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A government recommendation to impose a high safeguard duty on the import of solar photovoltaic cells, modules and panels has become contentious within the booming sector

India’s solar energy developers face a cloudy outlook (Photo by Andreas)

A recommendation by the Director General of Safeguards to impose a 70% safeguard duty on imported solar cells, panels and modules for a minimum period of 200 days has evoked varied reactions from the industry. Some say it will protect the domestic industry, but others opine that it will halt growth.

The recommendation came after the Indian Solar Manufacturers Association (ISMA) filed a petition at the Customs and Central Excise department in December 2017, seeking imposition of a safeguard duty on imported solar cells from China, Malaysia, Singapore and Taiwan.

The imposition is good for Indian solar manufacturers, but not for project developers. “Shapoorji Pallonji, a developer, has moved the Madras High Court and a stay was granted on the duty since it would cause a steep rise in input cost resulting in reworking of financials and a hike in solar tariff, thereby making it costly for distribution companies (discoms) and consumers,” a solar energy expert told

Currently, almost 90% of panels and modules in Indian projects are imported, mostly from China, Malaysia and Taiwan, as they are significantly cheaper than the ones made locally. Local manufacturing capacity is anyway nowhere near enough to meet the target of 100 GW by 2022, which has been set by the central government.

Such a duty will clearly impact the import of solar cells, and that will have cascading effects. “If the cost increases, the price of solar power will go up,” another source in the industry said. “If India wants to encourage domestic manufacturing, it is going to take some more time, particularly when we look at the total targets before us. We are going to install 80,000 MW in the next four to five years and we may not be in a position to generate that kind of manufacturing within the country. Ultimately, consumers will have to pay a higher cost towards solar energy. On the positive side though, the domestic industry will become competitive.”

“It will be disastrous since it will increase the tariff from about 90 paisa to Re 1 per unit. The tariff was brought down after considerable effort and risk by solar developers. This move will shake the confidence of foreign and Indian investors,” Pranav Mehta, chairperson-elect, Global Solar Council and founder-chairperson of National Solar Energy Federation of India, told “As a country, we should decide whether we want growth or a high safeguard duty of 70%, which will benefit just a few companies. Even after this, we are not sure whether we will get the right quality of materials.”

Indian manufacturers get SEZ benefits

Essentially, an anti-dumping duty protects Indian manufacturers against injury caused by imports at low prices. Safeguard duty does the same thing, but it’s more of an emergency measure, where there isn’t time for a long process and the intent is to act immediately.

But there is no word from the government on how the huge demand-supply gap will be bridged if there is such a safeguard duty. “There’s a huge gap between the country’s module manufacturing capacity and the cell manufacturing capacity,” another industry insider told “Cell manufacturing is far more sophisticated. The technology demands are more, it requires mastery of the process and keeping pace with technology, which the Indian manufacturers haven’t been able to do. Whatever little capacity India has is pretty obsolete and it has not been able to compete with the Chinese.”

The law does dictate consideration towards the domestic industry. However, almost 70% to 80% of the cell manufacturing capacity in India is located in Special Economic Zones (SEZs). When an export unit is set up in an SEZ, the stated aim is to be globally competitive and not be subject to domestic taxes or laws. Anybody setting up a unit in an SEZ gets to import capital and raw materials without paying any duty — the condition being that all items manufactured there are exported.

Around 80% to 90% of India’s manufacturing capacity in the solar sector is in that form. Factories have been set up by using all exemptions on import duties of capital goods and raw materials with the intent of exporting the finished products. These units are not subject to Indian taxes and laws and do not have to pay excise duties.

“If one looks at the SEZ scheme or export-oriented units, a certain value addition has to be achieved for all the benefits claimed and show that the export value is 15% above all the benefits. Subject to that, one is allowed to sell in India, primarily as an export unit,” said a highly place industry source. “It’s another matter that no one is able to meet the value addition now, they can’t even export or compete with the Chinese abroad, so the only market that they have is the Indian market.”

A number of these units, which have been set up, hoping that they will be globally competitive, are not able to export because their clearances to India will be treated on par with any other clearance. So, they must do two things now — create a tariff barrier so that nothing comes in without a 70% levy and make sure that given the tariff barrier that they have, they will be able to sell in India without facing the same setback. Their clearance to India is considered to be an import and if there is a normal duty on imports, there should be a safeguard duty on these clearances also.

Another expert believes that there will be certain segments of solar equipment manufacturing where the domestic industry will become competitive if it has the advantage of such import duties. At the same time, the government will incentivise domestic manufacturing through fiscal and financial incentives, which will also help in bridging the gap between the imports and the domestic market, he felt.

A few years ago, the Director General of Anti-Dumping recommended an import duty on solar energy equipment, but the government did not agree. “Whatever the DG has recommended, it is not necessary that the government will agree to it. But a certain percentage will be agreed to and the rest will be with an aim towards further incentivisation for the domestic industry,” according to sources who spoke to “So, this recommendation will lead to some kind of incentive for the domestic manufacturers because the price difference between domestic and imported solar cells is huge and has kept the solar industry in a standstill as of now.”

If safeguard duty is imposed

In case the government does impose a safeguard duty, virtually all imports will be halted. Obviously, the grounds were that there are a bunch of Indian manufacturers who were making cells and they have been injured due to the low cost of Chinese cell imports. “We have about 2GW of cell manufacturing capacity in India spread between about eight to 10 cell manufacturers. This is small compared to the module manufacturing capacity we have, which is close to 8 GW to 9 GW,” said a developer.

Another consequence is that there will be a loss of jobs. Solar is employment-intensive because typically it gives jobs to at least 300 to 400 people in the construction stage for each MW installed. Also, when the project is commissioned, cleaning the panels is important. In a month, the panels must be cleaned twice or thrice. Therefore, a lot of jobs out there are at stake, the developer said.

Experts believe that 70% import duty would mean a price increase of 10 to 15 cents per watt, which translates into an impact of close to INR 10 million (USD 0.16 million) per MW. “If one is doing a project worth INR 4 crore per MW, it will immediately go up by around 25%,” a project developer said. “Tariffs will go up correspondingly. The kind of run that we have been having of low solar tariff, it’s not going to stop. But there will no longer be a level playing field between solar project developers. Around 60% of the developers have their own manufacturing capacity. They can source modules and cells far cheaper than others – and these account for 60% of their budget cost. So, 60% will be protected from what others face and they will be able to quote a far lower price than others.”

Asked about this development, a government official said, “Though the cost will increase, but overall, if other countries are subsidising solar energy and this is impacting our domestic market, it has to be stopped. The aim is to create an ecosystem for renewable energy, especially for solar energy, in India.”

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