The panel dilemma

The pros and cons of higher duties on solar panels

The recommendation by the Directorate General of Anti-Dumping and Allied Duties (DGAD) to impose prohibitive tariff on the import of solar energy modules has become a major issue. There are strong arguments on both sides. Solar power producers assert that solar energy production cannot be economically viable unless initial capital cost is kept down through low-priced equipment. Meanwhile, domestic solar cell manufacturers insist their survival will be threatened if the dumping of below-cost cells and modules, especially by China, continues unabated. What has further confounded the issue is the high-decibel lobbying by various interest groups and sharp inter-ministerial differences. The finance ministry usually follows the DGAD's advice. But it is far from certain what will happen on this occasion.

The detractors of anti-dumping duty proposal, notably, include not only the developers of solar energy projects, which are banking on cheaper hardware from abroad, but also some apex industry bodies, such as the Confederation of Indian Industry (CII). Even Transport Minister Nitin Gadkari, whose ministry has little to do with the solar energy sector, has lent his voice to the demand for scrapping the anti-dumping levy move. The US-India Business Council (USIBC) has strong views on the DGAD's proposal, though the US administration itself has recently put stiff tariffs on the import of China-made solar cells and ingots - the basic poly-silicon used for making cells and modules. The USIBC's stand is, of course, understandable given that many US solar gear makers export cells and panels to India at low cost and, thus, may qualify for anti-dumping measures.

India's solar energy production sector is not yet competitive, and will be further hurt if it is denied access to cheaper solar modules. At present, not only is the initial investment required to put up a solar energy unit prohibitively high, but even the per-unit cost of power production is uncompetitive when compared with the cost of electricity produced by hydroelectric or coal-based plants. A further increase in costs might cause the still-nascent sector to collapse - a big blow to the prospects of sustainable, clean energy in India.

It is also true that local manufacturers of solar equipment cannot be left in the lurch, though some of them also rely wholly or partly on cheaper cells from China for producing solar modules. Measures to help them reduce costs and upgrade quality are vital. Foreign investment, along with the latest technology, should be guided to this sector. The commerce ministry's plea that curbing import of solar modules through anti-dumping levy would automatically spur greater domestic and foreign investment in this sector appears to be based on flawed assumptions. Low-cost financing and bankable government policies are equally essential to achieve this goal. Finally, there are the international implications: should the government appear as if it is protecting domestic industry, when its trade relations have become so fraught? Altogether, the pros and cons of an anti-dumping tariff should be carefully weighed. Haste would prove counterproductive in the longer run.