million res­pectively. A trend of a gradual fall follo­w­ed by a surge in imports is visible.

These trends, coupled with policy uncertainty and slow progress in promoting do­mestic manufacturing and reducing im­port dependence show that India has a long way to go before achieving self-reli­an­ce in the solar energy space.


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