Safeguarding solar power

Steep duties on China-made cells may be unwise

The proposal by the Directorate General of Safeguards to impose a 70 per cent safeguard duty on solar cells and panels from China, Taiwan and Malaysia partly exemplifies the limitations of the “Make in India” policy in fulfilling challenging targets. The directorate’s suggestion, which excludes manufacturers in the US and the European Union (EU), was made on the basis of a complaint by the Indian Solar Manufacturers’ Association that cheap Chinese solar panels were causing them “serious injury”. There has been, according to the directorate, an over six-fold growth (643 per cent) in Chinese imports since 2014-15, at a time when the US and the EU had imposed heavy duties on Chinese imports and the Indian government had revised its solar power target to 100 Gw by 2022.

At first glance, the domestic manufacturers appear to have a valid case that China, suffering overcapacity, is indeed targeting India, with its rapidly growing energy market, as the preferred destination for its cheap solar cells and modules. Landed values of Chinese solar cells and modules have fallen by 25 per cent since 2014-15, and India now accounts for about 38 per cent of Chinese solar cell exports — compared with just 5 per cent to the US and the EU, down sharply from 24 per cent in 2016. The share of Indian manufacturers has shrunk steadily in the same period — from 14 per cent to 10 per cent — even though this is an expanding market. Coming as this does after India lost a case in the World Trade Organization (WTO), brought on by a US complaint against the domestic content requirement programme, which mandated that only locally manufactured cells and modules could be used to build solar projects auctioned in the programme, the ability of local players to compete has been weakened considerably.

At the same time, several facts militate against the argument of the local manufacturers. First, Chinese imports have played a vital role in enabling bidders to quote progressively lower tariffs — these touched Rs 2.43 per Mw recently. Imposing a 70 per cent safeguard duty will cause a significant escalation in rates, adding to confusion in an industry where multiple pressures from the goods and services tax and state contracts have resulted in only about a third of the annual target of 9,000 Mw being commissioned this year. Indeed, low module prices have played a role in helping the rates of return in solar power projects to stabilise at a healthy 9-11 per cent, which, in turn, is stoking interest among global lenders to finance renewable energy projects in India.

Second, it is unclear whether the local industry and manufacturers in the US and the EU have the capacity to meet rapidly expanding demand in India. In 2017, local producers accounted for just 1,099 Mw of the total output of 10,573 Mw solar power. Moreover, the petition comes soon after the WTO-mandated cut-off date for domestic content requirement programme projects lapsed last month. Finally, the proposal to extend the safeguard duty to solar cell makers in special economic zones, which account for about 60 per cent of the installed capacity, sounds illogical. Chinese imports may well be posing a threat to Indian manufacturers, but a lasting solution will lie in reassessing domestic duty structures and the myriad other impediments they face.