Shift Towards Domestic Manufacturing: A Paradigm Shift In The Indian Solar Industry

The Indian solar industry is undergoing a transformative phase marked by a notable shift towards domestic manufacturing and a quest for greater supply chain independence. This evolution represents a departure from the traditional trajectory envisioned under the National Solar Policy, signaling a strategic reorientation influenced by key policies such as the Basic Customs Duty (BCD) and the Approved List of Models and Manufacturers (ALMM). This research column explores the factors driving this shift, its implications for the Indian solar sector, and the broader economic and environmental repercussions.

The National Solar Policy, launched in 2010, laid out ambitious goals for India’s solar energy capacity, aiming to establish the country as a global solar power hub. The initial focus, however, was predominantly on solar power generation, with less emphasis on domestic manufacturing. This approach led to a heavy reliance on imported solar equipment, particularly from China, as it offered cost advantages.

While the dependence on imports fueled the rapid growth of the solar industry, it also exposed India to various risks. Geopolitical tensions, trade disputes, and disruptions in the global supply chain, as witnessed in recent years, underscored the vulnerabilities of relying on foreign manufacturers. Moreover, concerns about the quality and standards of imported solar equipment prompted a re-evaluation of the industry’s direction.

In response to the challenges posed by import dependency, the Indian government first introduced safeguard duty in July 2018, India imposed safeguard duty on solar modules, initiating a protective measure against the surge in imports primarily from China and Malaysia. The duty, initially set at 25% and applicable for two years, gradually decreased to 20% in July 2019 and further reduced to 15% in January 2020. This step aimed to boost the competitiveness of domestic solar manufacturers, ensuring a fair market share and fostering the growth of the indigenous solar industry. The safeguard duty underscored the government’s commitment to achieving self-reliance and sustainability in the renewable energy sector. And then introduced the Basic Customs Duty (BCD) on solar equipment. The BCD aims to make imported solar modules and cells less competitive compared to domestically manufactured products. This policy intervention serves a dual purpose – encouraging domestic production and fostering a level playing field for indigenous manufacturers.

Furthermore, the government introduced the Approved List of Models and Manufacturers (ALMM), a measure designed to ensure that only high-quality solar equipment from reliable manufacturers is deployed in projects. The ALMM serves as a quality control mechanism, aligning with the government’s commitment to enhancing the performance and reliability of solar installations across the country. The ALMM for solar modules is likely to be implemented from April 2024 according to different sources.

Drivers of the Shift Towards Domestic Manufacturing:

Strategic Independence: The move towards domestic manufacturing aligns with India’s broader strategy of achieving self-reliance across key industries. By reducing dependence on imports, especially from countries with which geopolitical relations may be strained, India seeks to enhance its strategic independence in the renewable energy sector.

Job Creation and Economic Growth: Domestic manufacturing not only addresses national security concerns but also contributes significantly to job creation and economic growth. The solar industry has the potential to emerge as a key driver of employment, particularly in manufacturing and related supply chain activities. This, in turn, supports the government’s broader agenda of fostering a self-reliant and economically vibrant nation.

Environmental Impact: The environmental impact of the solar industry is not limited to the energy it generates; it also encompasses the manufacturing process and the lifecycle of solar panels. By promoting domestic manufacturing, India aims to ensure that the production of solar equipment adheres to stringent environmental standards. This holistic approach aligns with global sustainability goals and positions India as a responsible player in the renewable energy landscape.

Implications for the Indian Solar Sector:

Competitive Advantage: Domestic manufacturing provides Indian solar companies with a competitive advantage, enabling them to offer products at prices comparable to or even lower than their imported counterparts. This shift is essential for the continued growth of the solar sector, fostering a more competitive and sustainable industry.

Technology Transfer and Innovation: Increased focus on domestic manufacturing opens up opportunities for technology transfer and innovation. Collaboration between research institutions, government bodies, and industry players can spur the development of advanced solar technologies, further enhancing the competitiveness of Indian solar products in the global market.

Supply Chain Resilience: The COVID-19 pandemic highlighted the vulnerabilities of global supply chains. By prioritizing domestic manufacturing, India aims to build a resilient and robust supply chain that can withstand external shocks. This not only ensures a steady and reliable flow of solar equipment but also insulates the industry from unforeseen disruptions.

Policy Certainty and Long-Term Planning: The government’s commitment to promoting domestic manufacturing provides the industry with a sense of policy certainty. This clarity allows companies to engage in long-term planning, make strategic investments, and develop sustainable business models, fostering stability and growth.

The shift towards domestic manufacturing in the Indian solar industry marks a significant departure from the earlier emphasis on imported technology. Driven by policy interventions such as the Basic Customs Duty and the Approved List of Models and Manufacturers, this transition is rooted in strategic considerations related to national security, economic growth, and environmental sustainability.

As the Indian solar sector continues to evolve, the success of this shift hinges on effective collaboration between government agencies, industry stakeholders, and research institutions. The pursuit of supply chain independence and technological innovation will not only position India as a leader in the global solar market but also contribute to the nation’s overarching goals of self-reliance and sustainable development with the installation of 280 GW of Solar PV capacity by 2030.