Impact of import duties on India's solar industry

The Ministry of Finance made a groundbreaking decision in March 2021 by approving 25%
Basic Custom Duty (BCD) on solar cells and 40% on solar modules. It has received mixed reactions
from the domestic solar equipment manufacturers and Solar Power Project Developers (SPPDs).
The decision made together with the Ministry of New and Renewable Energy will supposedly
reduce imports from China. Eventually, it is supposed to enable domestic manufacturers lead the global
supply chain.
The real question is, will India emerge as a global leader in manufacturing solar equipment?
While the domestic manufacturers have welcomed this decision, the SPPDs are comparing it with
their experience so far with the imports. It would be a major setback if they won’t fulfill the current
demand of 30 GW per year. At present, the capability of domestic manufacturers to produce only 2.5
GW of solar cells and 10 GW of modules is pushing the SPPDs to follow the expensive imports to
complete the projects in hand.
Talking about the pricing, the Chinese suppliers offer competitive rates compared to Indian solar
equipment fabricators. This, in turn, will create a huge demand-supply gap in the market.
There is but one highlight of imposing the BCD. The monopoly of the Chinese suppliers would
break and make way for Indian solar equipment manufacturers to play in the market with equal
opportunities. Moreover, the government would have to incentivize the domestic suppliers to improve
the localized production. This would boost confidence among the native manufacturers and therefore
mitigate risks.
The BCD is supposed to be effective from April 2022. Meanwhile, the ministry will continue to
impose the Safeguard Duty (SGD) on China, Vietnam and Thailand to import solar cells. There’s a catch
here as well. The imposition of SGD was valid only until July 2021. This leaves everyone in a vague
bubble of uncertain duties to be applied over the dwell period from July 2021 to April 2022. However, a
clear guideline from the ministry can help the stakeholders strategize their next steps.
The pressure of becoming a global leader in producing renewable energy, especially after the
Paris Climate Agreement, has kept India on its toes. While there’s a commitment to achieve the
mammoth target of 100 GW of solar energy by 2022, the new duty regulations can decelerate the growth
in solar sector.
A well strategized roadmap, that accounts the well-being of the ministry, SPPDs and domestic
manufacturers, against the imposition of import duties on India’s solar industry.