Uncertainty Surrounds the Fate of Solar Safeguard Duty After July 2021

Stakeholders believe that some sort of barrier will be in place until BCD kicks in next year


The crucial duty of protecting domestic solar cell and module manufacturers in India against imports from China PR, Thailand, and Vietnam is set to end on July 29, 2021. Until the basic customs duty starts from April 1, 2022, a nine-month no-duty period has the manufacturers concerned. The project developers are keen on utilizing this rare duty-free period to ramp up their module procurement.

The tale of two duties

The 25% safeguard duty, announced on July 30, 2018, was imposed on solar cell and module imports from China and Malaysia. The duty of 25% for the first year was phased down from the second year, with the rate reduced by 5% every six months until it ended in July 2020.

In July, the safeguard duty was extended and was applied to imports from China, Thailand, and Vietnam. The duty was set at 14.90% from July 30, 2020, to January 29, 2021, and 14.50% from January 30, 2021, to July 29, 2021.

Last week, the Ministry of Commerce and Industry said that the Directorate General of Trade Remedies (DGTR) had initiated an anti-dumping probe on imports of solar cells from China, Vietnam, and Thailand. It will take a few months for the DGTR to submit its recommendations.

While the protectionist measures on the part of the government are meant to shield the domestic manufacturers, the industry is looking for a balance in the process so that the interests of all the stakeholders in the solar supply chain are guarded.

The question on everyone’s mind is if safeguard duty will be extended until the BCD kicks in or whether there will be a duty-free window after July.

Extension integral

Speaking on the duty-free window between August 2021 and April 2022, Bharat Bhut, Co-founder, and Director of Goldi Solar, said, “This window presents the Chinese manufacturers an exclusive opportunity to dump their modules in India at dirt-cheap prices and offers that developers will also find hard to resist. At the same time, duties on raw material imports will continue to be levied.”

“The Covid-19 pandemic has already impacted the domestic solar manufacturing industry negatively, with raw material prices and freight charges shooting up. We are also plagued by supply chain issues and dealing with poor investor sentiment. Without government intervention, we run the risk of units shutting down and nearly 300,000 jobs being lost. It could also cause the industry to halt in its tracks or push it back by a decade. We appeal to the government to extend safeguard duty or introduce an interim duty. The future of the domestic manufacturing industry hinges on the government’s decision,” Bhut reasoned.

China accounts for more than 80% of the module supplies to the country, and the Indian module manufacturers are finding it hard to compete with the competitive Chinese prices.

Vinay Pabba, Founder of VARP Power, said, “This may no longer be in the realm of speculation. The DGTR has just initiated an anti-dumping investigation into the import of solar cells from China, Vietnam, and Thailand. If this comes through, then at least for these countries, safeguard duty will be replaced with some form of anti-dumping duty. So, in all likelihood, we may see either of the two things happening. Either a provisional extension of safeguard duty until April 2022 or anti-dumping duty in place of safeguard duty for select countries.”

Many believe that there is a need for such protectionist policies to incentivize the domestic manufacturing sector. While others differ and hold a completely different view on the topic.

Incentivize not Penalize

“I have long held the view that creating tariff and non-tariff barriers is the wrong way to go about incentivizing domestic solar manufacturing capacity. At the end of the day, all these are indirect taxes, and the most disadvantageous feature of indirect tax is the lack of equality in its impact. Indirect taxes are regressive. All this will achieve is revenue for the exchequer and a higher power tariff for all. That is not a very desirable outcome if this starts tilting the economics of power in favor of coal – which can potentially stall our ambitious energy transition program,” added Pabba.

“The government has multiple other policy tools to incentivize domestic manufacturing like investment subsidies, interest subventions, goods and services tax and other tax breaks, concessional access to land, and power tariffs, among others. We can even think of extending a tariff preference in bids for developers proposing modules with domestic content. Given the multitude of options, I think we have made the wrong policy choice in hiking tariffs to 25% and 40% for solar cells and modules without looking at other policy options,” opined Pabba.

While there has been no official announcement from the government, the stakeholders seem to be in the dark regarding the duty after July and its impact on the domestic manufacturing segment.

MSMEs to be a casualty

Speaking to Mercom, Avinash Hiranandani, Chief Executive Officer and Managing Director of RenewSys India, said, “Between August 1, 2021, and the imposition of BCD next year in April, we might have a void. There should be some form of restriction or barrier during the period. Else the solar supply chain will take a beating. Some form of safeguard duty should be implemented to ensure that the Indian manufacturers are not hit hard. The Chinese modules will become 15% cheaper, and it will be easier for them to dump their low-cost products in India. If the barriers are removed, it will be next to impossible to compete with the Chinese manufacturers.”

“The developers will not be greatly affected by this as they have enough time to build a strategy until the BCD comes into effect next year. It’s the small manufacturers and the micro, small, and medium enterprises that will be affected the most. The second wave of the Covid-19 pandemic has further complicated the situation. The government should take a sympathetic approach in the light of the Covid-19 pandemic and extend the validity of the safeguard duty instead of lifting it altogether. The protection should be there in some form,” noted Hiranandani.

The imposition of various duties by the government is an attempt to scale up the domestic manufacturing segment and keep out the imports from other countries.

Duty optimism

Stressing the need for duties to safeguard the interest of the Indian manufacturers, Dhruv Sharma, Chief Executive Officer of Jupiter Solar and the president of the Indian Solar Manufacturers Association, said, “We have made requests at appropriate forums, but we have not got any feedback from the Ministry of Commerce or the Ministry of New and Renewable Energy yet. The authorities say that they need some more time to assess the situation. We are not very optimistic but are hoping for the best. The matter is being duly pursued. We requested that the safeguard duty be extended. We have also filed a petition for anti-dumping duty.”

“If the deadline is not extended, it will be a big blow for the Indian manufacturing sector. The market would be flooded with Chinese imports. The manufacturers will have to shut shops for the next eight-nine months and wait for the BCD to kick in. Manufacturing is a continuous process. It’s only after four-five years that results begin to show, and if you don’t support them for nine long months, Indian manufacturers will suffer significant losses. This will bring down their competitiveness. Gaps between policies will render all the hard work put in futile until the next viable policy kicks in. They should extend safeguard duty or have an anti-dumping duty in place at least until BCD comes in,” Sharma added.

Duties to counter imports

Anti-dumping, safeguard, and countervailing duties are generally used by the domestic industry to counter imports. Each of them is unique.

But a backdoor restriction to imports may be coming in the form of ALMM.

The government has been stringent on the compulsory registration of solar module manufacturers under the Approved List of Models and Manufacturers (ALMM). Only the models and manufacturers included in the list will be eligible for government projects like SECI and NTPC. None of the foreign suppliers who have paid for the ALMM have been registered since their manufacturing units are not physically inspected, and it might take another year for that to happen. Why such an important policy is being implemented knowing travel is unsafe in the middle of COVID-19 is a question for the government.