40% on Modules & 25% on Cells, MNRE to Impose BCD From April 1, 2022

The Ministry of New and Renewable Energy (MNRE) has finally finalised the new Basic Customs Duty (BCD) on solar PV cells and modules. As per an office memorandum, the Ministry is going to impose a 25 percent BCD on solar PV cells and 40 percent duty on solar modules without grandfathering of bid-out projects. However, the proposed date of implementation of the new duty cycle is April 1, 2022.

The ministry stated the following on why it was imposing a duty on solar imports “presently, India’s solar sector, just like in any other country of the world, is heavily reliant on imports of solar equipment. The government has also noted instances of certain countries dumping solar cells and modules to kill the nascent domestic industry, because of which Government had to impose Safeguard Duties. 

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

The ministry further also went on to highlight that the central government’s Atmanirbhar Bharat initiative has been planned with the objective of gearing up the country towards scaling up domestic manufacturing. And thus, scaling up domestic solar manufacturing would also enable India to export solar cells/modules. This would also provide other countries an alternative avenue for procuring solar cells/modules.

The ministry has also advised all renewable energy implementing agencies and other stakeholders, to take note of the above trajectory and to include provisions in their bid documents, so that bidders take the trajectory into account while quoting tariffs, in all bids where the last date of bid submission is after April 1, 2022. 

On the developer side, Ritu Lal,  Senior VP & Head – Institutional Relations, of Amplus Solar said “High import duties will certainly lead to a significant increase in the cost of generation across all solar segments. Import barriers can only be temporary measures. Eventually, Indian manufacturing will succeed only if we are able to compete in the global marketplace – in terms of price, technology, and scale.”

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While Pinaki Bhattacharyya, CEO & MD Amp Energy India speaking along the same lines said that this “move will slow down the race towards the 175 GW target by 2022 i.e. next year. Although 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. We understand that the intent of the government is positive and they want to encourage domestic manufacturing but the method should have been different. 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.”

In all such bids, the imposition of BCD as per the above trajectory shall not be considered as change-in-law. The ministry believes that it had faced a similar problem when safeguard duty was imposed. 

“This time we do not want to repeat such kind of thing. So, we have proposed to the Government to impose Basic Custom Duty with a future date i.e. April 2022 so that all existing projects can be commissioned before that,” an MNRE representative was quoted by the Standing Committee on Energy in its Demand for Grants 2021-22’ report for the Ministry of New and Renewable Energy (MNRE) which was presented in the parliament. 

In its report, the parliamentary panel had questioned the MNRE on the status of Domestic Manufacturing in the Solar Sector. To which, the MNRE representative had stated that “manufacturing capacities are limited, only 2.5 gigawatts (GW) for solar cell and 9-10 GW for solar module. Our demand is 30 GW every year.” 

This suggests a massive gap between supply and demand that currently exists in the Indian solar sector, with domestic manufacturers unable to meet the demands. However, with more firms (eg. Adani and Vikram Solar) now expanding their manufacturing facilities that gap is expected to be shortened over the coming years. In those years, the government should expect to receive higher tariffs for projects.

According to MNRE, the cost difference between (domestic) solar cells and solar modules vis-à-vis imported is 21 to 22 percent. The safeguard duty which is currently available is less than 15 percent is not helpful for domestic manufacturers and they are not willing to put new plants.”

The panel had proposed that the Government impose BCD with a future date i.e. April 2022, so that all existing projects can be commissioned before that. 

On the manufacturer side, and at the different end of the spectrum, Gyanesh Chaudhary, Managing Director of Vikram Solar said “we welcome the Ministry of New and Renewable Energy’s (MNRE) announcement of the Basic Customs Duty (BCD) implementation on imported solar cells (25%) and modules (40%) starting April 1, 2022. It is a testament to the government’s intent towards enabling Aatmanirbhar Bharat and making India the global manufacturing hub for solar energy. BCD implementation will provide the necessary impetus to create a self-sustaining ecosystem for solar equipment manufacturing in India, job creation, and reduce solar imports.

The Committee also stated that it expects that while considering the proposal for imposition of basic customs duty on imports related to the solar sector, the Government must deeply analyse various ramifications taking into account the facts like availability of solar cells/modules in the domestic market, the likelihood of rise in prices of imported products resulting in discouragement to potential customers, impact on achieving 100 GW solar energy target by the year 2022, etc.

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(updated March 11, 2021)