The Ministry of New & Renewable Energy (MNRE) has said that the Ministry of Finance has agreed to impose a basic customs duty of 40 per cent and 25 per cent respectively, on imported solar modules and cells starting April 2022.

In a memo dated March 9 circulated to all stakeholders, the MNRE said, “The Ministry of Finance has also advised that the customs notification in this regard shall be issued at appropriate time.”

The Covid-19 pandemic brought disruptions in the international trade including imports of solar modules and solar cells, affecting solar capacity addition in the country, the memo read. “Considering India’s huge solar targets and that electricity is a strategic sector of the economy, India needs to develop domestic solar manufacturing capacity and reduce its dependence on imports to avoid disruptions in future,” it said.

Raising competitiveness

MNRE had been asking for a duty for over a year as a protectionist measure to raise the competitiveness of the domestic solar manufacturing industry, which is nascent at present. The Ministry has insisted that the duty be enforced from April 2022 to allow the ongoing solar projects to get completed in the meantime.

If the duty were to be enforced immediately, then the developers of ongoing solar projects would have passed the rise in costs on to their DISCOM clients under the change in law clause of their power purchase agreements, a scenario similar to the imposition of the safeguard duty on imported solar modules and cells in in July 2018.

Nonetheless, with the costs for setting up future projects set to rise from April 2022 as a result of the tax, developers have decried it as too exorbitant.

‘Removing uncertainty’

“This removes considerable uncertainty but the rates are too high and will increase the cost of solar power for DISCOMs and consumers alike. This will increase the cost of manufacturing power as well as other industries in India,” said Pinaki Bhattacharyya, CEO & MD, Amp Energy India.

“The government should have provided direct manufacturing subsidies to manufacturers to help them scale up their capacities and this would have been beneficial to the sector,” Bhattacharya added.

On the other hand, manufacturers have welcomed the move but have cautioned against imposition of the new tax on manufacturing units located in Special Economic Zones (SEZs).

“Considering that 43 per cent of solar panel manufacturing units and 63 per cent of solar cell manufacturing units are located in SEZs, imposing the basic customs duty on SEZ units will impact the domestic solar manufacturing ecosystem,” said Gyanesh Chaudhary, MD, Vikram Solar. “We urge the MNRE to consider our request and bring forth clarity.”