Govt moves to protect solar industry after WTO setback

Subsidies for local manufacturing, higher government procurement on the cards

In a bid to promote domestic solar equipment manufacturing while complying with global trade norms, India is looking to revamp its domestic sourcing scheme under the National Solar Mission (NSM).

The new norms are likely to push local manufacturing through subsidies and increased procurement of homemade solar panels by government agencies and public sector utilities (PSUs).

This is being done in the wake of the World Trade Organization’s (WTO) ruling against India’s domestic content requirement (DCR) norms. The US had contested that India’s DCR was “inconsistent with regulations under General Agreement on Tariffs and Trade (GATT) and Trade-Related Investment Measures (TRIMs)”. Under DCR, it was mandatory to source India-made solar cells/modules for a certain portion of solar capacity.

While India had contested the US appeal, the WTO ruled in favour of the US. “The panel sustained the United States’ claims that India’s DCR measures are inconsistent with WTO non-discrimination obligations under Article III(4) of the GATT 1994 and Article 2.1 of the TRIMs Agreement,” according to a decision of a WTO panel.

This is the second time India has lost a DCR-related case in the WTO against the US. The first was in February this year when Indian government had contested that the DCR was only for government procurements and hence was in line with the trade regulations.

Senior commerce ministry officials told Business Standard they have exhausted all options in this case. “Currently, we are devoid of any option to be explored. Any further action would be taken after inter-ministerial consultations,” said an official on request of anonymity.

The Ministry of New and Renewable Energy (MNRE) claims to have alternate plans to tackle the WTO setback. The MNRE would increase the government’s procurement and provide capital subsidy as well as interest subvention to local solar cells/modules manufacturers. “The pipeline of projects under DCR would remain unchanged. The government has committed to safeguard the Indian solar manufacturing industry and would stand by it. Global trade norms allow government procurement and we would increase the ambit of that,” said a senior MNRE official.

So far, 10 per cent capacity in each of the tenders issued by the central government was kept for DCR. Earlier, it was 50 per cent and was brought down after the first appeal made by the US in the WTO in 2014. Apart from this, major PSUs such as NTPC and Coal India have committed to build solar power capacity. If power generated is for self-use, it will also fall under the category of government procurement, said officials.

“We would first increase the number of projects offered by central government through Solar Energy Corporation of India (SECI). Second step would be to promote PSUs to build captive solar power capacity on domestic content,” said a senior MNRE official.

As of now, projects with 1,500-Mw capacity are in pipeline under DCR. According to domestic solar panel makers, this pipeline is enough to sustain the industry for a year. However, they said the government should move swiftly to safeguard the industry in long run.

Government officials and industry executives who are part of the consultation process on the new norms said the MNRE has requested the finance ministry to allot funds for subsidy to solar panel makers.

“It would be a blanket scheme for all who make solar cells/modules in India — domestic and foreign companies alike. The agenda is to boost solar manufacturing in India. Both capital subsidy and interest subvention are allowed under the global trade regulations,” said a senior government official.

Of India’s total 8,000-Mw capacity, the projects built and awarded under DCR till date total up to 680 Mw.

The current installed capacity of Indian solar cell manufacturing is around 1,386 MW and module is close to 2,500 MW. Close to 30 per cent of manufacturing capacity is operational. Of the total solar power capacity, 70 per cent is built on China-made cells. The remaining capacity is built on US-made cells and Indian cells in equal share. India’s total solar power installed capacity is 8,000 MW.