Will banning Chinese imports hurt India’s solar sector?

Can India afford to ban Chinese products? Here’s an in-depth analysis on the impact of curbing Chinese imports on India’s solar power sector.
Subhajit Roy, Executive Editor

India has set target of 100,000 MW of solar power production by 2022. The current solar power capacity stands at 30,000 MW. In past three financial years FY17, FY18, and FY19 the total value of the country’s solar imports were $3,196.5 million, $3,837.6 million, and $2,159.7 million, respectively. Out of these supplies, Chinese firms supply about 80 per cent of solar cells and modules to India.

The Indian government proposes to end custom duty exemption on solar cells and module imports as it looks to boost domestic manufacturing and put a check on large scale procurement of solar generation equipment from China. It has been reported that a 20 per cent basic customs duty (BCD) may be imposed on solar equipment imports soon after the existing 15 per cent safeguard duty in solar cells and modules expired end of July.

Talking about the impact of curbing Chinese imports on India’s solar power sector, Pradeep Patil, Chief Business Development, Enrich Energy Pvt Ltd said, “BCD will have a bigger impact on developers using imports to construct solar power plants. This would result in higher costs for developers as they would have to pay a BCD of 20 per cent on the cost of the imported product, 10 per cent of SWS (social welfare surcharge) on BCD with IGST on the total. This would result in a total tax incidence of 28.1 per cent.”

He adds, “It could result in return to the earlier scenario when solar tariff under bids started going higher on higher safeguard duty. And when government put a tariff cap, bids started shrinking leading to cancellations of a few auctions.”

Amit Anant Arokar, Managing Director, ECE (India) Energies Pvt Ltd also believes that today’s Indian solar industry is not sufficient to supply the requisite demand of local manufacturers and their upcoming demands. He observes: “Curbing import from China will definitely have economical impact on Indian solar industry. Government policies will play a vital role in supporting and establishing local players in the field of solar equipment producer.”

However, Shival Garg, Business Head, Patanjali Renewable Energy Pvt Ltd opines that this transition is not easy and it will take minimum 5 years if we start now to become self reliant. He said, “Currently Indian PV module manufacturing capacity is around 16 GW but solar cell manufacturing is hardly 3 GW. Also the manufacturing capacity of the major components like glass, frame, EVA, back sheet, junction box etc. in India is between 3-4 GW each. Setting up manufacturing units of ingots and wafers from the silicon reserves we have in India should also be in the manifesto, so that we don’t have to depend on China for our requirements of wafers.”

To shift the focus towards improving domestic manufacturing, the Indian government has decided to impose BCD of 20 percent to be imposed on import of solar cells, solar panels and solar inverters. “A similar kind of initiative of SGD (Safe Guard Duty) was imposed in 2018 but it had a very less impact on improving the Indian manufacturing setup, as China reduced their prices as well as routed the goods through Vietnam and Thailand to beat prices of Indian manufacturers,” reveals Garg. However, he feels: “After COVID-19, we can see a change in the sentiments of the people. We assume there will be a shift in the buying patterns of the consumers as well. Further, IREDA (Indian Renewable Energy Development Agency) will structure a policy for developers that lower interest rates will be charged from developers who will use domestic manufactured equipment.”

At the same time, Patil anticipates, “The policy framework will be leveraged to induce buying equipment manufactured in the country and the tariff barriers will help prepare the domestic manufacturing space over the next two to three years. As silver edge of dark cloud, India is also looking to play a larger role in global supply chains in the backdrop of the disruption caused by the coronavirus that originated in China.”

Will it derail the country’s solar power mission?
“If the proposed BCD is implemented, it may result in return to the earlier scenario when solar tariff under bids started going higher on higher safeguard duty. And when the government put a tariff cap, bids will start shrinking leading to cancellations of a few auctions,” cautioned Patil.

Echoing Patil’s concern, Arokar said, “Solar power mission put by central government is very ambitious project for Indian solar entrepreneurs. By imposing BCD and SGD on imported raw materials will produce a wave of instability in market, but for a while only.”

However, Garg, said, “It might have an impact as few deals of some projects that were left stranded due to COVID-19 pandemic included Chinese solar panels and other Chinese B.O.M. It will not derail the solar mission, yet it might have small implications over the period of time.”

He further suggests: “To tackle those implications the Indian government should give some added incentives to the manufacturers, just like the Chinese government, and design policies to promote Indian solar industries, which shall have a tremendous impact on the production capacities of all the solar components and we might achieve our National Solar Mission and make India self reliant in solar sector in coming 5-6 years.”

How it will affect the businesses
Garg of Patanjali Renewable Energy acknowledges that his company is mainly dependent on China for their requirements of solar cells and is sourcing the rest of the balance of supply from India itself. “Lately we have experiences a rapid growth in the demand for our products, especially solar PV panels. With the increasing demands and favourable government policies to promote Indian solar module manufacturing, we definitely see great opportunities ahead of us,” he said. “Hence, we are already planning to enhance our module manufacturing capacity and focusing on backward integration.”

Arokar from ECE (India) Energies suggests, “In the current scenario, tax policy has to be revised like input GST of 18 percent on raw material and outwards tax of 5 percent, blocks capital of manufacturers in long run. Along with that, all non SEZ manufacturers are also giving huge share in the form of duties and taxes while doing import. If they get all sorts of raw materials locally that too on same quality and price then, it may not have much implication on local business. ECE (India) always try to promote ‘Make in India’ campaign by manufacturing DCR Module rather than using imported products.”

Preparedness of domestic PV manufacturers
According to industry reports, in the past five years, India, on an average, has imported solar cells and modules worth Rs 17,600 crore annually to meet the demand-supply mismatch. Imported solar modules meet 80 to 90 per cent of the demand. Though the government has taken several initiatives like introducing safeguard duty, domestic content requirement (DCR) policy, and the approved list of models and manufacturers (ALMM) to promote domestic production, solar cell manufacturing in India is yet to pick up.

Talking about the preparedness of domestic PV manufacturers to meet the future volume as well as quality, Patil said, “There are about 16 solar cell manufacturers in India of which only half have a manufacturing capacity of 100 MW or higher. The challenge with manufacturing cells domestically is the huge infrastructure costs associated with it. Manufacturing cells is a complicated, multi-stage process, and requires extensive capital investment.”

On the positive note, Garg comments: “Many module manufacturers have already planned and are enhancing not only their module manufacturing capacity but some units are also setting up solar cell manufacturing lines. Indian module quality is of international standard and most of the manufacturers are using the best technology and equipment for solar PV modules. But off course price wise, we could be slightly costlier as the facilities and incentives which our Chinese counterparts are enjoying is much more than what we are getting in India. That is why, Indian solar sector is looking and putting pressure on the government to design policies which could promote this sector making us ‘AtmaNirbhar’ in solar.”

Arokar concludes by saying: “Domestic manufacturers are very much ready to deal with the change. Sufficient and timely supply of locally produce raw materials is the only challenge. Integrators are also turning towards local modules in utility-scale projects.”

We are already planning to enhance our module manufacturing capacity and focusing on backward integration
Shival Garg, Business Head, Patanjali Renewable Energy Pvt Ltd

Domestic manufacturers are very much ready to deal with the change. Sufficient and timely supply of locally produce raw materials is the only challenge.
Amit Anant Arokar, Managing Director, ECE (India) Energies Pvt Ltd

The challenge with manufacturing cells domestically is the huge infrastructure costs associated with it.
Pradeep Patil, Chief Business Development, Enrich Energy Pvt Ltd