In a move to make imports costlier and encourage local manufacturing, the goverment has decided to impose 40% basic customs duty (BCD) on solar modules and 25% on solar cells from 1 April 2022 onwards. According to the 9th March 2020 notification, the idea of this to make India emerge as a leading global supplier of solar cells and solar modules, besides meeting the internal domestic India's requirement. Solar cells and solar modules import currently do not attract any kind of basic customs duty, due to which the imported cells and panels are extremely economical for all. This move is set to increase the cost of solar pv plant for potential adopters atleast 25-30% more expensive.
One year time perod was given so that the projects for which bids were already submitted, raw materials for the same could be gathered and stocked at old costs.
The notification also mentioned: “The ministry of finance has also advised that the customs notification in this regard shall be issued at the appropriate time".
The customs duty of 40% introduced, will replace a 15% safeguard duty which is currently imposed on imports from China and Malaysia. The development follows the government announcing a production-linked incentive (PLI) scheme that offers manufacturers in 10 sectors, including those of high-efficiency solar modules, a total benefits of ₹1.97 trillion. This plan has gained traction with about 13 companies in India who are considering total investments of around $3 billion to build solar equipment manufacturing facilities here.
“Presently, India’s solar sector, just like in any other country, is reliant on imports of solar equipment. The government has also noted instances of certain countries dumping solar cells and modules to kill the nascent domestic industry because of which the government had to impose safeguard duties," the notification said.
The market for solar components is dominated worldwide by Chinese firms. India imported $2.16 billion worth of solar photovoltaic (PV) cells, panels and modules in 2018-19. The goverment claims that the surge in imports prompted it to impose a safeguard duty from 30 July 2018 on solar cells and modules imported from China and Malaysia. The safeguard duty, which was set to expire on 29 July, has also been extended by a year.
“The covid-19 pandemic brought disruptions in international trade, including imports of solar modules and solar cells, affecting solar capacity additions. Considering India’s huge solar targets and that electricity is a strategic sector of the economy, India needs to develop domestic solar manufacturing capacities and reduce its dependence on imports to avoid disruption," the notification added.
The move is intended to make solar modules imported from China expensive than the domesticly available ones. Along with leveraging its growing green energy market to boost manufacturing, India is planning to play a larger role in global supply chains.
India is running the world’s largest clean energy programme to achieve 175 gigawatts (GW) of renewable capacity, including 100GW of solar power by 2022. A bold statement by the goverment of India, but the implimentation is certianly questionalbe. According to the Central Electricity Authority, by 2030, the country’s power requirement would be 817GW, with more than half from clean energy sources, and 280GW would be from solar energy alone. To achieve the target of 280GW, around 25GW of solar energy capacity is needed to be installed every year till 2030!
MNRE wanted to impose the basic customs duty on all imports from 1 April 2021 itself. That ment it needed to grandfather the previous bids tat were already awarded by allowing a pass through in power tarrifs for projects before basic cutoms duty is introduced. The plan was later dropped.
“Because of above, the undersigned is directed to inform all RE implementing agencies and other stakeholders, to take note of above trajectory and to include provisions in their bid documents, so that bidders take the trajectory into account while quoting tariffs, in all bids where the last date of bid submission is after this office memorandum. In all such bids, the imposition of BCD as per above trajectory shall not be considered as change- in-law," the notification said.
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