India may remove domestic procurement requirement for private solar allocations

In August 2015, World Trade Organization (WTO) declared that it was illegal for India to impose ‘Domestic Content Requirement’ (DCR) obligation for solar cells and modules. India had appealed against this ruling and continues to allocate projects under the DCR category. However, India has now offered a compromise to the US by removing DCR requirements for private sector projects only (the requirement is proposed to continue for projects developed by public sector entities). Indian government believes that this formula complies with WTO guidelines.

  • DCR accounts for less than 5% of total module demand in the Indian solar market
  • DCR has failed to provide long-lasting support to the domestic manufacturing sector
  • A settlement or withdrawal of the WTO case will not substantially affect any US manufacturer, or any manufacturer from any other country for that matter

For projects under development and allocation, DCR requirement is applicable on – 430 MW of projects allocated by NTPC to private developers, 760 MW of projects developed by NTPC and 125 MW of projects allocated by SECI. This adds up to 1,315 MW or a little less than 10% of total capacity allocations announced by central government entities. Apart from this, capital subsidy scheme for rooftop projects also requires made in India solar modules for some projects.

Taking state schemes and private initiatives into account, DCR accounts for less than 5% of overall demand in the Indian solar market. When the new BJP government dropped the proposal to enforce anti-dumping duties on solar cells and modules in August 2014, the Minister for New and Renewable Energy, Piyush Goyal, had assured domestic manufacturers that enough demand will be created to absorb all of their production. Imposition of DCR requirements may have helped the existing manufacturers but it has failed to bring any sustainable improvement or investment in the domestic manufacturing sector.

The Indian government understands that for the sector to grow at about 10 GW a year, imports continue to be the dominant source of modules. Indian cell manufacturers may face some impact if an equivalent capacity for DCR is not taken up by the public sector. The only other impact this case may have had is to ensure that India does not opt for a more protectionist policy to promote manufacturing. BRIDGE TO INDIA believes that any outcome from the WTO case will not materially alter the module supply scenario in India.

If the Indian government wants to promote domestic manufacturing, the focus should be to provide policy certainty, grow the market and improve competitiveness of the sector. Progressive industrial policies at the state level, level playing field on taxation and other larger reforms required for a manufacturing sector growth in the country will have a much larger impact than having protectionist policies such as the DCR.

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