The finance minister has increased the allocation for the production-linked incentive (PLI) scheme for solar manufacture by Rs 19,500 crore—to Rs 24,000 crore. 

This was expected because when the government opened the scheme for players to bid for incentives, it got a response for abut 58 GW of capacity, for which the proposed allocation of Rs 4,500 crore was not enough.

Of course, the intentions are noble. India wants to see 280 GW of solar manufacturing capacity within its shores by 2030—after all, when the country has such a vast solar energy program (a better part of 500 GW by 2030), why should it import the main component of the solar plants—the cells or modules? 

The government has also backed local manufacture by bringing in a 40 per cent basic customs duty on solar modules and 25 per cent for cells (cells are made into modules), which will kick-in from April 1. The hope therefore, is that with a protection from imports and incentives for local manufacture, a robust solar manufacturing ecosystem will get built in the country. 

However, the question is, will it? It is very hard to see India ever competing against the Chinese, simply because the Chinese already have a huge capacity of 250GW and have the means to clobber down the prices—primarily with scale, and, if necessary, with tacit support of the government. 

The reasons are obvious. First, India does not have polysilicon or monosilicon manufacturing capacities. If a company has to set up one, it would have to contend with the costs of doing so—especially, the power costs, as the plants are power guzzlers. It is still very doubtful if they can match the Chinese on silicon prices.

Secondly, if you go by the level of protection the Indian industry had demanded before the government announced the basic customs duty protection, clearly, what has been given is much lesser than the demand. The industry had wanted a 70 per cent protection.

Third, even with the protection and the incentives, it is almost a certainty that the Indian industry would not be able to match the Chinese prices. Until not long ago, the Chinese modules were selling for 18 cents and the expectation was that it would go further down to 12. However, the pandemic happened and with the supply chain disruptions, and power costs going up in China, the Chinese module prices have risen to around 30 cents now. It is very conceivable that the prices will slide back to 18-20-cent levels and perhaps further down.

Now consider the incentives that the Indian manufacturers will get. The maximum incentive available under the PLI scheme works out to 5.03 cents (assuming Rs 75 to a dollar), but this is only for modules of very high efficiency—of 23 per cent or more. 23 per cent efficiency is rather utopian. More practical is 21 per cent, for which the incentive works out to 3.65 cents. If a Chinese module sells at 18 cents, or 25.2 cents after duty, and if you add 3.65 cents incentive, the price that the Indian manufacturer must match works out to 28-29 cents. This is a very stiff target, considering that still some components would need to be imported, paying duty.

Even assuming that the domestic manufacturer is indeed able to match the prices, he would most probably be never able to do so without the props of the incentives and protection. In any case, the government is spending Rs 24,000 crore on something whose outcomes are uncertain. 

On the other hand, the high cost of the modules would get reflected in higher solar tariffs, affecting the solar capacity roll-out ambitions. India has made very tall commitments at the Glasgow climate conference, rightly so, because climate action is an emergency. You can’t make one commitment at the international forums and take conflicting actions domestically. 

Solar manufacture is a bus that India has missed, there is little merit in running after it, that too on crutches. A better plan would be to catch the buses that are still arriving at the stop—electrolyzers for green hydrogen, batteries other than lithium-ion, where no country has a significant headstart over India.  

Hydrogen, which can be produced within India, can guarantee energy-independence to the country. However, there is no point in still paying in dollars for imported electrolyzers, when the power of domestic demand can force global players to set up manufacturing here. The Rs 24,000-crore allocation would be better spent for electrolyzers rather than solar.