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Commerce Ministry recommends 25% safeguard duty on import of solar cells from China, Malaysia
Despite vociferous protests from solar developers, the Directorate General of Trade Restrictions (DGTR) has finally recommended that a 25 per cent safeguard duty should be imposed on imports of solar cells and modules from China and Malaysia for the first year.
Commerce Ministry recommends 25% safeguard duty on import of solar cells from China, Malaysia

The Ministry of Commerce yesterday came out with detailed 150-page report outlining the findings of safeguard investigation concerning imports of solar cells into India. The investigation followed a complaint filed by the Indian Solar Manufacturer's Association (ISMA) on behalf of five Indian producers alleging that their market share has remained stagnant despite rapid expansion in demand for solar cells in the country. The applicants, hence, had demanded imposition of safeguard duty on its imports.

Despite vociferous protests from solar developers arguing against such a move, the Directorate General of Trade Restrictions (DGTR) has finally recommended that a 25 per cent safeguard duty should be imposed on imports of solar cells and modules from China and Malaysia for the first year. The DGTR, the recently set-up apex umbrella authority for administering all trade remedial measures including anti-dumping, countervailing duties and safeguard measures, further recommended a 20 per cent duty on such imports for the first six months of the second year and 15 per cent for the remaining half of the year.

The report also made it clear that since imports of the solar products from other countries, like Singapore and Taiwan, "do not exceed 3 per cent individually and 9 per cent collectively", they won't attract the safeguard duty.

According to the report, "The major quantity of the PUC [product under consideration] is being imported from China PR. As seen, the import volumes of the PUC have increased from 1,275 MW in 2014-15 to 9,833 MW in 2017-18 (annualized)". It added that as per updated data, the total import of solar cells stood at 9790 MW for 2017-18, "an increase of 671% in 2017-18 (annualized) from the base year 2014-15". Moreover, it pointed out a sudden surge in imports volumes during the first six months of 2017-18, "which is 77% of the imports in 2016-17".

The DGTR also juxtaposed the rapid expansion on the import side with a slowdown in the domestic industry. "Despite the rapid expansion in domestic demand, the market share of the DI has decreased; the DI had a market share of 8% in 2014-15 which declined to 3% during 2017-18 (A). During the same period, the market share of imports increased from 90% to 93%," read the report, adding that the imports were taking place at very low prices, which further hurt the domestic industry, causing it to not only face a drop in sales realisation of their products but also find it difficult to ever increase their production and sales.

The Solar Power Developers Association had previously opposed a safeguard duty claiming that the move will "adversely affect the National Solar Mission as the tariffs for future solar projects could rise substantially. Safeguard duty will put more than Rs 1,00,000 crore worth of solar power projects in jeopardy". It added that the domestic industry can only meet 15 per cent of the burgeoning demand for solar cells. It had also pointed out in its submissions to the ministry that the safeguard duty will cause tariffs to "increase substantially", projecting it to "reach Rs 4 per unit which will defeat the purpose of cheap supply of power".

The DGTR acknowledged this potential tariff hike in its report. "The prices of cells/modules, which would no doubt increase, would also have some adverse impact on the user industry i.e. module manufacturers using imported cells or domestic cells, module importers, power developers and consumers," it said but concluded that the "imposition of safeguard duty in this case would be in public interest because it will prevent complete erosion of manufacturing base of solar industry in the country which is upcoming and holds promise for a stronger manufacturing base in the country in future." However, the report also cautioned against "undue escalation" of solar power cost so that India's target of 100 GW of Solar Power Deployment by 2022 is not derailed.

"Undoubtedly levy of Safeguard duty would not only lead to mitigation of serious injury to the DI (domestic industry) but would also improve viability of the upstream and downstream industry associated in the value chain of the manufacturing of solar cells /modules," said the report, which is to be submitted to the government for approval.

To be sure, the 15-25 per cent duty recommended this time round is much lower than the 70 per cent safeguard duty recommended by the erstwhile Directorate General of Safeguards in January. The backlash, however, has already begun. "The decision, even though largely in line with expectations, is going to be very damaging to the entire industry as well as to the government's ambitious solar energy plans," Vinay Rustagi, Managing Director of solar consultancy, Bridge to India, told The Economic Times. "The arguments used to justify duty imposition are highly flawed. Imposition for just two years does not make any sense as this period is too small for the domestic industry to recover. In a further blow to most 'domestic manufacturers,' SEZ units have not been covered under the benefit. But it is the project developers, reliant on imported modules, that stand to lose the most."

It remains to be seen how China will react to this development, if approved by the government. According to Reuters, bilateral trade relations between the neighbours had thawed recently - despite fears of a trade war elsewhere - with the two sides discussing ways to increase Indian sales of farm products and India pushing China to give access to its software service firms.

China Chamber of Commerce for Imports and Exports of Machinery and Electronic Products in its representations to the DGTR had previously claimed that India stands to act "directly contrary to its obligations under the AoS by imposing a safeguard duty without demonstrating that unforeseen developments exist in the present case". It had further noted that the burgeoning imports had nothing to do with the injury suffered. "Real cause of injury to the domestic industry is aggressive pricing practices of other Indian producers and not imports. Backward integration in this manner will only lead to higher cost in the next few years," it had added.

With agency inputs

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