Legal loophole protecting imported panels from subsequent duties discriminates against Indian products, say manufacturers

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Indian solar manufacturers have complained they are not reaping the benefits of the recent solar auctions which have seen huge slices of generation capacity allocated at ultra-low tariffs.

Domestic panel makers say the developers offering to accept record-low solar electricity prices were able to do so because they can import solar modules cheaply thanks to a legal loophole which meant the projects allocated recently – before new taxation and import duties for solar products were confirmed – will be protected once the new taxation regimes are applied. The manufacturers say exemption from such, as yet unannounced taxes, can only be secured with the paperwork associated with imported solar cells and modules, thus shutting out Indian-made products.

The most recent low solar tariffs have been agreed at a time when the safeguarding duty applied to Chinese and Malaysian solar products is due to end this month and no formal notification has been made about the date upon which a proposed basic customs duty reported in The Economic Times newspaper last month as due in August – will be applied to solar imports.

Analysts at Crisil Research said, for solar developers, the “timing of the auctions offered a window of opportunity before any additional taxation (in the form of safeguard duty or basic customs duty) set in. As the auctions have occurred before the formal notification of any such taxation, it provides the developers the option of [a] pass-through of costs, under [a] change-in-law provision. This [provision] would allow developers to claim additional compensation for any rise in costs due to tax changes, post allocation of [project generation] capacities.”

The loophole

Members of the All India Solar Industries Association pointed out at a recent press conference, “solar power developers would prefer to import this requirement [for PV modules], as the pass-through [due to the change-in-law provision] is only applicable if a bill of entry is provided as [proof] of duty being paid. In case the developer purchased from a local manufacturer, he will not be able to get the benefit of the pass-through as there is no bill of entry. For a module, say, costing Rs20/Wp, the landed cost, post paying the 20% BCD [basic customs duty] would be Rs24/Wp. The developer can get the benefit of Rs4/Wp as [a] pass-through if it imports [modules]. It will not purchase from the local manufacturers who are offering the modules at Rs24. In both the cases, the cost of the module for the project is Rs24/Wp but with no benefit to the local manufacturer.”

Saibaba Vutukuri, CEO of Indian module manufacturer Vikram Solar, said: “The government has done an excellent job by bringing in the BCD but when BCD is imposed, there are close to 15-20 GW [of] projects which have already been bid out. If the BCD pass-through is allowed, we will not be able to access these projects that have been bid out for the next 3-4 years.”

Manjunatha DV, founder and managing director of PV manufacturer Emmvee Solar, and Sudhir Garg, director of peer Patanjali Renewable, urged the government to devise a plan that offers project developers benefits similar to the pass-through available to imports until new taxation is confirmed, to offer Made in India products as a viable option. That would ensure Indian manufacturers benefited with no additional government costs, said the Indian manufacturers.

“In the absence of the above support from the government of India, not only the expansion of capacities [will] fail to take off, but even the existing … Indian solar manufacturing industry will also come to a standstill and cease to exist, with more and more companies becoming bankrupt,” announced the two rivals.

Employment

Hitesh Doshi, CMD of fellow Indian solar manufacturer Waaree Group, said: “India has a good module manufacturing capacity of 15 GW. The industry directly employs more than 30,000 people when running at full [capacity] which, unfortunately, could not happen so far, despite India seeing the highest installation [volume] of 12 GW in a year. Indirect employment [from Indian module manufacturing] is more than 3 lakh, as there is huge value addition (close to 50%) in the entire value chain at the module level.”

The manufacturers have demanded a level playing field to compete against cheaper imports. Vikram Solar’s Vutukuri added: “In China, solar manufacturers enjoy close to [a] 30% cost advantage over Indian manufacturers: 10% due to under-recovery by banks, 10% due to soft benefits in terms of land and building, and another 10% from low power and interest costs. In India, [the] power cost for industrial set-ups is substantially high, at Rs6-7/kWh, against China’s hardly … Rs2-2.5. On top of that, the interest rate is 10-11%, against 5-6%.”

With duties on raw materials making Indian production even more expensive, manufacturers want the government to defer implementation of the basic customs duty on cells to July 1, 2022, to give them time to develop production capacity. 

They also want the safeguarding duty extended for three years and expedition of projects with a domestic content requirement.