The imposition of safeguard duty on solar cell and module imports from China and Malaysia is proving to be a bigger issue for local manufacturers than was perhaps anticipated.
Last year, the Directorate General of Trade Remedies (DGTR) recommended a 25 percent safeguard duty on solar cell imports from China and Malaysia for the first year, followed by a phased down approach. In the first six months of the second year, a safeguard duty of 20 percent will be payable by exporters to India and in the latter half of the second year, exporters will pay a safeguard duty of 15 percent. The safeguard duty of 25 percent on solar modules and cells has been in effect since July 30, 2018.
Months after its implementation, the industry can now reflect on how good or bad the repercussions of the duty have been. Mercom spoke with a few stakeholders to understand the ground realities from the industry about the issue.
“The Imposition of safeguard duty has failed to achieve the desired objectives of according protection to the domestic manufacturers from the sudden surge of imports. The safeguard duty has been imposed for two years and the implementation period of utility scale solar projects is 18 to 24 months. In such circumstances, the solar projects which were auctioned before the imposition will mostly be procuring panels during the period safeguard duty is to remain in force, and are eligible to pass the burden of the safeguard duty to the end consumer by invoking the change in law clause of the Power Purchase Agreement,” Amit Gupta, Director of Legal & Corporate Affairs, Vikram Solar, informed Mercom.
Initially, it was widely believed that all Indian manufacturers would benefit from this move. However, the authorities later specified that solar module and cell manufacturers in India who are operating in special economic zones (SEZs) will not benefit from the levy of 25 percent safeguard duty on solar imports, which was a setback for many manufacturers. Manufacturing units operating from within SEZs will have to pay safeguard duty on any product released into the domestic trade area.
When contacted, Dhruv Sharma of Indian Solar Manufacturers Association (ISMA) said, “If an SEZ unit is utilizing Indian cells to produce modules and then releasing it in a domestic tariff area, they do not have to pay safeguard duty, but if they utilize the imported cells from China or Malaysia to manufacture modules and then release it into the same area, the safeguard duty will be levied.”
It is important to highlight here that in India, domestic cell manufacturing capacity is small and is mostly dominated by a handful of manufacturers.
Gupta elaborated further on the issue, “Developers can only pass on the additional cost in the case where modules or panels are sourced from outside India and not if they are procured from domestic manufacturers. Thus, the safeguard duty incentivizes developers to source imported modules. Many tenders, which were auctioned out after its imposition, were cancelled citing the higher tariffs. Overall, the market dynamics are now more difficult for the domestic manufacturers since the imposition of safeguard duty.”
Sunil Rathi, Director Waaree Energies is of the view that the limited geographical implementation of the duty has resulted in imports being redirected from markets like Thailand, Vietnam, and other neighboring countries, which are exempt from the duty. The lack of robust anti-dumping policies has also been detrimental to any positive impact of the safeguard duty that the industry had foreseen. He says, “We are still competing against low quality products at unsustainable prices, leaving little to no scope for bringing in innovative technologies or enhancing capacity. It also results in the industry not being lucrative or supportive to small scale manufacturers or new entrants.”
This, in turn, has limited some large manufacturers who would have otherwise thought of expanding capacities.
Rathi added, “Most products from China and Malaysia that are present in the Indian solar industry have been dumped, further driving down market prices to its current rates. Per your research, imports saw an increase of 38 percent in the third quarter of 2018, with Chinese companies accounting for around 84.5 percent of imports to India. When the implementation of the safeguard duty was announced, we were hopeful that prices would be streamlined and allow us an opportunity to showcase our capabilities and achieve economies of scale. However, module prices remain unchanged leading to a continuous cycle of low-quality products and rates, which leaves domestic manufacturers with no option to enhance capabilities.”
A source at one of the large solar manufacturers in the country told Mercom, “The levy of the safeguard duty is useless now that the manufacturing units in SEZs are kept out of its ambit of benefit. Outside of SEZs, not even 1 GW of manufacturing capacity is operational. Do you think these firms have the capability to scale up by even 500 MW in successive financial years? The safeguard duty is a move that has backfired. And for the next year and a half, the sector will suffer.”
“Chinese module prices even after the levy of the safeguard are at the same price level as before. They have decreased the cost of raw material (polysilicon ingots, wafers) in China for their firms and the same raw material is available at a higher cost to Indian firms working outside SEZs. So, tell me who is benefitting,” asked the source.
Meanwhile smaller domestic manufacturers are not happy and do not agree with the larger domestic manufacturers. A mid-sized added “After safeguard duty imposition and BIS issue, the Chinese imports are fairly restricted. But the manufacturers in Special Economic Zone (SEZs) enjoy all privileges and export advantages compared to Domestic Tariff Area units. These SEZs don’t pay export duty, GST, electricity charges, and now they are not even paying safeguard duty but are selling in India. The Domestic Tariff Area units pay GST, safeguard duty, and GST on safeguard duty and our working capital gets blocked. This has created a huge imbalance in India. The price gap between SEZ and Domestic Tariff Area unit prices of modules is ₹1-1.5/W. SEZs need to pay SGD on imported cells and modules but are not paying.
Dhruv Sharma of ISMA reiterated that Chinese manufacturers have reduced their prices to counter the of safeguard duty and module prices are at the same standard as before. “You cannot say that the safeguard duty has disrupted the market as the demand from developers is low even though module prices are the same. We can say that the developers are stalling to let the first year pass by. Installations have trickled down due to reasons such as land unavailability, cancellation of auctions, and not due to the safeguard duty. As a manufacturer, I want a bigger duty for a longer duration,” added Sharma.
Recently, the Directorate General of Trade Remedies has also recommended an anti-dumping duty of $114.58/metric ton for a period of five years on the import of textured tempered coated and uncoated glass from Malaysia. In 2017, the Ministry of Finance had imposed an anti-dumping duty on tempered glass (solar glass) imported from China in the range of $64.04 per metric ton to $136.21/MT. This is expected to result in a monopoly for glass manufacturer Gujarat Borosil who had filed the petition requesting the imposition of an anti-dumping duty. This doesn’t bode well for India’s solar manufacturing sector either as the cost of another raw material required to manufacture solar modules will go up.
Talking about this duty on solar glass, Rathi said, “As the prices of raw material rise, we are bound to witness an increase in the overall price of the solar module and hence the project development cost. However, this increase has been minimal.”
Talking about the impending duty on solar glass Gupta said, “Please note that DGTR has recommended the imposition on anti-dumping duty on some tempered glass manufacturers based out of Malaysia. However, Ministry of Finance is yet to take a call on the DGTR recommendations. Hence, in current scenario, there is no duty on import of tempered glass. In case the Ministry of Finance accepts the DGTR recommendations and imposes the duty on import of tempered glass, it would certainly increase the cost of manufacturing solar PV modules in India.”
Six months after the imposition of the safeguard duty, none of the stakeholders seem to be pleased. While manufacturers want more duties and more restrictions on imports, developers want to be able to buy components at the cheapest price. Meanwhile, the government does not want to pay more to procure power and has cancelled multiple auctions citing high tariffs, which was due to the safeguard duty that they imposed. We will continue to see a tug of war and the uncertainty that comes with it for the foreseeable future.