How Domestic Solar Manufacturing Can Make ‘Make In India’ Dream A Reality

Under the leadership of Hon’ble Prime minister Shri Narendra Modi, our government’s strategies and multi-pronged operation sequences for ‘Make in India’ initiative has given Indian solar industry hope for new opportunities. The initiative was expected to bring more investment, job opportunities, and a platform for technology upgradation in the promising industries, especially solar sector.

Expectations

Make in India initiative was supposed to give a long term policy direction with large scale deployment goals, increased spending on R&D, domestic production of critical raw materials across the value chain, and to have focus in development of components and products within the country to mass manufacture and control supply chain of lucrative sectors like- Solar.

Make in India has made Foreign Direct Investment (FDI) up to 100% permitted under the automatic route for renewable energy generation.

This policy has also offered special incentives for exports from India from SEZ, guaranteed market through solar power purchase obligation for states, exemption from excise duties and concession on import duties on components and equipment required to set up a solar plant, payment security mechanisms to cover the risk of default by state utilities/DISCOMs, loans at concessional rates for off-grid applications, 10-year income tax holiday, exemption of sales tax in certain states, and concessional customs duty and excise duty exemption for machinery and components during the setting up of the project.

India has already become the 3rd largest solar market in the world, and all these manufacturing initiatives were expected to lead the growth. However, there are still challenges in development of domestic manufacturing sector, due to continuous increase in imports. This has presented difficulty in creating jobs, industrial growth, and gain energy reliance, which domestic manufacturing promised.

Current Scenario

Although Indian solar industry has leapt from 5 GW in 2015 to 21 GW in 2018, the core idea of Make in India, which was to transform India in to a manufacturing hub, is yet to become reality.

The issue of solar module import has grown every year presenting a bill of $3.8 bn in FY 17-18. the threat of blanket safeguard duty on SEZ based manufacturing units are not allowing domestic manufacturing industry to grow. We must also highlight that China’s recent plan to restrain its renewable energy targets will lead to further fall in imported module prices, capturing demand of domestic manufacturing even more (already foreign solar suppliers account for 80% share in India).

In order to achieve the objectives of National Solar Mission in a holistic manner, Make in India venture has to be more focused on solar domestic manufacturing. As it can become a considerable job creator and bring socio-economic growth which is what Make in India’s true purpose is. It is estimated that with focus on domestic manufacturing, India can overtake EU’s renewable expansion by 2022.

India’s dependency towards imported modules is completely opposite of Make in India vision and it damages India’s chance of gaining solar energy reliance.

 

Remedy

A larger policy framework for Indian solar industry to support and leverage manufacturing plans, can help in growth.  New policies should address manufacturing issues concerning transport, infrastructure, taxation, labor laws, and power outages. Bridging the gap between having policies and implementing them aggressively can also remove confusion from the process and aid growth.

The key to make India globally competitive in the solar module manufacturing sector is through aligning manufacturing plans with global technology roadmap. Subsidies alone cannot achieve this result. Government has to invest in establishing R&D institutions which our country clearly lacks. Longer tenure and low cost finances can also help manufacturers to firmly plant their feet in the ground.

Introducing solar manufacturing in National Skill Development Mission training plans can help in creating skilled workforce, strengthening Indian solar industry and its employment rate significantly. Support to large scale projects and fully integrated manufacturing plants can also be effective additions to the ‘Make in India’ policies in the future.

Bringing support in export, investment, sector/ area specific venture preferences. And developing new plans to deliver corporate tax rate reduction by 25%-30%, increasing the validity period of industrial license, and creation of random inspection scheme, and bringing huge investments through Make in India, will definitely simplify business processes.

Government should also provide the Solar Industry interest subsidy as in line with the “Technology Upgradation Fund Scheme” for textile industry. The promotion of solar Industry will have a multi façade benefits.

Super-deductions of 200% of the R&D expenditure for new and clean solar technology development (which could be a part of the offset / Make in India arrangement) should be allowed. India already offers super-deduction of 200% of the R&D expenditure in emerging areas such as bio-technology which has led to rapid growth of Indian biotech and pharma companies. Expenses on skill upgradation & training local manpower should be also be included as part of super deductions. Tax credits on account of super-deductions allowed to carry over without any limitation.

 

Way Forward

Policy reforms in India have helped the country rank higher in the list of Business ready countries. Jumping 32 places up from the last year and acquiring 100th place in the list has huge implications for the manufacturing sector in India. Developments in Solar clearly speaks of India’s intention for growth. Make in India can lead to a progressive, energy reliant and industrious India and reduce our exposure to the currency and other external risks.  However, priorities need to be set to protect and nurture India’s most lucrative manufacturing sector: solar, to see tangible growth.

 

 

Share your thoughts with me on this at @gyaneshc.

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