Border tension with China does not augur well
This week saw violent clashes between Indian and Chinese armed forces. 20 Indian soldiers have died in reportedly the worst clashes in the last 58 years. These events have revived longstanding distrust of China and lent an edge to the precarious relationship between the two countries. There is growing political chorus for boycott of Chinese goods and reducing trade reliance on China. The Indian government has issued instructions to seek alternate sourcing arrangements where possible. It has also accelerated efforts to promote domestic manufacturing by providing ready land and infrastructure with necessary permits to interested businesses. MNRE has constituted its own special cell to further this initiative for the renewable sector.
- The government is keen to reduce the soaring trade deficit and growing dependence on China in critical sectors;
- But short-term policy options to reduce Chinese module imports are limited;
- The huge technology, scale and cost gulf between leading Chinese manufacturers and their Indian counterparts cannot be bridged through hasty decisions;
India has a massive trade deficit of about USD 50 billion per annum, up from USD 22 billion just ten years ago, with China. The government has been keen for some time to reduce this surplus through a mix of trade and non-trade barriers. Two months ago, the government even imposed restrictions on equity investments from “neighbouring countries.” There has been little real progress so far but the government stance is hardening.
For the renewable sector, the issue is straightforward but not easy: how to reduce module imports from China? India, like most other nations, remains hooked on cheap Chinese imports for 80-90% of its module requirements. The panoply of initiatives to promote domestic manufacturing over the years have failed to produce a dent on imports. Meanwhile, the Chinese manufacturers have continued to tighten their stranglehold over the global market through aggressive investments in R&D, upstream diversification and capacity addition.
Figure: 2019 module production volume of top five Indian and Chinese manufacturers, GW
Source: BRIDGE TO INDIA research
Given the lack of alternate supply sources, the policy option is straightforward – either import from China or pay 25-30% premium for domestic capacity as well as traverse the hard yards on critical infrastructure, education, labour reforms etc. To develop the whole value chain from polysilicon to modules would require a minimum 5-6 years gestation period and investment to the tune of USD 6-8 billion. In sum, it is not going to be easy to become self-reliant anytime soon. Plus, there is the risk of negative impact on project development pipeline.
The border tension has escalated the risk of abrupt policy decisions by a notch. The Indian government would do well to ignore rhetoric and realise practical limitations of domestic manufacturing aspirations. The issue at hand needs a serious deliberation with a balanced, long-term perspective.
Stuck in old times
We find it remarkable that the Indian government has launched a new scheme for commercial mining of coal. The scheme, launched as part of COVID stimulus package, purportedly aims to boost self-reliance in the energy sector. The target is to expand coal production by 225 million MT annually by 2025 with total anticipated capex of INR 700 billion (USD 9.2 billion). It is disappointing that rather than paving way for future with support for new green technologies, the government is stuck in dirty technologies.
