Prevailing Indian tax structure makes it more attractive to source from outside

Cheap Chinese imports and the prevailing tax structure in India are making it increasingly attractive for solar manufacturers to choose imports over manufacturing the parts themselves, which could hurt the government’s Make in India mission.

“The basic components that are used are panels and invertors,” Sanjeev Aggarwal, Managing Director & CEO, Amplus Energy Solutions said. “But the panels make up about 50% of the cost of the entire system. From the developer’s perspective, when they have to quote low tariffs during the bids for units, then what would make sense for them, using cheaper Chinese imports, or relatively costlier Indian made ones?” Manufacturing in India is sub-optimal, especially if customers demand lower and lower tariffs, Mr. Aggarwal added.

Solar tariffs recently touched a historic low of Rs 2.97 per unit in a reverse auction bid in Madhya Pradesh, which works out to ₹3.3 per unit over the 25-year power purchase agreement period. Industry consultants said that such low tariffs forced companies to keep a very sharp eye on their costs, and warn that this could lead to a drop in the quality of inputs being used.

“There is a need to provide a level playing field against cheap, subsidised imports in our segment,” Ashish Khanna, Executive Director and CEO, Tata Power Solar said. “While the focus on generation will help India reach its ambitious targets, the singular focus on lowering cost, if done at the cost of quality, can severely affect the long-term viability of these projects without strengthened checks and balances. Standardisation and quality are key to sustain and build the solar industry.”

The view also is that the situation, without government intervention, is only going to get worse for domestic manufacturers since China can undercut Indian prices at virtually any point.

“The outlook for domestic solar component and solar cell manufacturers over the next few years does not look too good since the prices of the Chinese imports are so low and the industry expectation is for a 20-25% fall in prices over the next year or two,” Senior Vice President and Co-Head, Corporate Sector Rating at ICRA said.

On the government’s part, Minister of New and Renewable Energy Piyush Goyal said that his Ministry was working on a policy to rectify this imbalance and that it would be revealed “soon”.

“There is growing international interest in manufacturing solar components in India,” Mr. Goyal said while speaking to reporters on Wednesday. “We will bring out a new policy for the Indian manufacturing of solar components soon. We want to make manufacturing in India competitive.”

However, unless the government takes some drastic steps, Chinese imports could still pose a significant threat to manufacturing in India, according to Mr. Aggarwal.

“There have been talks with the government. They are thinking of promoting the manufacturing of panels, and are talking about providing cheaper land and cheaper power for manufacturing,” Mr. Aggarwal said.

“But then, the question is what happens when China starts dumping?” he added. “They have over-capacity. It is going to be a very difficult game for India to sustain if they want to be competitive in manufacturing in such an over-supply scenario.”

Water heaters

The problem of Chinese imports being cheaper is not restricted to solar energy producers; but is an issue faced by domestic solar water heater manufacturers as well. Here, not only do Chinese manufacturers have the advantage of being able to sell at lower prices, they also enjoy a tax advantage over Indian counterparts.

For now, “the countervailing duty (CVD) exemption has been removed on the import of the full solar water heating system but the exemption is still there for the individual components,” R.S. Sethuraman, Chairman, Solar Hitech Solutions said. “Even if these units are manufactured in India, they are sent to the customer in components and assembled there, so it makes sense for the industry players to import the parts since local manufacturers have to pay excise duty, making them more expensive.”

“We have repeatedly asked the government to withdraw all CVD exemptions available on solar water heaters on components in solar water heating systems,” Mr. Sethuraman said. “But the customs regime seems to be encouraging imports and is hurting Make in India.”

He said solar water heater makers have also asked the government to make it mandatory for such systems to compulsorily come with a BIS certification.

“Even if this makes it costlier to manufacture in India, we will still do it because Chinese manufacturers will not seek to get certified under Indian quality norms,” he said. Mr. Aggarwal said the situation had arisen because of overcapacity in China, but it wasn’t always like this. “In 2009, 2010, 2011, people used to import from companies like First Solar in the U.S,” he said. “But then China developed overcapacity in manufacturing so U.S. firms started going out of business and China started taking over.”







(Source: The Hindu)

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