WTO ruling on domestic content requirement for solar projects is a blessing in disguise: Bridge to India

India has built a pipeline of around 1,800 megawatt of domestic content requirement projects as against operational cell manufacturing capacity of only about 600 megawatt.

Demand from these projects should provide breathing room to the existing manufacturers and avoid any immediate repercussions from World Trade Organisation’s ruling against India’s domestic content requirements.

“The Indian government has unnecessarily wasted time and money pursuing a protectionist policy and its repeal may in fact be helpful in the long-term,” said Bridge to India in a statement.

According to the firm, India already offers extremely attractive subsidies under Modified Special Incentive Package Scheme and other such schemes but all such measures have failed to produce desired results because of the formidable challenges faced by manufacturers in India.

“India has a competitive advantage in manufacturing solar inverters and balance of system components, the country should focus on becoming a leader in those areas,” said Jasmeet Khurana, Associate Director – Consulting from Bridge to India.

According to Bridge to India investment in manufacturing cannot and should not be based on short-term protectionist measures such as ‘domestic content requirements’.

“The Indian government has unnecessarily wasted time and money pursuing a flawed policy. The ruling should compel it to create a more sustainable roadmap for a viable domestic manufacturing sector,” said Khurana.

“It is worth noting the challenges faced by manufacturing in India are poor infrastructure, high financing and energy costs, inflexible labour laws and unrelenting bureaucratic obstruction. To offset these, India already offers extremely attractive subsidies to manufacturers under the M-SIPS and the Special Economic Zone (SEZ) policy. But these policies are extremely rigid and their poor implementation has failed to produce desired results,” he said.

These have prompted domestic manufacturers to seek additional relief by way of assured production offtake, anti-dumping duties and production subsidies.

“In our view, these are all short-term measures which will do little to create a genuinely competitive manufacturing sector. The new solar manufacturing policy is proposing to provide direct subsidies to integrated ingot-wafer-cell-module manufacturers. This could be a somewhat plausible short term option, if limited performance based incentives are provided to more efficient manufacturers,” he said..

However, in light of the economies of scale achieved by Chinese companies and supply glut facing the international solar equipment market, investment in greenfield integrated manufacturing capacity is extremely risky. In effect, there is unfortunately no easy solution to attracting large scale investments in solar manufacturing in India.

In our opinion, the government can continue to try and strategically support a few large scale manufacturing facilities. However, protecting small and uncompetitive facilities forever is not the best use of public finances.

It is also worth noting that there is significant manufacturing capacity being created in other parts of the sector in India – primarily solar inverters, mounting structures and transmission systems – without any specific support. Companies such as TMEIC and Hitachi are even planning to use their Indian manufacturing units for export of solar inverters.

“Would it not be a better idea to first strengthen the country’s manufacturing in areas where we have some competitive advantage rather than trying to promote investments in an oversupplied sector where most large global companies are constantly stressed?” asked Khurana.

Source: The Economic Times