Thu, May

Cover Story April 2019 : Safeguard Duty - “A Boon Or A Bane?” - Manufacturing Perspective

Knowledge Resources

Mr. Chetan Shah, Director, Goldi Solar

The imposition of safeguard duty on solar cells and module imports has been in effect since July 30, 2018.

This move by the Directorate General of Trade Remedies (DGTR) created a temporary chaos in the Indian solar industry, ultimately resulting in reduced demand for a few months.

But gradually, after the initial storm had subsided, demand started picking up. All the big solar developers who used to procure imported solar modules began to source them from the domestic market. This greatly benefited the domestic module manufacturers.

Secondly those manufacturers who used to import solar panels, also started running their manufacturing capacities to optimal levels.

Even the handful of domestic cell manufacturers have benefited from imposition of safeguard duty with their order books full for the coming months.

However, in India, the operational solar cell manufacturing capacity is very meagre. It is hardly enough to meet the country’s burgeoning demand. India will auction close to 25 GW to 30 GW of projects a year. Domestic manufacturers are not in a position to manufacture over 3 GW or 4 GW. The Indian cell manufacturing also lacks the technology to deliver high efficiency solar cells. These shortcomings will create a huge demand-supply gap for solar cells. Going forward, at least 80% will be imported.

Besides, after imposition of safeguard duty on solar cells from China, these were imported from other countries like Vietnam, Thailand and Cambodia without paying SGD. So, the government did not benefit in any special way by imposing duty on solar cells.

For this move to be effective, the government should first create a favourable environment to boost cell manufacturing in India along with ample support for developing latest technologies.

And till the time cell manufacturing capacities reach optimal levels so as to bridge the demand-supply gap, the government should exclude solar cells from safeguard duty.

The HSN code for solar cells and solar modules is the same. So, imposing a safeguard duty on one will automatically drag the other in the duty net. One classic example of avoiding this situation is the policy implemented by Turkey wherein the government there made import duty applicable on only that portion of glass that would cover solar cells. In this way, a solar panel came into the tax duty net whereas it protected cells from getting taxed. In simpler words, the solar cells that are covered under glass will attract duty whereas loose solar cell imports will not attract duty. This move benefited Turkish panel manufacturers in a big way.

One of the disadvantages the DTA units found themselves in on account of safeguard duty imposition was against manufacturers in SEZs (Special Economic Zones) with the latter enjoying all privileges and export advantages along with concessional tariffs and charges compared to Domestic Tariff Area units. Though SEZs are meant only for exports, they were selling in domestic market as well. This caused a huge disparity for DTA units in terms of opportunities. Whereas the Domestic Tariff Area units pay safeguard duty and GST on safeguard duty which blocks their working capital to a certain degree.

Tweaking its policies and creating a favourable environment for domestic manufacturers, and encouraging investments in enhancing technologies is the need of the hour and expected from the GOI.


This will ultimately create a win-win situation for the domestic cell manufacturers, the solar module manufacturers and developers.


Mr. Ashok Jakhotia, Founder and Chairman, Spark Solar

The safeguard duty on imports is applicable for two years. It would be reduced from July 2019 to 20 percent for six months, and would be charged at 15 percent for the next six months.

The duty has been introduced on the grounds that such imports were causing ‘serious injury’ to domestic solar panel

manufacturers. The cheaper equipment coming into the Indian market is often from Chinese manufacturers who are dumping goods below cost. Chinese counterparts are using unfair government subsidies to finance their operations and then selling their merchandise for less than the cost of manufacturing and shipping it.

Last year, the Chinese government slashed its domestic incentives for buyers of solar panels, sharply reducing demand for equipment and adding to the oversupply. Manufacturers cut their prices to compensate, which sent global prices plummeting.

Though Indian solar installations reached a record high, making solar energy the biggest source of new electricity generation. But the domestic industry’s share of the panel market, which had been declining, tumbled to less than 10 percent. The future of domestic manufacturing is still highly uncertain and safeguard duty alone is unlikely to make any tangible difference because of the limited 2-year period of application. The Imposition of safeguard duty has failed to achieve the desired objectives of according protection to the domestic manufacturers from the sudden surge of imports. The safeguard duty has been imposed for two years and the implementation period of utility scale solar projects is 18 to 24 months. In such circumstances, the solar projects which were auctioned before the imposition will mostly be procuring panels during the period safeguard duty is to remain in force, and are eligible to pass the burden of the safeguard duty to the end consumer by invoking the change in law clause of the Power Purchase Agreement. In the absence of strong local manufacturing, India will need to import $42 billion of solar equipment by 2030.

India is emerging as an undisputed leader in terms of solar deployment however its domestic manufacturing industry is bleeding and is unable to grow with the pace to support deployments, currently India is highly dependent on imports of solar modules to achieve its solar targets. India’s vision to become a world leader in solar energy cannot be complete without building its manufacturing strength in solar sector and thus there is an immediate need to promote domestic manufacturing in solar sector.


Mr. Vishal Amin, Director, Lubi Solar

The solar industry in India has witnessed hiatus after a very promising run, raking mutlifigure growth for more that half a decade. The steep deceleration could be attributed to intense participation by Chinese participants and the incumbent industry’s inability to fight off the stiff competition.

Industry pressures have pushed the prices by almost 30% in the last two years. This has attracted increased participation by IPP in large-scale government promoted solar projects pushing the per unit costs to lesser than the power produced by coal based units. This trend, however has been fueled by steep increase in the Chinese imports, raking up losses for the Indian manufacturers, who have been already working with wafer thin margins. Even in case of the Indian manufacturers, majority of the manufacturing inputs are Chinese imports,allowing very little control. China having invested heavily in the technology is reaping the benefits of having mastered the technology. The Indian industry,however, has been suffering to keep up with the pressures.

To protect the local industry the government had been contemplating safeguard duty on imported solar cells and panels. Under the WTO rules, a country shall only choose to impose a safeguard duty, in a limited time frame, if unforeseen developments threatens the domestic industry.

After much contemplation, the government has decided to impose a 25% safeguard duty on all imports from China. The duty is supposed to ease out over two years, thus allowing the Indian industry time to gear up.

On the manufacturing front, the decision has allowed a level playing ground. However, the decision has led to sluggish participation from the IPP’s, many projects having been cancelled after receiving quotes not so competitive to replace the coal based power.Also Indian manufacturers operating in SEZ come under the ambit of safeguard duty, offsetting most benefits.

The limited geographical implementation of the duty has resulted in smart redirection of materials from countries like Vietnam, Thailand and neighbouring countries. As a result the price in the markets have shown little upward trend.

The Chinese governments decision to remove domestic subsidies along with the anti- dumping duties imposed on Chinese supplied by various countries and trade regions, has forced Chinese manufacturers to further decrease the prices internationally, partially offsetting the impact of the safeguard duty for Indian manufacturers.

So considering all the different factors, the safeguard duty overall has helped to build positive sentiments in the industry but the industry may have failed to realize the perceived benefits of the action.





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