India withdraws import duty on solar modules within months of imposition

India has withdrawn its decision to impose a duty of 7.5% (effectively around 10%) on imports of solar modules, and this could give a shot in the arm for the solar power industry, according to India Ratings.

The move could also help achieve the government’s target of achieving total, grid-connected solar power capacity of 100 gigawatt (100,000 megawatt) by the end of March 2022, in about four years from now.

The country has had trouble keeping up with the roadmap for yearly capacity additions.

According to the roadmap, India was supposed to add 10 GW in the year ended March, taking the total installed capacity to about 20 GW.

The remaining 80 GW is supposed to be added in the next four years, including the current year, at the rate of around 20 GW each.

However, the imposition of the 7.5% import duty — which added up to almost 10% including various surcharges and cess — was threatening to derail the targets. As it is, the country is likely to have fallen well short of the 10 GW target for addition last year.

According to media reports, not only has the imposition of the 7.5% duty increased costs for solar developers, but has also created huge bottlenecks at various ports.

Until about late last year, solar modules were considered ‘semi-conductors’ and were therefore eligible for duty-free imports. However, towards the end of 2017, the government instructed customs officials to classify solar modules as ‘electric generators’, which attracted the 7.5% tariff.

This move has now been withdrawn and this would benefit the industry, the ratings agency said.

It would also result in a reduction in solar power tariffs, which had risen to Rs 2.72-2.98 per unit from about Rs 2.44 per unit over the last few months due to tax uncertainty.

“The reversal of the applicable 7.5% import duty on solar modules can reduce the quoted solar tariffs by 10-12 paisa/unit to INR2.60-2.62/unit in upcoming auctions,” the agency said.

The Gujarat Government had been forced last month to cancel an auction for purchasing solar power after developers quoted a price of Rs 2.98 per unit, nearly 20% higher than the price they were quoting before the tax uncertainty.

“India Ratings sees this as a favourable development for solar developers and could be a shot in the arm for the 8-10GW of solar power plants likely to be commissioned in FY19.”

The government’s move was prompted by concerns about reducing the dependence of China for solar equipment.

At present, India cannot produce even a single cell of solar equipment by itself because it doesn’t have any facility to convert sand into crystalline silicon, or to slice crystalline silicon into super-thin wafers — the essential raw material for solar PV modules.

However, there are some companies that import the wafers and cells from China and assemble them into modules, which are then assembled into panels. The duty was expected to encourage more companies to set up module assembly plans in India.