With SGD Extended by 1 Year, Manufacturer’s Eye BCD Announcement in August

Following the recommendations of the DGTR (Directorate General of Trade Remedies) last week, the government has formally notified the extension of the Safeguard Duty (SGD) by a year on Chinese origin solar equipment. The extension, till July 29, 2021, seeks to protect Indian manufacturers from alleged dumping by Chinese firms. Interestingly, there is no mention of  Malaysia in the new notification, a country that was specifically included along with China in the previous run of SGD.

The new duty level is 14.9 per cent  on imports imports from July 30, 2020 to January 28, 2021, before it is reduced to 14.5 percent  for the remaining period of six months. The duty applies only to solar modules and cells.

The extension has been a bit of a surprise, as industry was widely expecting SGD to be retired, in favour of BCD, or basic customs duties. For now, it does seem like the two duties will run concurrently for one year, although, the BCD will be much lower than was demanded probably. The SGD , which was introduced in 2018 with a graded reduction over two years from 25 percent to 15 percent, has been widely panned as being ineffective. in meeting its objectives of stimulating domestic manufacturing.

Even the current extension for one year is a little surprising in that respect, and perhaps indicates a desire to keep BCD levels at a low enough rate in year 1, while offering extra protection via the SGD route for year 1 to domestic firms  looking to establish  manufacturing faclities. Over 10 GW of manufacturing plans have already been announced by major domestic players, ranging from Renew Power, to Adani Solar, to Vikram Solar and Azure Power. .

Keep in mind that power minister R.K. Singh, while indicating a BCD level of 20-25 percent in industry interactions over the past month and more, has also made it clear that BCD levels would rise after year 1. That will provide for the time taken to set up domestic manufacturing, as well as closure of projets where PPA’s have already been signed. The existing pipeline of solar projects under implementation is well over 14 GW, in terms of actual project execution stage. While another 16-20 GW plus has been allotted after bidding.

The extension notice also omits mention of any “grandfather clause”, which would have allowed developers to claim the difference in costs arising from the duty, on equipment prices when they signed their PPA’s till now. Expect a clarification on this issue when the BCD notification comes, which could be as early as this weekend, or early next week.