In a move that could reshape India’s solar manufacturing, the Ministry of New and Renewable Energy (MNRE) has asked the Department of Financial Services to advise banks, financial institutions, and non-banking financial companies to adopt a cautious approach while financing new standalone solar module manufacturing capacity.

The ministry said lending decisions should be based on informed market assessments, given the widening gap between domestic module supply and demand.

In an office memorandum, MNRE urged lenders to prioritize projects that plan fully integrated solar manufacturing facilities rather than only adding module assembly lines. It said financing should support capacity that extends upstream into solar cell, ingot, wafer, and polysilicon production, enabling a more balanced and resilient domestic manufacturing ecosystem.

The ministry also recommended directing funding towards parts of the photovoltaic value chain where domestic capacity remains low relative to demand. These include upstream stages such as ingot, wafer, and polysilicon manufacturing, and essential ancillary components used in solar cells and modules.

Among ancillaries, MNRE highlighted solar glass and aluminium frames as key gaps. India’s domestic solar glass capacity is currently estimated at around 15 GW per year, while aluminum frame capacity stands at about 17 GW per year. Strengthening these segments, the ministry said, will be critical to reducing import dependence and supporting long-term growth in domestic solar manufacturing.

The advisory follows concerns raised by the All India Solar Industries Association (AISIA), which wrote to MNRE, warning that the rapid build-out of module capacity has created significant overcapacity. It said India’s module manufacturing base has expanded nearly four times the country’s annual requirement, increasing the risk of stranded assets and price pressure on manufacturers.

Module capacity enlisted under the Approved List of Models and Manufacturers List as of November 2025 was 121,722 MW.

AISIA also pointed to lending behaviour in the sector, arguing that uncoordinated or aggressive financing of fresh module capacity could be harmful not only for the industry but also for the banking system. It said lenders should conduct deeper due diligence before supporting additional module and cell lines, and instead consider financing segments where capacity deficits are clearer.

Responding to these concerns, MNRE said India’s installed solar module manufacturing capacity is already far above current domestic demand by about 200–250%. It added that industry inputs indicate module capacity could cross 200 GW in the next few years, further widening the imbalance if domestic demand growth does not keep pace.

According to Mercom India Research’s Q3 2025 Solar Market Update, India’s large-scale solar project pipeline stood at 191.9 GW, with another 162.5 GW of projects tendered and pending auction as of September 2025.

MNRE noted that while cell capacity is slightly below present demand, multiple facilities under development are expected to push cell manufacturing beyond 100 GW in the coming years, potentially creating a similar oversupply situation.

As of November 2025, the cell capacity registered under the Approved List of Models and Manufacturers List-II stood at 18.48 GW.

In contrast to modules and cells, MNRE underlined that India continues to face a sharp upstream shortfall. The country has only about 2 GW of ingot and wafer manufacturing capacity and lacks commercial-scale polysilicon production, leaving manufacturers dependent on imports for critical inputs.

The government recently proposed mandating the use of India-made wafers and ingots under the Approved List of Models and Manufacturers (ALMM) starting June 1, 2028.