The Dark Side of India’s Solar Gamble

Context: The recent increase in the tariff of solar imports, while intend to foster indigenous development, may have certain fallouts.

Stages of solar panel manufacturing: In reverse order of ‘finished’ to raw ‘material’ , there are modules, cells, ingots and wafer and polysilicon.

Issues with raising Basic Custom Duties (BCD):

• Can be contested in World Trade Organisation (WTO): Being distortionary in nature.
• Chinese dominance: While the challenge at the WTO can be delayed (since the US has refused to appoint appellate judges), retaliation on the part of China can be more damaging.
  • China’s share in solar-grade polysilicon capacity at 64%.
  • Further, Chinese manufacturing is shifting towards advanced technologies - from multi-crystalline silicon to monocrystalline silicon.
  • It is also possible for Chinese manufacturers to relocate to other countries which are not affected by the duty and export to India from those countries.
• Drawbacks of ‘Me-First attitude’: While the me-first attitude has made a comeback in policymaking worldwide (e.g. vaccine nationalism), it has the following drawbacks:
  • Cost and benefit analysis become difficult: Due to the bureaucratic inefficiency and ineptness in handling the increased demands of domestic producers.
    • Additional factors such as the cost of capital and the evolution of technology have a substantial bearing on the outcomes.
  • Thus, In the end, the country may be left with protection with no commensurate domestic capability acquisition as a payoff to show for it.

Issues in the Indian solar manufacturing industry:

• Low ambitions: The existing capacities in insufficient to meet the demands.
  • For e.g. While the specialized glass is used in solar panels are made by Borosil in India cannot meet the required domestic demand. Same goes for specialized plastics used in circuits.
  • India’s solar cell manufacturing capacity stands at 3GW, and for modules, it is 5GW, whereas the country’s solar power generation capacity stands at 32GW.
• Low quality: Energy efficiency of Indian-made PV cells is less than what is claimed, leading to the actual cost of power generation being higher than what it ought to be. 
  • This undermines the power generator’s ability to deliver cheap solar power. Naturally, the result is that the financial viability of solar power producers comes under strain.
• Dependence on China: Almost 75% of India’s solar power capacity is built on Chinese imports.
• Setting up performance criteria is not easy: Additional factors such as the cost of capital and the evolution of technology have a substantial bearing on the outcomes. 

Way forward: Providing a window of opportunity for the domestic industry to expand solar manufacturing capacity without jeopardizing its renewable energy goals.

• Focus on manufacturing of ingots and wafers: The manufacturing of ingots requires high purity silicon and good quality electrical power.
  • The skillsets required (metallurgy and material science) too are available in the country in both industry (steel and aluminium) and in academia.
• Tangible support by the government: Through the provision of public goods in select industrial areas.
  • These can be the form of state-provided worker housing, power backup systems, and environmental management systems.
• Focus on low carbon embedded solar manufacturing: The Ultra-low- carbon Solar Alliance launched in October 2020 has the goal of increasing the market demand for solar panels manufactured with low embedded carbon.
• Lower the cost of operating or doing business in India:  India’s Licensing, Inspection, and Compliance (LIC) regime at all levels of the government are intricate, time-consuming, and costly.
  • Developing ‘plug and play’ facilities: World Bank points out that the ‘plug- and play facilities in China “played a critical role in facilitating the growth of Chinese SMEs from family operations to global powerhouses, avoiding the ‘missing middle’ problems that other countries still face.”
• Think beyond import duties: Removing duties would help indigenous development. For e.g.
  • Borosil glass will be doubling its solar panel glass manufacturing capacity to 900 tonnes per day. This is because it is protected by anti-dumping duty.