Unequal import duties along the value chain are a disadvantage for Indian manufacturers
Mr. Kai Bollhorn covers the ‘Manufacturing Industry’ as Consultant in the Market Intelligence team at BRIDGE TO INDIA. This piece relates to part of the report on ‘The Domestic Content Requirement: Tackling module sales in India’ which will be launched in the coming weeks.
The Indian government announced the Jawaharlal Nehru National Solar Mission (NSM) in 2009 in order to achieve a target installed solar capacity of 20GW in India by 2020 as well as to develop India as a global manufacturing and R&D hub for the solar industry. While, growth has been significant in power generation, manufacturing in India has not taken off. Even in the presence of a Domestic Content Requirement, the Indian manufacturers are finding themselves in dire straits to sell to the market.
- There is a complex tax structure surrounding the import of raw materials for PV manufacturing in India
- The prevalent structure allows international suppliers to be able to supply modules at costs cheaper than those borne by domestic suppliers
- Indian suppliers need a level playing field with international suppliers for the domestic market to grow
In India, the cell manufacturing capacity grew from 150MW in 2009 to 700MW in 2012, while the module manufacturing capacity grew from 500MW in 2009 to 1,250MW in 2012. However, India has an overall wafer production of just 200MW. Indian manufacturers at the moment cannot produce modules without the import of wafers.
Source: BRIDGE TO INDIA, based on industry interviews
The overall duty on raw materials and products such as c-Si wafers is between 10-15%. This duty is not equally imposed on finished c-Si modules and cells. Indian cell manufacturers have to pay import duties for wafers and this makes their cells costlier than internationally supplied cells. Consequently Indian module suppliers have to pay higher prices for their Indian manufactured modules. Alternatively they use internationally supplied cells, which diminish the demand for Indian manufactured cells. The viability of cell production within India is shortened by the Indian import tax system.
Besides international important duties, the central government levies a central sales tax (CST) for the interstate sale of products. An Indian manufacturer that produces modules in West Bengal and supplies them to a project in Gujarat has to pay CST. International module suppliers can directly deliver their modules to Gujarat and do not pay CST.
According to our analysis, equalizing the tax burden on various materials will have two effects:
- International suppliers will discuss the viability of contract manufacturing in India. This would in turn lead to a knowledge transfer to Indian suppliers.
- Indian manufacturers that import wafers will be able to reduce their costs and therefore become more price-competitive.
 BRDIGE TO INDIA MARKET PROJECTION
 FICCI Solar Taskforce