Bridge India

Trade barriers alone unlikely to pole vault domestic manufacturing

The Directorate General of Anti-Dumping and Allied Duty (DGAD) is currently completing an investigation into imports of solar cells and modules from China, Taiwan and Malaysia subsequent to a petition filed by The Indian Solar Manufacturer’s Association (ISMA). The petition is similar to an earlier petition filed in 2012, wherein DGAD had recommended an anti-dumping duty of USD 0.11-0.81/Wp on cells and modules but the Ministry of Finance ultimately decided to not impose any duties to protect downstream project development activity.

This time around, the industry is almost unanimously of the view that an anti-dumping duty will be announced soon as the government is keen to support local manufacturing. But the government still faces a dilemma as to how to balance the needs of solar manufacturers vs project developers and investors?

First, we should assess if the imposition of anti-dumping duty will provide the envisioned boost to domestic manufacturing? The Chinese manufacturers dominate Indian market because their products are about 10% cheaper than Indian counterparts. Most of the Indian manufacturers have sub-scale capacities, high cost base and are completely reliant on imported technology and raw materials. High cost of capital and electricity, poor infrastructure and lack of domestic eco-system means that the odds are stacked against them. Trade barriers may provide short-term relief but are unlikely to change long-term competitiveness of domestic manufacturers. That is why many leading Indian and international companies including Welspun, Sterling & Wilson, Trina Solar, Longi Solar, JA Solar etc have examined setting up manufacturing capacity in India but ultimately decided against it. Despite ten-fold growth in domestic demand in the last four years, Adani is the only new player to make a notable greenfield manufacturing investment so far.

Actual domestic production of modules and cells in FY 2016-17 was a mere 1,746 MW and 591 MW as against total demand of 9,188 MW. Though duties should provide existing domestic manufacturers with an opportunity to grow sales at profitable prices, the key question is whether India will be able to attract enough investments to create a thriving solar manufacturing sector. The European Union and USA have both imposed various protectionist measures in the past, but imports have kept rising and domestic manufacturing has not taken off. The Chinese have been expanding internationally and may be able to circumvent duties by routing exports from other locations.

As per our analysis, if anti-dumping duty is announced in the near future, it will impact about 10,000 MW of pipeline projects. Imposition of 30% duty will increase project cost by about 18%. Developers, already struggling with price rises due to GST and import duties, have no room to absorb additional costs. Unless these projects are grandfathered or the DISCOMs are willing to renegotiate PPAs, the risk of project abandonment for many of these projects is very high. The sector is already reeling from a slowdown in new project procurement and petition has increased uncertainty about the future of upcoming tenders.

The government faces a tough task of striking a right balance between the ambitious ‘National Solar Mission’ and ‘Make in India’ initiative. In our opinion, the imposition of anti-dumping duty will significantly disrupt the former without giving any material impetus to the latter.

Please read our full report on anti-dumping duty and its impact on different stakeholders.

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