Home >Budget 2019 >News >Budget proposes a mechanism to impose 20% customs duty on solar cells, modules
Photo: Mint
Photo: Mint

Budget proposes a mechanism to impose 20% customs duty on solar cells, modules

  • Once a separate notification is issued, a new duty structure enabling a basic customs duty of 20% on solar cells and modules will come into effect
  • The move is in a bid to boost local manufacturing and protect domestic companies from cheaper imports

NEW DELHI : In what has caught solar power developers in India by surprise, the union budget has approved an enabling mechanism to raise tariffs on imports of green energy equipment such as solar cells and modules.

Once a separate notification is issued, a new duty structure enabling a basic customs duty (BCD) of 20% on cells and modules will come into effect. There was no BCD levied presently on such equipment.

The Indian solar power developers were critical of the move in the backdrop of a tepid interest in India’s clean energy space following a backlash from global investors over Andhra Pradesh government’s decision to have a relook at renewable energy contracts.

The fast-growing domestic market for solar components is dominated by Chinese companies due to their competitive pricing. The surge in imports led the National Democratic Alliance (NDA) government in its previous term to impose a safeguard duty from 30 July 2018 on solar cells and modules imported from China and Malaysia. This will be over in July this year. India currently has a domestic manufacturing capacity of 3 gigawatts (GW) for solar cells and imported $2.16 billion worth of solar photovoltaic (PV) cells, panels, and modules in 2018-19.

Anand Kumar, secretary in ministry of new and renewable energy (MNRE) said that the move was done in a bid to boost their local manufacturing and protect domestic companies from cheaper imports and was part of the government’s Make in India strategy.

Mint reported on 7 September 2017 about poor quality Chinese solar modules— rejected by developers—being sold in the domestic market at a discount. Modules account for nearly 60% of a solar power project’s total cost.

“According to the budget, the maximum BCD that can be levied is 20%. It is an enabling provision as per which BCD can be put up on solar cells and modules, through which we want to protect our domestic industry. A separate notification will be issued for the same. The intent is that manufacturing happens in India," Kumar told Mint in a phone interview.

Seized of the investor sentiment issue over Andhra Pradesh’ move, union finance minister Nirmala Sitharaman on Saturday made a pitch to allay investor concerns in her budget speech and hinted about further interventions to protect investments. The finance minister’s statement comes at a time when India’s emerging green economy may need investments of around $80 billion till 2022, growing more than threefold to $250 billion during 2023-30.

“Not very long ago solar was the shinning bright spot in the Indian economy till the government decided to change laws and policies. As the industry continues to struggle on account of pending refunds from earlier safeguard duties, as if that was not enough that budget has announced additional custom duty on solar cells and modules. Obviously government thinks that this will encourage domestic manufacturing but forgets that never have import duties encouraged domestic manufacturing but can definitely give major setback to the solar generation sector," said Sunil Jain, chief executive officer, Hero Future Energies Pvt. Ltd.

India, the world’s third-largest energy consumer after the US and China, is running what will become the world’s largest clean energy programme with an aim of having 175 gigawatts (GW) of clean energy capacity by 2022 as part of its global climate change commitments. It plans to add 100GW of solar capacity by 2022, including 40GW from rooftop projects.

“The finance bill imposes BCD of 20% plus surcharges on solar cells and modules. There is an uncertainty at this stage about the timing of applicability of the duty. Considering, the large investment requirements of the solar sector, it will be useful if the government could provide long term visibility on the duty structure else the developers and utilities will continue to work in an era of uncertainty. Policy uncertainty is the biggest roadblock for any investor," added Sanjeev Aggarwal, founder and chief executive officer, Amplus Energy Solutions.

The Union budget in July also announced tax breaks for setting up mega-manufacturing plants for solar photovoltaic cells, lithium storage batteries and solar electric charging infrastructure.

This move comes in the backdrop of a certification requisite for all solar power generation equipment makers who want to do business in the world’s largest green energy market. The move aims to boost domestic manufacturing and protect its domestic companies from cheap and sub-standard imports.

Only manufacturers and solar modules who are approved by the Bureau of Indian Standards (BIS) and the ministry of new and renewable energy (MNRE) and are on the approved list of modules and manufacturers (ALMM) will be eligible for government supported schemes, including projects from where electricity distribution companies procure solar power for supply to their consumers, according to the Centre’s directive.

The move, which is being seen as a non-tariff barrier, will ensure compliance by a majority of domestic and global manufacturers, including Chinese majors, and thus help maintain quality by avoiding the use of low-quality imported equipment. It will also check the practice of some manufacturers claiming production of cells and modules that have been produced elsewhere.

Clean energy projects now account for more than a fifth of India’s installed power generation capacity, with the country becoming one of the top renewable energy producers globally with ambitious capacity expansion plans.

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