Is Safeguard actually Safeguarding?

India has quickly built an aspiring green energy empire that promised to lead economic development through industrial capacity expansion and domestic manufacturing. And considering Hon’ble Prime minister Shri Narendra Modi’s announcement of ‘Make in India’ we can agree that the country had plans to support and utilize the manufacturing sector to drive growth. And as we hoped for, ‘Make in India’ worked well in welcoming foreign investment, encouraging technological growth, and reducing knowledge curve. This indicated a rapid solarisation of the country and showed potential to uplift India’s economy through industrial expansion. However, the initiative has failed to result into the growth trajectory it promised to showcase.

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Why Things Turned Sour?

The initiative Make in India was designed to replicate the strategies that have helped manufacturing giants like China to gain the mantle of global supplier. And with as lucrative sector as solar growing in India, this was a very possible idea. Make in India would have focused on manufacturing, creating jobs, helped faster project deployments, R&D growth, and gained access to export market while satisfying domestic demand.

And supportive actions like establishing Special Economic Zones (SEZs) and offering benefits like- 10-year income tax holiday, exemption from excise duties, cheaper water, electricity, exemption of sales tax in certain states and payment security prove that India was committed to build a solar empire through manufacturing.

Although, Indian Solar sector leapt from 5 GW in 2015 to 10 GW in 2016 to ~24 GW in 2018, India’s solar manufacturing capacity have not flourished, as it should have been. Rather than manufacturing solar, India focused on importing solar and this growing dependency towards imported solar modules is giving away India’s claim of building self-reliant green energy industry that could have lifted the country from energy scarcity, employment issues, and lack of industrial infrastructure.

India spent $3.8 bn on solar module import in FY 17-18, and this has diverted the progress in manufacturing capacity expansion, to importing solar, which is leading to a market scenario where foreign suppliers have claimed more than 80% share.

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The Safeguard Dilemma

Besides continuous solar importing, drop in solar tariff, lack of green energy distribution to the grid, and cancelation of projects, there has been another damaging blow dealt to the solar manufacturing sector through 25% safeguard duty imposition on SEZ based solar manufacturing units. If we factor in that- India’s 40% of Solar panel Manufacturing Units and 60% of Solar Cells Manufacturing Units are currently located in SEZs, it is impossible to understand the reason behind imposing safeguard duties on SEZ based solar manufacturers.

Safeguard duty imposition is estimated to raise the project costs by 25%, which will adversely affect project growth within the country. Additionally, Safeguard duty imposition will raise the solar tariff by raising the equipment cost, and defeat Government of India’s constant pursuit to reduce the solar tariff.

SEZs have supported Indian manufacturing sector, serving the purpose they were built for. Therefore, right now India needs to offer more support and investment to SEZs not taxes, or duties.

Continuous solar tariff drop welcomed by Government of India has created another issue- case in point- GUVNL, UPNEDA, SECI cancelled 3.9 GW (cumulative capacity) solar projects to drive down the tariff even lower. Also, demands like asking developers to set up a manufacturing plant to win solar projects (e.g- SECI’s 10 GW solar project continues to fail in attracting bidders) have negative effects and produced hesitant developers.

All ablaze

Way Forward

It is clear that Safeguard duty imposition completely defeats the purpose of protecting domestic industry. Just as well, constrained growth of Make in India will have a negative effect at the Indian solar sector.

Letting initiatives like Make in India run at full throttle, and supporting domestic manufacturing by exempting taxes, can still give India a fighting chance to compete with foreign solar suppliers and gain prominence in the export market while reaping the benefit of having an enhanced industrial infrastructure.

It is obviously important for India to reach its solar deployment targets, but it has to be based on modules manufactured in India. Building a solar empire on imports will be costly in the long run and unsafe. Only supporting and building manufacturing sector can lead India to energy security.

 

 

 

 

 

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