After failure of all previous and ongoing policy initiatives to kickstart domestic manufacturing of solar modules, MNRE has recommended imposition of basic customs duty on import of all solar PV cells, components and modules. It has recommended that duties of 10-15% be introduced in April 2021 and gradually ramped up by 2023-2024 to 30% on cells and modules, and 15% on wafers, glass, metal frames, EVA and other materials.

• The long implementation period seems designed to give manufacturers sufficient time to plan their investments and ensure no adverse impact on current project pipeline;
• Progress is contingent upon cells and modules being declassified from a global trade agreement signed under the World Trade Organisation (WTO) framework;
• The proposal is an acknowledgement of poor competitiveness of domestic manufacturing;

Table: MNRE recommendation for customs duty

The time-staggered structure with no sunset clause seems well thought out on paper although there is a serious execution challenge. There is also curiously a gap of eight months between lapsing of safeguard duty (July 2020) and proposed introduction of customs duty (April 2021). Full duty imposition from 2023 onwards (2024 for components) would give manufacturers the necessary 3-4 years to plan their investments and operationalise manufacturing capacity. It would also ensure that there are no ‘change in law’ claims from the developers. Another potential benefit is that if module prices fall sufficiently during the gestation period, there would not be an overly negative impact on cost of solar power.

The challenge here is that solar modules and cells are currently classified as information technology products in the Information Technology Agreement, a global trade agreement signed under the WTO framework. We understand that the customs duty proposal is subject to cells and modules being declassified from this agreement. That may not be so easy or quick. There is also the issue of how to support the existing manufacturers in the intervening period. On this point, the government seems to be banking on PSU, KUSUM and SRISTI to assure demand for domestically manufactured modules.

Customs duty is a simple and blunt tool to support domestic manufacturing. It is an acknowledgement of poor competitiveness of domestic manufacturing but can be effective and is easy to administer. The critical question is – will it lead to more manufacturing investments and make India self-sufficient in solar technology? Progress would depend on trade resolution at WTO and the government persuading investors that the duty structure is not prone to dithering.