Are tax incentives enough to promote solar cell manufacturing in India?

China and the US have already built several state of the art manufacturing base for solar PV which can cater to most of the world’s demands

 
By Nayanjyoti Goswami
Last Updated: Sunday 07 June 2015

China and the US have already built several state of the art manufacturing base for solar PV which can cater to most of the world’s demands

Energy minister Piyush Goyal is right when he says India's capacity for manufacturing solar cells is small and cannot cater to the country's demand. He makes this argument to withdraw the proposed anti dumping duty. But subsequent to Goyal’s comment, Finance Minister Arun Jaitley announced tax incentives to boost solar PV manufacturing in India. The Union budget proposes to exempt flat copper wires required in manufacturing solar PV panels from customs duty. Excise duty is to be removed from certain components like toughened glass, required to cover the PV module. The budget, which has been commended to Parliament for its approval, also proposes to reduce customs duty on all machineries required to manufacture solar PV panels to 5 per cent so that more and more players come to India to set up their manufacturing units.

But the big question is – is this sufficient to boost solar PV manufacturing industry in the country? Currently, China and USA have already built several state of the art manufacturing base for solar PV which can cater to most of the world’s demands. These manufacturing plants are highly sophisticated and automated. They do not require huge manpower which could have been an advantage in India. Therefore, I do not envisage foreign players will come in a huge way to set up their manufacturing base in the country because customs duties on machineries have been slashed. On the other hand, local manufacturers will not be attracted towards it very much as capital expenditure for making solar cell in particular, is quite expensive. Automated assembly line for manufacturing solar panel is also too expensive. Relaxing excise duty on glass and other raw materials will only encourage solar panel assembly to some extent in the country, but not any innovation.

Push innovation
What is required is to promote the core manufacturing sector in solar space. This is only possible by inducing huge investment in innovation. Otherwise, India will lose the competitive advantage in solar space also to foreign countries the way it lost in case of electronics and automotive. A mere step like slashing customs duty will not be sufficient to boost innovation in the country. Government and private sector need to join hands to nurture innovation in the country and set up world class R&D labs for disruptive technology. Till the time a competitive environment is built within the country to thwart competition from multinationals, we need policy measures to protect local industries. Therefore, anti dumping duty is required for the time being, but the duty amount should be decided in such a way that it does not discourage imports and at the same time Indian manufacturers also remain competitive. 

 

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