Projects based on imports to turn costlier, say analysts

The Directorate General of Trade Remedies’ recommendation on Monday to impose a 25% safeguard duty on solar component imports is a double-edged sword, according to analysts, as it will spur domestic manufacturers of these components, but will also raise costs for projects planned on cheaper, imported components, by about 15-20%.

The DGTR, after hearing an application from the Indian Solar Manufacturers Association, recommended a safeguard duty on solar component imports from China and Malaysia of 25% for the first year, 20% for the first half of the second year, and 15% for the last six months of the second year.

‘Boon, and bane’

“The safeguard duty recommended by the DGTR on solar modules is both a boon and a bane for the solar value chain,” Crisil said in a report. “Currently, 85-90% of solar modules used in India are imported from China and Malaysia,” Crisil said in a report. “The boon is the opportunity it provides the domestic module industry to flourish. The bane is the duty could raise capital costs for solar projects based on imported modules by 15-20% [at current prices].”

The Solar Power Developers Association, in its argument to the DGTR, said the duty would put more than ₹1 lakh crore worth of solar power projects in jeopardy, as firms had committed to ongoing projects of about 27 GW. Other analysts argued that the two-year time period for the proposed duty would be too short to actually benefit the domestic manufacturers in terms of capacity addition.“For existing domestic solar cell and module manufacturers, the imposition of safeguard duty would be a positive development as it would lead to an improvement in their competitiveness against the cheaper imports,” Sabysachi Majumdar, group head, corporate ratings, ICRA, said, “Given that the safeguard duty is applicable only for… two years, this is unlikely to lead to any material increase in the domestic solar module/cell manufacturing capacity.”

“It should be noted that if safeguard duty is imposed without exempting SEZ to DTA (Domestic Tariff Area) removal, it will affect the domestic manufacturing industry adversely as 3,825 MW out of 8,898 MW of installed capacity of solar modules is based in SEZ and 2,000 MW out of 3,164 MW of installed capacity for solar cells is based in SEZ,” Gyanesh Chaudhary, MD and CEO of Vikram Solar said.

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