Eyeing China, India may shortly impose tariff barrier on solar cells, modules3 min read . Updated: 22 Jun 2020, 02:44 PM IST
- Safeguard duty set to expire in July, unlikely to be extended
- Modules account for 60% of a solar power project’s cost
NEW DELHI: In what will make solar cells and modules imported from China expensive, India will soon take a call on when a basic customs duty on such products will be imposed, said two people aware of the development.
The Centre may not extend the safeguard duty, in place since 30 July, 2018, on solar cells and modules imported from China and Malaysia. The safeguard duty will expire on 29 July.
Modules account for nearly 60% of a solar power project’s total cost.
This could be part of an economic response, being contemplated by India, to the violent face-off with China along the border in Ladakh. India is also looking to play a larger role in global supply chains in the backdrop of the disruption caused by the novel coronavirus disease that originated in Wuhan, China.
To be sure, the Union Budget presented earlier this year by finance minister Nirmala Sitharaman had approved an enabling mechanism to raise tariffs on imports of green energy equipment that involved imposing a basic customs duty of 20% on cells and modules. There is no customs duty on such equipment as of now.
“The Union Budget didn’t provide a date for imposing BCD. After the safeguard duty comes to end, the basic customs duty will be applied. The rates and trajectory of the BCD is to be finalised. We are of the view that the safeguard duty shall not be extended. An announcement to this effect may be made shortly," said a senior government official requesting anonymity.
According to government documents reviewed by Mint, the ministry of new and renewable energy was earlier in favour of imposing basic customs duty from 1 April, 2021.
The fast-growing domestic market for solar components is dominated by Chinese companies due to their competitive pricing. India imported $2.16 billion worth of solar photovoltaic (PV) cells, panels, and modules in 2018-19. The surge in imports had led the National Democratic Alliance government in its previous term to impose a safeguard duty.
The development assumes importance given that 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.
Experts say that India should have a manufacturing presence across the value chain.
“Basic customs duty on solar modules and cells and recent 12 giga watt (GW) of manufacturing linked award of PPAs would help local manufacturers. But given the 450 GW RE target by 2030, India must systematically plan presence across the value chain - from poly silicon, ingot, wafers, cells to modules," said Debasish Mishra, partner at Deloitte India.
“While we fully support the Make in India initiative, it is important to have certainty on the timelines and rates of duty imposition to avoid any disputes relating to already bid out tariffs. In the current business scenario, we expect that government would clearly lay down the timelines for the imposition of duties to provide certainty to investors constructing new solar projects," added Sanjeev Aggarwal, founder and chief executive officer, Amplus Energy Solutions, one of India’ largest solar rooftop firms.
India currently has a domestic manufacturing capacity of 3 GW for solar cells and recently awarded a manufacturing-linked solar contract that will help establish additional solar cell and module manufacturing capacity.
“China remains the most dominating cost effective global supplier of poly silicon to wafers and India’s solar programme may continue to depend on them even after creating cell and module capacities," Mishra added.
China is India’s second largest trading partner after the US. India’s exports to China rose 3.8% to $17.1 billion in 2019 while imports contracted 7.5% to $68.3 billion. The widening trade deficit with China has been a cause of concern for India.
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. Only manufacturers and solar modules who are approved by the Bureau of Indian Standards and the ministry of new and renewable energy, and are on the approved list of modules and manufacturers will be eligible for government supported schemes, including projects from where electricity distribution companies procure solar power for supply to their consumers, according to a directive of the Centre.
This 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 benefits on production of cells and modules that have been produced elsewhere.