BCD Announcement This Week? Speculation Reaches Fever Pitch, Again

A report in BusinessLine, quoting sources in the MNRE, has speculated on the possibility of Basic Customs Duty (BCD) on modules and solar cells finally being announced this week. Readers will recall that the announcement was widely expected in the Union Budget in February, but was conspicuously missing.

The report quotes its sources as saying that a duty structure of 40 percent on modules, and 25 percent on solar cells is likely. Those numbers seem broadly in consonance with expected figures for some time now, with the only issue being the effective date of application. The broad consensus there was that the said date would be the start of Financial Year (FY) 2022, or From April next year.

That has two reasons behind it. One, allow projects already bid out on specific price assumptions to complete their sourcing without any more complications of change in law events, and two, allow the protection to kick in specifically for the fresh manufacturing capacities that have been announced on assurance of said protection. A these capacities would start coming online only next year onwards (if at all), bringing in protection right now would be counter productive, increasing costs.

Solar inverters, where the duty went up from 5 to 20 percent in the budget, do not quite have the same impact on project cost, as modules, which can account for almost 60 percent of project cost.

The traditional divide between manufacturers and developers has also become more fuzzy in recent months, as any developers, from Adani Solar to Renew Power, azure Power have also announced manufacturing plans. Thus, resistance from developers is likely to be much lower to a duty imposition  this time, although costs WILL go up post the new duty structures.

With solar costs comfortably below coal powered generation today, we believe the broader thinking in the government is that a cost increase of Rs 25 to 35 paise per unit, the likely impact of the 40 percent duty, would be an acceptable price to pay for the drive to Atmanirbhar Bharat in the power sector. With investments of $20 billion per annum expected for meeting the country’s renewable energy requirements for the next decade, its a view that has some real weight.

Stories of the power sector being susceptible to Chinese hacking using equipment sourced from that country have also not helped. It’s worth pointing out here that module and solar cells are passive equipments in that sense, and the risk of any hacking on a solar project would be from inverters or the distribution infrastructure, if at all.

Currently, module and cell imports are subject to only the reduced Safeguard duty (SGD) of 14.90 percent, a level declared as completely inadequate by manufacturer bodies for protection from cheaper Chinese imports. It is also not clear yet if the fresh BCD will be in addition to the SGD, or the SGD will be retired  once BCD kicks in.