India's solar dream intact, despite WTO's whip on local sourcing

Sidhartha Shuklamoneycontrol.comWhat was earlier speculated as a major setback for the rapidly growing Indian solar industry and the 'Make in India' initiative might turn out to be a blessing in disguise.

The World Trade Organisation (WTO) ruled against India's final appeal on September 21 and upheld its previous verdict against domestic content requirement (DCR) provision for solar projects in India.Launched in 2010 by the UPA government under Dr Manmohan Singh, the Jawaharlal Nehru National Solar Mission (JNNSM) had set an ambitious target of deploying 20 GW of solar power by 2022 and establishing "India as a global leader in solar energy, by creating the policy conditions for its diffusion across the country as quickly as possible."On the back of this scheme the government in office also wanted to protect and boost domestic manufacturing by including a safeguard measure in the form of domestic content requirement (DCR) to strengthen a solar photovoltaic manufacturing base.

Back in 2013, the US had raised concerns that the protective measures "appear to nullify or impair the benefits accruing to the United States directly or indirectly under the cited agreements."

Earlier this year in February, the WTO panel had ruled that the bind on solar power developers to make use of locally made products while selling electricity to the government were not in line with the TRIMs (Agreement on Trade-Related Investment Measures) and the general agreement on tariffs and trades (GATTs).

A report by Bridge to India says that the Indian government had unnecessarily wasted time and money on pursuing a protectionist policy and its repeal by the WTO may in fact be helpful in the long-term.

The ruling should compel India to create a more sustainable roadmap for a viable domestic manufacturing sector, the report added.

“Nothing is lost; it isn’t a cause of concern. The decision will not have much impact on the domestic solar industry,” Sunil Jain, CEO of Hero Future Energies in Delhi, which executes solar power projects, told indiaclimatedialogue.net.

“The US isn’t significant in our solar product imports. Of a total of USD 3 billion a year, the US contributes an insignificant USD 20 million,” Jain said. “India’s true domestic content in its total manufacturing capacity of solar products [which] hardly amounts to 2,000 MW.”

The target under JNNSM has now been increased 5 fold to 100 GW of solar power generation by 2022 by the ruling NDA party under the leadership of Prime Minister Narendra Modi.

Relentless focus on protecting small domestic players had diverted attention from areas that could have been profitable and given the country a competitive edge on the global front.

''India already offers extremely attractive subsidies under Modified Special Incentive Package Scheme (M-SIPS) and other such schemes but all such measures have failed to produce desired results because of the formidable challenges faced by manufacturers in India,'' the report said.

The report pointed out that at present India has a competitive advantage in manufacturing solar inverters and balance of system components, and opined that the country should focus on becoming a leader in these areas.

Another study conducted by Stanford Business School on the effectiveness of the DCR, back in 2013, highlighted the following points:

- The manufacturing base has become less competitive over time.

- Developers may have been favoring thin-film technology, thereby bypassing the DCR, which applies specifically to crystalline silicon cells and modules.

-Gaps in the Indian innovation system are likely to prevent a return to competitiveness by solar photovoltaic manufacturers.

The study had concluded that policymakers should remove the solar photovoltaic DCR from the National Solar Mission (NSM).

Going Forward

Debasish Mishra, Partner, Deloitte, India told moneycontrol.com that the verdict will hit domestic manufacturers but independent power producers (IPP) in the renewable sector won't be impacted.

He added that even without this verdict the government knew that the solar industry needs a push in terms of capacity addition, to achieve its 100 GW target by 2022, and getting there is not possible just on the back of domestic manufacturing.

The commissioning status of grid-connected solar power projects under the JNNSM stood at around 8 GW as at end of August. An additional 92 GW capacity addition is to be achieved by 2022, which is a Herculean task in itself.     

"In our opinion, the government can continue to try and strategically support a few large-scale manufacturing facilities. However, protecting small and uncompetitive facilities forever is not the best use of public finances," Bridge to India said.

In accordance with the view expressed in the BTI report, it will be in the interest of the nation to strengthen domestic manufacturing in areas that provides us a competitive edge rather than trying to promote investments in an oversupplied sector where most large global companies are constantly stressed.

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