Green energy transition can mark a new beginning for the country as it promises ‘Power for All’. Championing installing solar panels stand to offer technological growth, industrial growth, and the opportunity to claim the export market, all of which developing countries like India needs. And considering Government of India’s support to solar energy adoption, we can fairly assume the country is in the right path to offer electricity to more than 200 million people in the country (who currently live without electricity). Like any nascent industry, solar sector is also facing many challenges. However, recent taxes and duties levied upon the industry stand to deal a damaging blow to the industry.
Safeguarding the Industry
Countries like China, and the US have taken steps to support and protect domestic solar panels and cell manufacturing industry in hopes of enhancing manufacturing scale, which could bring in revenue and create an urge for technological growth. And factoring in their growth in this industry, it is fair to assume that they had made the right decision.
Protecting domestic solar panel manufacturers promises to improve India’s future of energy and economy, while importing solar components will only lead to forex outflow ($3.8 bn spent in FY17-18 to import solar modules) giving control of our energy future to foreign suppliers. And solar manufacturers in India have made many appeals to the Government for protection and demand creation.
However, recently implemented safeguard duty does not protect the domestic solar manufacturing industry from foreign suppliers. With growing acceptance for solar energy, India is standing in front of a great opportunity to claim the export market, bring in revenue, revolutionize industrial infrastructure, create jobs, and improve economy. As we have already explained, countries like China have already gained an advantage over the other countries by investing in domestic manufacturing capacity development. Considering India’s ‘Make in India’ initiative, we can fairly assume that India had the same intension.
However, imposing 25% safeguard duty that targets SEZ based manufacturing units in India does not relate to that plan. Foreign solar suppliers have already claimed more than 80% of the domestic market owing to India’s growing solar imports (in FY 17-18 the expenditure stood at $3.8 billion). On top of that, 25% duty on SEZ based manufacturing units in India will make domestically produced modules by solar panel manufacturers more expensive- making projects unviable, pushing domestic manufacturers out of demand, rising project cost, giving foreign suppliers a stronger foothold in the domestic market, thus making ‘Power for All’ a longer journey.
Differential GST Rates
Implementation of GST should be commended as it moved forward to standardize indirect tax laws, bringing investment opportunities in India and encouraging industrial growth. However, GST also brought forward differential rates on capital goods that are used to set up solar plants.
Currently, solar energy system, solar power based devices, solar lantern/solar lamp attract 5% GST rate. However, goods like- module mounting structures, cables, inverter, battery, transformers etc that are important for the development of a solar plant are taxed at 12/ 13%. Also, there has been an increase in service tax rate which now attracts 18% GST from being 15%.
Indian solar energy industry is still at a nascent age and it needs protection and investment, not duties and taxes. India must focus on domestic solar manufacturing as it has proven to be a battle tested action plan for a country’s overall growth. Policies and initiatives are always welcome, but Government of India should keep priorities in check in bringing new policies.
Supporting domestic manufacturing industry against onslaught of foreign product invasion and dumping can prove to be a decisive decision for a growing country. Exempting SEZ based solar manufacturing units from safeguard duties and putting all inputs required to develop solar plants under 5% GST bracket can keep project cost from becoming unviable
Safeguard policies must allow SEZ based solar panels and cells manufacturing units exemption from duties to continue to flourish and lead industrial development within the country. Additionally, all inputs required for solar energy system development must come within 5% GST bracket to keep investors encouraged within the industry and to keep project cost from becoming unviable. This is the right moment for India to make the right choice. And protecting domestic solar manufacturing sector can lead India to the mantle of ‘Self-reliant solar super power’ in near future.