Government of India’s commitment to provide ‘Power for All’ and its decision to support green energy transition, marked a new beginning for the country. With solar energy transition promising to save billions ($) in fossil fuel imports, create jobs, initiate technological growth, facilitate industrial growth, and offer the opportunity to claim the export market, developing countries like India need to quickly seize the opportunity and become a solar powered country. And factoring in India’s recent initiatives towards solar growth, we can fairly assume that the country has chosen the right path to social, economic, and industrial revolution, which will illuminate the future of more than 200 million people (who currently live without electricity). Like any industry, there are multiple challenges in countrywide solarisation in India. However, recent taxes and duties levied on growing solar industry must be considered as the biggest challenge in path to India’s most important and impactful transition.
Protecting the domestic solar manufacturing industry from foreign suppliers is a necessity as it can power India’s future of energy and economy. Importing solar components will only lead to losing energy security, and make foreign suppliers ‘The masters of our energy future’. On the other hand, manufacturing can build this country’s industrial and economic infrastructure. However, recent safeguard duties (25%) is doing the complete opposite of what India’s energy mission stands for.
Growing acceptance in solar does not only offer the best chance to provide ‘Power for All’ but it also allows the opportunity to claim the export market, bringing in revenue, creating reason and means to develop industries, create jobs, and improve economy. However, to benefit from this opportunity, India has to focus on manufacturing solar, a strategy that countries like- China, US etc have already employed gaining incredible results. Factoring in implementation of ‘Make in India’, we can say that India did believe in expanding the manufacturing scale to utilize the solar opportunity. However, imposing 25% safeguard duty that also targets SEZ based manufacturing units in India, tends to deal a damaging blow to the Industry.
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). Now 25% duty on SEZ based manufacturing units in India (which includes 40% of India’s Solar panel Manufacturing Units and 60% of Solar Cells Manufacturing Units), will make domestic solar modules costlier, thus giving more ground to foreign suppliers, while wiping out Indian solar manufacturing industry.
Safeguard duty imposition will also increase the project costs by 25%, slowing down project growth within the country, thus making ‘Power for All’ a longer journey.
GST is one of the decisive reformation that have the potential to improve Indian economic landscape. It proposed standardization of indirect tax laws, which brought investment opportunities in India and encouraged industrial growth. However, GST has brought forward challenges for Indian solar sector that have to be solved quickly for continued growth of the industry.
Additionally, differential GST rates on capital goods that are used to set up solar plants have created confusion and piled up additional cost on project development. This issue has led to a scenario where slightest increase in the indirect tax acquired to set up of solar plants would be incremental cost. And the result is negatively affecting the power generation companies, carving out their profit margin.
Currently, solar plants, 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/ 18%. Also, there has been an increase in service tax rate which now attracts 18% GST from being 15%.
Remedy to the Problems
Indian solar revolution is a necessity and the best option India has to rise up from the crowd of developing countries to provide a better life to its fellow citizens. In face of such an opportunity, India must re-prioritize its policies and initiatives to favour most lucrative sector available, which is solar. Duties and taxes that affect the domestic manufacturing or solar project development negatively must be exempted and re-aligned to support the industry against onslaught of foreign product invasion and dumping.
Safeguard policies must allow SEZ based solar manufacturing units exemption from duties to continue to flourish and lead industrial development within the country. Additionally, all inputs required for solar plant development must come within 5% GST rates to keep investors encouraged within the industry and to keep project cost from becoming unviable.
Indian solar sector, especially the domestic manufacturing sector needs more investment and policy support to win India the mantle of ‘Self-reliant solar super power’ in near future. Re-prioritizing Indian solar sector (especially manufacturing) is the only way to provide ‘Power for All’ and now is the perfect time to make the right move before other developing countries seize the opportunity.