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The government announces yet another idea for domestic manufacturing


23 July 2018 | BRIDGE TO INDIA

The government announces yet another idea for domestic manufacturing

Indian government appears to be working on a new scheme to support domestic manufacturing. The scheme involves procuring 12 GW of new project capacity using domestically manufactured modules over next four years. Power from these projects will be bought exclusively by public sector units for their own consumption. If implemented, it will be the government’s DCR 2.0 scheme. The previous scheme fell afoul of WTO guidelines and the new scheme has been designed specifically to avoid that fate.

  • Convincing public sector consumers to buy expensive power and managing open access challenges will not be easy;
  • The vast array of policy ideas and schemes in circulation is creating confusion in the sector;
  • Both manufacturers and developers are lobbying hard for a favourable outcome and adding to uncertainty;

We are not convinced about prospects of the new scheme. Public sector entities may not actually agree to buy expensive power. Who will bear open access regulatory risk and cost of using the grid? Setting aside these reservations, DCR 2.0 is the fourth or fifth policy idea mooted by the government in the last year to boost domestic manufacturing. A new manufacturing policy has been talked about for some time but there is no clarity on that yet. Capital subsidies and interest rate grants have been proposed but we believe that these are ruled out for now because of funding constraints. SECI has called bids for a 5/10 GW integrated manufacturing and project development tender and it remains to be seen how it will be received in the market. There has been some progress finally on safeguard duty implementation but here again, a final decision is still awaited.

In short, there are many jumbled policy ideas and schemes on paper but no meaningful action yet. Meanwhile, domestic manufacturers are struggling to stay afloat while project developers are anxious because of uncertainty around safeguard duty implementation. Both sets of players are also unhappy with the final DGTR recommendation on safeguard duty and lobbying furiously for a more favourable decision.

We spoke to a number of stakeholders to discuss their reaction to the ongoing announcements. Everybody agrees that the government is serious about supporting domestic manufacturing. Beyond that, there is plain confusion on mechanics and timing of different schemes. We heard many contradictory ideas about prospects of different schemes as well as their impact on different players across the value chain. As we concluded in our recent blog, the industry should brace for an extended period of uncertainty on this front.


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