It is nearly a year since announcement of safeguard duty on import of PV cells and modules. To recap, the Indian government enforced duties on all imports from China, Malaysia and all developed countries starting 31 July 2018 for a period of two years. The duty level was set at 25% in the first year, falling to 20% and then 15% in the subsequent six-month periods.
- The safeguard duty has failed to support domestic manufacturing because of the very short implementation period and promise of ‘change in law’ compensation to developers;
- India continues to rely heavily on imports for meeting its demand;
- Prospects of domestic manufacturing appear bleak as in the absence of a cogent plan, the government seems to be following a trial and error approach;
With all previous measures including capital subsidies and DCR (domestic content requirement) having failed, the safeguard duty was expected to be a key policy support measure for domestic manufacturing. But as we predicted at the time, the implementation period of two years is too short to attract new manufacturing investments. Even the existing manufacturers have failed to derive any meaningful benefit. Some project developers have been offered ‘change in law’ compensation, where provided in the PPA, and have therefore continued to rely on imports. Others have routed imports from exempt countries including Thailand and Vietnam. Share of imported modules in utility scale solar still hovers around 90% mark, consistent with the preceding years. Meanwhile, some of the larger domestic manufacturers have failed to capitalise on the duty because being located in SEZs (special economic zones), they are liable to pay duties in the same way as manufacturers outside India.
Going forward, the duty rate is set to fall to zero by 31 July 2020. Developers have already been assuming no duty payment for ongoing auctions as they get 18 months to build projects.
The only market where domestic manufacturers have enjoyed some success is small private rooftop and open access solar installations. Not being eligible for any ‘change in law’ compensation, such customers have been a little more willing to purchase domestically. The larger developers and contractors prefer imports despite higher cost because of concerns about quality of domestic modules.
In a nutshell, therefore, the safeguard duty has barely made any difference to the fortunes of domestic manufacturing. Most of the cell manufacturers have indeed shut down and the module manufacturers are operating at low capacity utilisation and/ or betting on exports. We believe that the domestic manufacturers would file another petition shortly for further duties.
Meanwhile, the Indian government seems to be pushing through a mix of curiously devised schemes – 12 GW PSU scheme, a new 6 GW manufacturing-linked tender, and 36 GW distributed solar schemes for rooftop and rural solar. Having committed so much to domestic manufacturing, the government risks losing credibility if it cannot produce quick results.
