05 June 2019 | BRIDGE TO INDIA
The US government has decided to end generalised system of preferences (GSP) to Indian exports from June 5, 2019 onwards after keeping the move on hold in light of the ongoing general elections in India. GSP allowed preferential duty-free imports of solar cells and modules into the US from India.
Under the new regime, a tariff of 30% is applicable on module imports in the first year. The tariff would reduce by 5 percentage points every year until the 4th year and stabilise at 15% thereafter. The levy of tariffs shall erode price arbitrage enjoyed by Indian manufacturers compared to Chinese and Vietnamese players. As a result, we expect the Indian manufacturers to lose market share to their international competitors. Indian exports to European markets have already been hurt post lifting of minimum import price (MIP) restrictions on Chinese manufacturers in 2018.
Exports account for a significant share of some manufacturers but the total quantum is relatively small at about USD 120 million (approximately 600 MW) per annum, about 25% of annual production or 6% of total domestic demand. US accounts for nearly half of total exports, so it is possible that export volumes may shrink by 150-200 MW annually as a result of the US move.
Figure: Indian solar module export destinations, April 2018-February 2019
Source: Ministry of Commerce, Government of India
Even though US levies will hurt some manufacturers in the short-term, the long-term impact of this move is expected to be minimal. The Indian government has announced various initiatives including 12 GW PSU scheme, 25 GW solar irrigation scheme (KUSUM) and 4 GW residential rooftop solar scheme, mandating usage of domestically manufactured cells and modules. Even mild progress on these schemes shall more than compensate for the loss of US export volumes.