New Delhi: The Directorate General of Trade Remedies (DGTR) on Monday recommended imposing a safeguard duty for two years on solar cells and modules imported from China and Malaysia, in a move that may impact India’s solar power generation plans.

DGTR, which functions under the commerce ministry, has recommended a safeguard duty of 25% for the first year, followed by a 5% reduction for the first six months of the second year to 20%. A duty of 15% has been recommended for the last six months of the second year.

“If such a duty is levied, it will impact solar power tariffs by 15-30%," said a New Delhi-based solar power developer requesting anonymity.

India had achieved a record low solar power tariff of 2.44 per unit in May 2017. Earlier this month, solar tariffs again touched 2.44 per unit in an auction conducted by state-run Solar Energy Corp. of India.

“The domestic industry has suffered serious injury, considering overall performance, on the basis of listed economic parameters such as market share and profitability, which have sharply declined over the injury period 2014-2015 to 2017-2018 (annualized), whereas market share of imports have increased during the same period," DGTR said in its report. “This has caused significant overall impairment to the domestic industry. The rise in imports and coinciding serious injury caused to the domestic industry during the injury period, established causality."

India plans to add 100 gigawatts (GW) of solar power capacity by 2022. With modules accounting for nearly 60% of a solar power project’s total cost, a majority of Indian developers have placed orders with Chinese manufacturers because of their competitive pricing. For China’s solar module manufacturing capacity, estimated to be around 70GW per year, the major markets are the US, India and China itself.

Experts termed the recommendations as “flawed".

Vinay Rustagi, managing director at consulting firm Bridge to India, said the duty will impact tariff to the tune of 12-15%.

“The decision is largely in line with expectations but still very damaging to the industry as well as to the government’s ambitious plans. I feel that the arguments used to justify duty imposition are highly flawed and if the government accepts the recommendations, it would face the risk of an appeal by other countries. Also, the decision to impose duties for just two years is bizarre as such a short period will not encourage any new investment and nor allow existing manufacturers to make any meaningful recovery. On the other hand, most projects under execution would immediately face a viability risk to their investments. Unfortunately, this could create a long period of uncertainty with legal disputes between the government, DISCOMs and project developers," said Rustagi.

Such a step will impact Chinese module manufacturers such as Jinko Solar, JA Solar Holdings, ET Solar, Chint Solar, GCL-Poly Energy Holdings Ltd and Trina Solar Ltd.

The development comes against the backdrop of protectionism gaining traction globally, resulting in new tariff and non-tariff barriers. Earlier this year, US President Donald Trump also decided to levy tariff on imported solar panels. Trump imposed a 30% tariff on imported solar cells and module in the first year, with the duties declining to 15% in the fourth year.

In the last three years, India has initiated more than 130 anti-dumping/countervailing duty/safeguard cases to deal with the rising incidence of unfair trade practices and to provide a level playing field to the domestic industry.

Earlier, the directorate general of safeguards had recommended levying a 70% provisional safeguard duty on imported solar panels and modules from China and Malaysia. In May, India merged the two separate bodies handling anti-dumping and import safeguards to form the DGTR, in line with US International Trade Commission (USITC), for providing comprehensive and swift trade defence mechanism under one umbrella.