Before examining the reasons surrounding India’s solar manufacturing anti-dumping investigation, one overarching point must be made clear: India needs power. It is estimated that there are roughly 400 million Indians without access to power – roughly a third of the country, according to World Bank.

India has the largest population without power of any country, even after the government had committed to provide power to all Indians by 2012 as part of their “power for all” pledge. The people and businesses that do have power face acute power shortages – about 9 percent power deficit and about 10 percent peak power shortage. A few months ago India faced one of the largest blackouts ever, when 600 million people were out of power for several days due in large part to insufficient power generation.

Historically, India has always struggled to meet its power generation goals through conventional forms of energy due to coal shortages, equipment shortages, unviable power projects due to aggressive project bidding, and red tape. In fact, since 2000 power generation has never been able to keep up with GDP growth (except for last year due to an unexpected fall in GDP) and has been a contributor along with infrastructure bottlenecks to prolonged high inflation. India’s push for solar, wind and other renewable energy sources makes a lot of sense in an “all of the above” strategy, something that is needed to tackle such a massive power problem.

It is interesting to note, that India is taking a different path than its successful wind sector, which is consistently in the Top 5 in globally when it comes to installations. The wind sector’s success can be attributed to successful policies like generation based incentives while avoiding domestic manufacturing clauses and trade disputes.

Given its flexibility and increasing affordability, solar is a unique solution to India’s power problem along with others. India had the foresight to bring solar into the generation mix, but is losing its focus by getting into a trade war that is causing an unnecessary distraction. This could curtail all the progress it has made in developing its solar potential.

Enter Solar

Solar shows tremendous promise as one of the most attainable sources of power in India, and though it’s still in its infancy, the Indian solar sector is on the rise and represents a great future for economy, industry, jobs and environment. Prior to 2010, however, the Indian solar industry pretty much didn’t exist. By the end of that year, it installed just 35 MW compared to 980 MW installed in 2012. Currently, cumulative solar installations in India stand at over 1,200 MW (as of February, 2013). The Jawaharlal Nehru National Solar Mission (JNNSM) policy, the driving force behind the rise of India’s solar industry, has a goal to install 20 GW by 2022.

India and Anti-dumping

In an effort to protect domestic PV manufacturers, India has initiated a trade dispute with the United States, China, Taiwan and Malaysia. As we said in our first quarter update, for a solar market still in its infancy, starting a trade war is an unnecessary distraction when the focus should be to encourage new technologies, competition and free markets. This is adding unwanted uncertainty to the young Indian market where financing is already a challenge and foreign investment is sorely needed.

To be fair, India is not alone. The EU and Japan filed charges against Ontario, there’s the well documented United States vs. China, the EU vs. China and China vs. the United States, South Korea and the EU. However, India is not the United States, EU, Germany or China. India is India, with its unique set of incomparable energy problems. None of these other countries or regions come close to India’s power shortage situation. India can ill afford to delay or create any sort of uncertainty when it comes to power generation.

Responding to India’s opening volley, the United States recently announced that it has requested World Trade Organization (WTO) dispute settlement consultations with the government of India concerning domestic content requirements in India’s national solar program. They state that India’s program appears to discriminate against U.S. solar equipment manufacturers by requiring developers to use Indian-manufactured solar cells and modules by offering subsidies to developers that use domestic equipment instead of imports.

While the investigation to determine the validity of India’s anti-dumping allegations is still in progress, let’s focus on the premise of why the case was filed in the first place – foreign imports are killing Indian manufacturers. As we look at the facts it is very clear that the cause of the woes of PV manufacturers has little to do with PV module imports.

Export Driven Manufacturing

Indian solar manufacturing was in existence long before any policy or significant market demand existed in India. It mainly focused on OEM manufacturing and exporting to European countries. Based on export numbers going back 10 years, this export-driven PV manufacturing capacity had no correlation to domestic demand but has been driven by global demand. India had exported almost $2 billion worth of PV modules before there was any real demand in India. In fact, exports boomed in 2008 in correlation with massive growth in global PV installations. It then fell in 2009 as global growth slowed due to recession and exploded again in tune with massive growth in global installations in 2010. During this time, manufacturing capacity exploded around the world, (especially in China,) and prices dropped to record levels (from $1.80/w to $0.65/w – almost 65% drop from beginning of 2011 until the end of 2012). Meanwhile, Chinese c-Si manufacturers have dominated and beaten out the competition and captured most of the market share from American, European as well as Indian manufacturers among others.

Indian manufacturers fell into the same trap as everyone else, and there was no capacity rationalization. In fact, capacity doubled between 2010 and 2012 while mainstay exports fell. Indian exports started crashing in 2011 as Chinese panels started to capture most of the European market share. Indian manufacturers, with export markets drying up, started focusing on the Indian domestic market and started to lobby for domestic content clauses to protect the market from foreign competition. This eventually led to India’s anti-dumping investigation against China, the United States, Malaysia and Taiwan, which is based on alleged dumping of solar modules by these countries into India. As the data shows, historically, there’s just no correlation between growth in domestic demand and manufacturing capacity expansion.

Focus on Demand – Supply Will Follow

Like it did with cell phones, India has a chance to leap frog into renewables and distributed generation and be one of the first countries where alternative energy sources could become “conventional sources of energy.” India needs to avoid unnecessary distractions and maintain focus on creating a fertile policy environment for private and foreign investments in the power sector, which in turn, will help fuel economic growth. With strong demand, supply will follow and domestic manufacturing will flourish.

By Raj Prabhu, CEO and Co-founder of Mercom Capital Group