18 July 2018 | Vinay Rustagi
The Directorate General of Trade Remedies (DGTR), Ministry of Commerce and Industry, has issued its final decision on the safeguard duty petition by domestic cell and module manufacturers. It has recommended a safeguard duty on imports of all cells and modules, irrespective of technology, for a period of two years – 25% in the first year falling to 20% and 15% in the subsequent six month periods respectively. The duty shall be applicable to imports from China, Malaysia and all developed countries. Imports from other developing countries have been exempted as they individually account for less than 3% of total imports into the country.
- If the recommendation is accepted, it will have no meaningful sustainable impact on domestic manufacturing because of the short duty period and no relief for SEZ (special economic zone) units;
- The duty would pose financial and execution challenges for all ongoing projects and adversely impact government plans for the sector;
- The industry should brace for an extended period of uncertainty as the duty saga is likely to linger on for the foreseeable future;
The decision is largely in line with expectations although the two-year application period is surprisingly short. It is not sufficient to encourage any new investments and nor does it allow existing manufacturers to upgrade their facilities and make any meaningful recovery. The other key aspect of the decision is that there is no relief provided to SEZ-based units including Mundra, Vikram and Waaree. These ‘domestic manufacturers’ would be subject to duty when they sell modules in the domestic market unless they are given a special dispensation by the government. But the domestic manufacturing industry excluding SEZ-based players can barely meet 5% of total domestic demand. That raises the question: why impose duties for benefit of some small manufacturers and risk growth in such a crucial sector?
We continue to maintain that the safeguard duty would be very damaging to the industry as well as to the government’s ambitious plans. Notwithstanding recent falls in module prices, most projects under execution would face viability challenges (capex increase of up to 15%, extra tariff requirement of INR 0.40/ kWh) and execution delays. MNRE has been promising protection from duty for projects where auctions have already been completed but there is no clarity available on that. Even where PPAs allow legal recourse through ‘change in law’ mechanism, there are bound to be drawn out disputes between the procurement agencies, DISCOMs and project developers.
We also believe that the arguments used to justify duty imposition are highly flawed. If the government accepts the recommendation to impose duty, there is a high chance of a successful appeal by other countries against the decision.
Some industry players have expressed relief that the DGTR decision, even if detrimental to developers and other downstream players, at least provides some clarity on way forward. Unfortunately, we disagree. For one, the final decision is still subject to ratification by the Board of Safeguard and Ministry of Finance. It is also possible that some developer(s) will find a spurious reason to hold up the process through legal appeal as happened last time. Moreover, we understand that domestic manufacturers are considering another petition for anti-dumping duty. The industry should brace for an extended period of uncertainty on this front.