Current solar duties issues – a historical blunder that occurred in 1995

pv magazine: Currently, the Indian solar market is going through several trade conflicts in order to protect the domestic manufacturing sector. Measures include a proposed safeguard duty, anti-dumping duty, and import duty. What is your take on this approach? Might protectionism boost India’s domestic manufacturing sector, and will it have any negative impact on installation growth, as some in the market speculate?

Jayant Parimal: In 1995 a WTO deal called the Information technology (IT) agreement came into the picture in India. However, it was not mandatory for everybody to sign it, and at that time India took affirmative action to help IT penetrate across the country. Thus, they signed the IT agreement, which is basically saying that all the signatory countries will allow IT products to get into their markets at 0% duty. Therefore, all computers, etc. came at zero duty. This reduced the prices of all IT products and increased the penetration. Inadvertently, what they did not realize at that point of time was that there was a heading called 8541, where lot of semiconductor devices are listed. Under the 8541 heading is the following: ‘photovoltaic cells whether assembled in the modules or not’.

In 1995, solar power was little more than the hobby of a few individuals. Nobody paid any attention to it, nor the text under the heading. However, every country was asked to declare which product will be zero rated. India placed the 8541 under zero rating without any qualification, so whatever is labelled 8541 is zero. Solar was nowhere at that time, and few thought that one day PV would become a mainstream and, therefore, important issue. This all means that today you can import solar panels from anywhere in the country at 0% duty.

Solar was underestimated in India. So theoretically, under international obligation India cannot impose any import duty on products mentioned in the 8541. That is why we are being forced to use the ´safeguard duty and anti-dumping duty’ and other tools to give any kind of protection. Clearly, there is absolutely no protection. You have to compete with the Chinese manufacturers, who are far better placed and bigger, with larger supply chains, and which receive lots of incentive from the Chinese government. Thus, the Indian manufacturers are unable to keep up. In conclusion, it is a historical blunder that happened in 1995, and now everybody is suffering from it.

On the import duty, as I explained, worldwide there is no confusion. However, the WTO has created confusion on this. Until now India has declared modules at zero duty. But suddenly one fine morning, some custom authority, especially Chennai port, began saying that PV is not 8541, but instead is 8501 – it is a DC generator. Under 8501 there is 7.5% duty. So, this has created lot of issues, because the port did not clear the goods, and we have to pay the demurrages, with goods lying idle for months. Everybody suffered, and that problem is still not resolved.

Worldwide, nations cannot unilaterally decide on 8541. In China they define PV as 8541 and so, upon reaching India, question how it can become 8501. There is a strong case to be had, and some people have gone to the high court over this matter. This has led to an uncertainty. After our goods were detained, we had to pay demurrages, and they were still not released. Therefore, we must give a bank guarantee of 7.5%.

That is one part of the duty. The second part is that Indian manufacturers are not encouraged by the government, and are put in direct competition with Chinese suppliers, who, we believe, are selling at dumped prices. So, Indian solar manufacturers joined forces and filed a suitable petition to the anti-dumping authority. That is ongoing. Concurrently there is another action, called safeguard. That is also petitioned. Both are legal processes, and still are continuing. But what will happen at the end of that nobody knows exactly, which is why there is uncertainty.

Thus, there is a section of people who believe no duty will come, so they go and take that view and bid for the project. There are conservative people like us who believe that no, you must factor in all of these uncertainties. Therefore, our prices will go up. That is the biggest issue. Hence, these three duties are creating an uncertainty in the market.

This is because PPAs do not allow for any pass through. Moreover, safeguard duty (SGD) and anti-dumping duty (ADD) will not be, according to us, considered as a change in law. For instance, we had asked PPA and DISCOM people: who is giving a PPA? If incremental duty is imposed, will you allow us to increase our price? They said, ‘no you should factor it in; we are not bothered about all those things.’ Naturally, it creates uncertainty.

If SGD and are ADD imposed, it will definitely boost domestic manufacturing. There are a lot of Chinese manufacturers also likes to set up here. India is a large market. However, the problem is either you should have incentives to operate here, or have disincentives. If you do not operate from here, then you will have certain disadvantages, and if you are operating from here you will have certain advantages. Unfortunately, because of zero duty, you do not have any those advantages. Instead you have lot of disadvantage if you are operating from India because for well-established companies that are already operating out of China, their cost of shipping goods from China to India is some 0.05-0.1 cents/Wp. They do not care.

Why should Chinese manufacturers set up shop in India if in their home turf they can do whatever they want? They are happy, whatever they are doing. They can do their work very quickly, expand quickly, their supply chain is good, and their landfill support system is better. Unless, in India you have better incentives, which are better than what exist in China, or begin applying duties on cheap imports. Unfortunately, neither of them are there in India.

Although lots of Chinese tier-1 companies made lot of announcements, they did not do anything because they did not have any incentive to do so, or faces no penalty for not doing so. For example, if you can ship your goods, from China to India at 0.05 cents/Wp, why would you manufacture in India?