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| Updated on January 20, 2018

India’s solar policy runs into needless WTO hurdle

Power Minister Piyush Goyal was perhaps being a trifle optimistic when he said in a recent interview to BusinessLine that India was strongly placed to defend its solar programme’s local sourcing policy. India will have to argue its case very capably and dexterously, more so after having conceded Round 1 to the US at the WTO earlier this year. Its prospects do not appear to be bright. Under its contentious ‘domestic content requirement’ (DCR) norm, the Government is willing to enter into long-term purchase agreements at an agreed price with solar power producers, provided they use domestically produced solar cells and modules. This, the US successfully argued at the WTO, discriminates against identical components that are imported. The minister’s counter-allegation that 16 US states too implement DCR may not be enough to see India through at the WTO. The WTO ruling struck down India’s ‘government procurement’ argument on at least two grounds. First, as trade experts have explained, since the DCR pertains to solar cells and modules, whereas the product procured is electricity, it does not qualify as a case of procurement. Second, there are no social, environmental or health reasons to privilege domestically produced solar inputs. If anything, it can be argued, access to cheaper, imported modules will have a salutary environmental impact. The Centre hopes to convincingly argue that the electricity procured will be used by the Government alone, in keeping with the WTO rules on procurement. In all this, it is apparent that the National Solar Mission has not done its homework on WTO rules. It should have been possible to support domestic producers in WTO-compatible ways, such as providing tax breaks, soft credit and direct subsidies, and sidestep needless confrontation at the dispute settlement panel.

India, too, needs to be clear about why it is interested in DCR. If it is keen about changing its energy mix quickly in favour of renewables, DCR can actually be an impediment, since local cells and modules are at least 10 per cent more expensive than imported ones. The cost of PV modules, which has fallen worldwide in the last seven years, is set to drop further. Besides, their energy conversion efficiency is set to improve, with the US, Germany and Japan engaged in developing thin-film solar and other technologies, even as China has reduced costs through integrated processes and scale economies. While India is a late entrant, it can benefit through technology tie-ups. However, given the ambitious scale of its solar programme — 100 GW by 2022 — its input needs could heat up the world market.

Make in India makes sense as a long-term idea, provided the cost advantages to be had in the short run are not lost sight of. Solar energy can become the vehicle for India to emerge as a science and technology powerhouse in other areas as well. All that it requires is a bit of policy fine-tuning, while taking a long-term, holistic view of trade, technology and energy issues.

Published on May 09, 2016

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