Solar equipment makers feel they will have to shut down their local solar factories in SEZs if the government levies a basic customs duty (BCD) on the import of solar cells and modules without providing a level-playing field to these manufacturing units. SEZs house around 43 per cent module making units and 63 per cent of cell making facilities.
If the BCD is imposed, those in the domestic tariff area who buy cells and modules from the SEZ units will have to pay the duty under the 2005 SEZ Act. If these SEZ units are shut down, jobs of some 15,000 people are at stake.
To reduce Chinese imports, the Union government had imposed a 25 per cent safeguard duty in July 2018 for two years (it has just been extended for another year to July 2021, at a rate of 15 per cent). The government is also considering to impose a 20 per cent BCD on solar imports; a final call on this is yet to be taken.
In order to provide a level-playing field, the government is planning to charge a 2 per cent equalisation levy—in lieu of the incentives availed by SEZ manufacturers—on manufacturing facilities located in SEZs for transactions with domestic customers.
However, industry players said that the progress on BCD imposition is happening at a faster rate than deliberations on the equalisation levy, contributing to uncertainties in the sector.
The industry is willing to invest to expand the domestic manufacturing capacity but such decisions have been put on hold as manufacturers wait for the right policy signals from the government. While India has been focusing on creating a market for solar power, domestic manufacturing would help conserve substantial foreign exchange and create at least 3 to 4 lakh jobs in the next 2-3 years.
The safeguard duty on solar imports has produced mixed results – on one hand, market share of handful of Indian solar module suppliers has more than doubled to 30 per cent in the two years to FY20 and on the other, the pace of solar power capacity addition in India has declined from 9.4 giga-watt (GW) in FY18 to 6.5 GW and 6.6 GW in FY19 and FY20, respectively.