Solar equipment makers in SEZs demand level field to counter China imports

Key Highlights

• India to impose Basic Custom Duty (BCD) and extend Safeguard Duty (SGD) on imports until July 2021BCD will give advantage to units in Domestic Tariff Area (DTA), say units in SEZs
• While manufacturers in SEZs have to pay BCD on value addition, those in DTA need not
• 63% solar cell and 43% module manufacturing capacities located in SEZs
• India has 3 gigawatts (GW) of solar cells and 10 GW of module manufacturing capacity

While the government is planning to impose more safeguards like Basic Customs Duty (BCD) on solar imports mainly from China, a level playing field is required for domestic units in special economic zones (SEZs) with those in non-SEZs, say industry representatives.

Last week, the Ministry of Finance extended the Safeguard Duty (SGD) on imports of cells and modules for another year until July 2021. Further, the ministry of New and Renewable Energy (MNRE) has given the go-ahead to the proposal to levy BCD of about 20% on imports. The finance ministry is expected to come up with a decision on it (BCD) soon.

The SGD will not benefit the domestic industry as imports will get duty pass through under change in law clause and the move on BCD can benefit domestic manufacturers, only if units in the SEZ and Domestic Tariff Area (DTA) are placed on a similar footing in terms levying BCD.

A manufacturer would be liable to pay BCD on value addition done in SEZ, whenever modules are cleared from SEZ to DTA, irrespective of the fact that cells or modules are manufactured in SEZ or not. As against this, a manufacturing facility located in DTA won't be liable to pay BCD on value addition done in DTA. This anomaly could lead to the closure of units in SEZs and loss of over 15000 jobs, they say.

Also Read: India-China standoff: Govt extends safeguard duty on solar cells, panels by one year

"There was an apprehension that manufacturing units located in SEZ have availed certain benefits in past and hence if BCD is not levied while clearing the products from SEZ to DTA, it will give manufacturing units located in DTA at a cost disadvantage," said Saibaba Vutukuri, CEO, Vikram Solar. He suggests that the government should implement the proposal of 'Equalisation Levy', whenever solar cell and modules manufacturing units located in SEZ clear their goods to DTA, to offset the advantages availed by units in SEZ.

Avinash Hiranandani, Global CEO and Managing Director, RenewSys said with 63% cell manufacturing capacity and 43% module manufacturing facility located at the SEZs, the government must take necessary steps to protect the investments already made by the manufacturing units located in the SEZ. "It would help conserve substantial foreign exchange and create at least 3,00,000 to 4,00,000 jobs over the next 2-3 years," he said.

Presently, the domestic manufacturers in SEZs have an installed manufacturing capacity of 2000 megawatt(MW) for solar cells and 3825 MW of modules. As against this, units in DTA have 1164 MW of solar manufacturing and 5053 MW of module manufacturing capacity. India is importing 90% of the solar equipment, though the country has about 3 gigawatts (GW) of solar cells and 10 GW of module manufacturing capacity.

Also Read: India to impose 20% customs duty on solar equipment, more riders on imports from neighbouring nations

The projected solar deployment in 2020-21 is 15GW, and 18 GW, 20 GW and 20 GW over the next three years. If the current trend continues, India will have to deploy future installation majorly dependent on imports, they said.

"It is no doubt that India has emerged as a strong market for solar power equipment in the last 5 years. With the government setting ambitious targets of 175 GW by the year 2022, it is important to ensure a conducive policy environment in order to achieve it," said S.L. Agarwal, Managing Director, Webel Solar.

Exports by the domestic solar industry have increased from US$121 million in 2018-19 to US$ 212 million in 2019-20. India can avoid the outflow of US$ 18 billion of forex reserves if it deploys domestic projects based on indigenous cells and modules over the next 4-5 years, he added.