The unexpected (and strange) silence on the duty-free period for solar imports!
August 13 2021

The unexpected (and strange) silence on the duty-free period for solar imports!

India’s growing position as a global climate leader needs to be maintained and strengthened with policies that support it. It has been more than 15 days since safeguard duty on solar modules ended. However, there has been an unprecedented and uncanny silence from the government and industry participants. There is a clear 40% customs duty to be enacted from 1st April 2022, and there was a safeguard duty at 14.5% until 29th July 2021. This duty-free window is a policy tool that is hard to understand. Moreover, the silence of an official announcement presents multiple risks. Should one place a bid based on the assumption of Zero duty, or should one assume a certain number? How much will this hurt domestic manufacturing?

The government believes its implementation of ALMM will protect domestic manufacturers. However, the government has its math done wrong. Firstly, ALMM applies to only government-assisted/supported and sale to government projects. Secondly, it is applicable for such projects that are bid after 10th April 2021. Private installations and project bid before 10th April 2021 are outside its purview.

Fact Check: Many projects – amounting to approx. 25GW are under development and were bid before 10th April 2021. Hence, they do not fall under it. Further, it is expected that 10GW of utility-scale installations will take place between Jan – Dec 2021 alone. All these projects do not fall under ALMM. Moreover, the roof-top segment has already added installations of 1.9GW in 2021 Q1 and most of these projects do not fall under the purview of ALMM. The duty-free period is a boon for the developers and a much need respite against the rampant project cost inflation. However, there is a saying that “One Man’s meat is another’s poison.” The duty-free period will result in a total loss to Indian manufacturers. The real effect of ALMM and customs duty in curbing solar module imports will only reflect from the later part of 2022 and onwards.

The Solar sector has its own set of challenges, and the policy tools ensure we do not have it easy. As a developer, focused on the C&I segment, this could not be a better time for us! ALMM is understood to be not applicable here. Hence, we will take advantage of this duty-free window. Since the duty-free window expires on 31st March 2021, we can expect over 25GW of module imports between now and then that are enough to build plants until the end of 2022. However, the Indian in me would like to see domestic manufacturing being supported in India. This duty-free window is a gross injustice to Indian manufacturers. A more balanced approach is required from the government to level the playing field.

If nothing else, a more concrete clarification is required. However, given the 30-40 days lag between placing an order and having it delivered in India means a duty could be announced by the time the modules reach Indian shores. This is a risk and a major one at that! There is an ongoing anti-dumping investigation for imported solar modules of which the outcome is expected in October. However, with the Supreme Court recently highlighting the tardiness in the investigation timeline, could result an earlier outcome. Hence, more uncertainty and risk for developers.

Developers are handed out turn-key contracts in which price escalations are not passed on to the end consumer. Hence, building in provisions in the contract that could raise overall projects costs by 15% is a pill that this difficult for a consumer and a developer to digest.

The only anti-dote is clarity and policy stability.