Even while the government did not move ahead with its intent to impose basic custom duties (BCD) on solar equipment in the Union Budget, a phased manufacturing plan for solar cells and panels announced on February 1 may include this component.

In no way can we come to the conclusion that BCD will not take place, said Ministry of New and Renewable Energy Secretary Indu Shekhar Chaturvedi during a post-Budget media briefing.

“When you see the Budget carefully, it is written that a phased manufacturing plan will be notified by the government. So, the phased manufacturing plan is a kind of policy which includes everything, including basic custom duty,”

An estimated 85 per cent of this equipment has been imported from three countries — primarily China, alongside Vietnam and Malaysia — with a surge coinciding with the rollout of the Centre’s ‘Make-in-India’ programme.

The amount spent on imports of PV cells and modules in the last five years works out to nearly three times the cumulative Foreign Direct Investment (FDI) of $4.83 billion that flowed into the entire renewable energy sector. It is also well over six times the budgetary allocation made by the Centre to the renewable energy sector in the five years since FY’14.

India has an installed manufacturing capacity of around 3 GW (giga watts, or 3000 mega watts) for fabricating solar PV cells and around 10 GW for modules. But it does not have any commercial production for upstream stages of solar PV manufacturing, such as wafers, ingots and polysilicon. The official reason is the energy and capital intensive nature of the process.

The lack of an integrated set-up and the economies of scale — despite the government having allowed 100 per cent FDI in the renewable energy sector through the automatic route — translates into higher cost of domestic production.

This is despite the government extending a raft of sops for the production of solar PV cells and modules. This includes support through the Modified Special Incentive Package Scheme (M-SIPS) of Ministry of Electronics & Information Technology that offers a 20-25 per cent subsidy for investments in capital expenditure for setting up a manufacturing facility.