Energy firms cry foul over hike in customs duty on solar equipment

The step is aimed at driving local manufacturing of such equipment and discouraging low-quality Chinese imports but companies believe the tariff increase made through an enabling mechanism in the budget will hurt their business.

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. Such equipment earlier did not attract any BCD.

“Not very long ago, solar was the shining 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, the budget has announced additional custom duty on solar cells and modules," said Sunil Jain, chief executive, Hero Future Energies Pvt. Ltd. “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."

The fast-growing domestic market for solar components is dominated by Chinese companies due to their competitive pricing. A 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 duty will expire in July.

India, the world’s third-largest energy consumer after the US and China, has a manufacturing capacity of 3 gigawatts (GW) for solar cells and imported $2.16 billion worth of solar photovoltaic cells, panels, and modules in 2018-19.

Anand Kumar, secretary, ministry of new and renewable energy, said the step would boost local manufacturing as part of the government’s Make in India strategy and protect local companies from cheaper imports.

“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 said in a phone interview.

Mint reported on 7 September 2017 that poor quality Chinese solar modules— rejected by developers—are being sold in the domestic market at a discount. Modules make up nearly 60% of the total cost of a solar project.

The government’s announcement comes at a time when India’s emerging green economy is staring at a potential investment need of about $80 billion till 2022, growing from than threefold to $250 billion during 2023-30.

India is running what will become the world’s largest clean energy programme with an aim of having 175GW 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.

“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," said Sanjeev Aggarwal, founder and chief executive officer, Amplus Energy Solutions.