70% Safeguard Duty Proposal on Solar Cells

Director General of Safeguards, Customs and Central Excise mooted the proposal to impose 70% safeguard duty on solar cells and modules from china, Malaysia, Taiwan.

The proposal came after five domestic manufacturers—Adani Enterprises Ltd-backed Mundra Solar PV Ltd, Indosolar Ltd, Jupiter Solar Power Ltd, Websol Energy Systems Ltd and Helios Photo Voltaic Ltd—filed an application seeking a duty on imports of solar cells.They have cited a data which have shown an immense increase in imports of solar cell from 1,275 MW in 2014-15 to 9,331 MW at March-end 2017.Such increase is causing a threat to the domestic players.

Different types of duties

Anti dumping duty

If a country exports a product to any other country at prices lower than its home country or below its manufacturing cost then it is said to be dumping its products in other country. The practice hurts the domestic players of the importing country as it leads to unfair competition. In such a scenario the importing country can impose anti dumping duty on the products to protect its domestic industry.

Countervailing duty

They are also imposed again the artificially created low prices of products by the exporting country. But the difference is that the low prices are created by giving subsidies like tax breaks, credits etc. Thus, countervailing duty is imposed to provide level playing field to the domestic players vis a vis exporters.

Safeguard duty

If a product is imported in in such increased quantities and under such conditions so as to cause or threatening to cause serious injury to domestic industry then safeguard duty is imposed. It is on the temporary basis.

Arguments against the proposal

Current manufacturing capacity in India is 3 gigawatts annually as against the requirement of 20 gigawatts. Now the imposition of Safeguard duty will likely to increase the overall costs and add to the pressure on solar power projects. It will have huge impact on the viability of under-construction solar projects. Moreover, it could also erode the gains that have been made in terms of tariff reduction. Solar power tariff in India has fallen by nearly 80% since 2010, hitting a record low of Rs 2.44 a unit in May 2017. According to estimates, after the imposition of duty it could rise up to Rs 4.50, thus, making it less attractive for distribution companies to buy solar power. Also the consumer demand for rooftop solar etc will also likely to be get hit. Overall it will impact the government’s plan to install 100 gigawatts of capacity by 2022.

Why we need to import solar cells?

The lack of demand for domestically manufactured cells is hampering the growth of this industry.

Lack of cost competitiveness

The major reason is the domestic manufacturers do not enjoy cost competitiveness. Imported cells are much cheaper than domestically manufactured ones. The current price of an Indian cell is 10-15% more than an imported one. Moreover, there is no quality assurance standard for domestically produced cells.

Unavailability of key inputs

Metallurgical grade silicon, polysilicon, ingot, wafer, cell and module assembly are the key elements in the manufacturing of photovoltaic cells. However, except cells and modules India does not have technical know-how to set-up other upstream supply chain facilities. For instance-polysilicon manufacturing is not seen as a very attractive proposition by the domestic entities as it entails high and continuous energy consumption, handling explosive materials etc. But high power tariff and unreliable power supply makes it a challenging and uncompetitive.

Lack of basic resources

Paucity of decent infrastructure, cost of power, cost of finance, and the local ecosystem for raw materials, obsolete technology have also made the industry uncompetitive.

Way Forward

The surge in the manufacturing capacity in the domain of solar energy is due to the import of low priced solar photovoltaic cells and other material from china. It has certainly affected the domestic manufacturers to a certain extent. But the question is whether the move will protect the Indian entities. Critics are of the view that the authorities need to figure out the reasons why Indian manufacturers are struggling to compete with foreign players, and why they face higher costs. One of the reasons is lack of proper environment in terms of infrastructure required and appropriate policies. So the government should endeavor to rectify on this front too before creating trade barriers which has given some surge to solar generating capacity. For example- Domestic polysilicon manufacturing capability should be created. Private industry could form a consortium to venture into domestic manufacturing. The government should support such initiatives and the industry through various incentives (tax holidays, duty exemption and the like) and facilitate the industry by giving special incentives in the modified special incentive package scheme (M-SIPS), low-cost finance and low-tariff power similar to China.