India agrees to modify solar programme to allay US concerns

Proposal sent to the US in a bid to strike a bilateral deal ahead of the WTO final ruling on their dispute


India has an ambitious solar power programme under the National Solar Mission, which is aimed at adding 100,000MW of solar power by 2022. Photo: AFP
India has an ambitious solar power programme under the National Solar Mission, which is aimed at adding 100,000MW of solar power by 2022. Photo: AFP

India has agreed to modify its solar power programme and sent a proposal to the US in a bid to strike a bilateral deal ahead of the World Trade Organization’s (WTO) final ruling on their dispute on Friday. India lost the preliminary case at the WTO in August last year.

According to the proposal worked out jointly by the commerce ministry and the ministry of new and renewable energy, India will now use the domestic content requirement for buying solar panels for its own consumption—such as by the railways and defence—and will not sell the power generated from such subsidized panels for commercial use.

“We hope the US will accept the proposal and withdraw the case from the WTO. This is also in the interest of the US as China has taken over the solar panel production and the US is no longer a large player in this business,” a commerce ministry official said on condition of anonymity.

In February 2013, the US requested consultations with India concerning certain measures relating to domestic content requirements under the Jawaharlal Nehru National Solar Mission (NSM) for solar cells and solar modules. In May 2014, the WTO set up a dispute settlement panel to examine the complaint.

China accounted for 66% of Indian imports of solar power panels during April-June of 2015, power minister Piyush Goyal informed the Lok Sabha in December.

More than 29 million of the 44 million imported solar power panels came from China during the period.

Other countries on which India depends heavily for the import of solar panels include Taiwan and Malaysia.

In August last year, Goyal informed the Lok Sabha that the total annual installed domestic manufacturing capacity of solar cells and modules is 1,328MW and 2,523MW, respectively.

India has an ambitious solar power programme under the NSM, which is aimed at adding 100,000MW of solar power by 2022. However, the local content requirement is only for 5,000MW each for rooftop and land-based projects where the government provides a subsidy.

The government has offered financial support of up to Rs.1 crore per MW to the implementing agency for setting up large solar capacities by placing orders with domestic manufacturers.

Sambitosh Mohapatra, who oversees the power and utilities practice at consulting firm PricewaterhouseCoopers, said that with renewed interest in manufacturing solar panels in India by companies such as contract manufacturing giant Foxconn and Chinese solar-panel maker Hareon Solar Technology Co., India will be able deal with any adverse judgement by the WTO.

“The government’s M-SIPS scheme through which it provides capital and revenue subsidy is attracting solar panel producers to manufacture in India. Even most government tenders do not have a local content requirement. The context for the WTO judgement case has changed a lot since it was filed in 2013,” he added.

M-SIP stands for modified special incentive package scheme, which was extended for another five years last year.

WTO members are not supposed to insist on national content requirements that discriminate against foreign products. Governments are also required to provide sellers “national” treatment, under which imports must be treated on a par with domestically manufactured products.

In a confidential report issued to the US and India in August, a three-member dispute settlement panel headed by former New Zealand envoy David Walker ruled that New Delhi had violated global trade rules by imposing local content requirements for solar cells and solar modules under the NSM, Mint reported on 27 August 2015.

The panel also struck down the Indian government’s incentive policies, especially subsidies provided for domestic solar companies for manufacturing solar cells and solar modules.

After the US dragged India to the WTO in 2013, it blocked the first request by the US to set up a dispute settlement panel after negotiations failed between the two countries.

Under WTO rules, the trade body was obliged to set up the panel after the US made a request for the second time.

The US charged India with violating provisions in what are called the trade-related investment measures (TRIMS) by imposing local content requirements that discriminate against foreign products.

Washington claimed that the Indian government’s measures to impose national content provisions and deny “national” treatment have impaired benefits accruing to US companies.

Environmental groups criticized the preliminary ruling, saying it threatens the clean energy economy and undermines action to tackle climate change.

“Today, we have more evidence of how free trade rules threaten the clean energy economy and undermine action to tackle the climate crisis,” said Ilana Solomon, director of Sierra Club’s Responsible Trade Program, on the preliminary ruling when it was issued in August last year.

India’s national solar programme, said Solomon, “has driven dramatic growth of India’s solar capacity that will help reduce its reliance on dirty coal and spur the development of new clear energy jobs”.

“The US should be applauding India’s efforts to scale up solar energy—not turning to the WTO to strike the programme down,” she added.