An unwarranted change in stance

During the last months of the UPA government, the Directorate General of Anti-dumping (DGAD) of the Ministry of Commerce made a determination that Indian solar modules and cells manufacturers were being affected by dumped imports from China, Taiwan, Malaysia and the US. The DGAD brought in anti-dumping duties ranging from 11 US cents to 81 cents on various companies from these countries, in order to balance out the sellers selling below their costs. But before the Ministry of Finance could formally notify the DGAD-recommended duties, the Government’s term got over and it fell upon the new, NDA government to take a call.

That was a time when the solar industry was just at the cusp of a take-off. While solar energy companies loved the cheap modules from China, the few domestic manufacturers (such as Indosolar, Tata Power Solar, Vikram Solar, Surana Solar, Waaree and Websol) wanted protection from invasive imports.

The new Government sided with the energy companies. The then Commerce Minister Nirmala Sitharaman allowed the recommended duties to lapse. Energy Minister Piyush Goyal, however, said that the Government was fully committed to support the domestic manufacturing industry, through means other than anti-dumping duties. He told the manufacturers not to worry, the Government and its companies will buy local and that will be a substantial market for them. In that way, the Government sought to balance interests of both energy companies and manufacturers.

The Government also reserved a slice of the capacities auctioned to energy companies that would use local cells and modules, but that ‘domestic content requirement’ (DCR) programme has been nipped in the bud by the US winning a battle at the World Trade Organisation.

Nevertheless, Railway, Defence, other government departments and the public sector undertakings constituted a good market for the domestic industry and in May 2014, they were quite happy with the new Government’s approach. None of them pressed for anti-dumping duty.

The approach seems to have worked. With the help of DCR until it had to be scrapped, and governmental orders, like the domestic manufacturers chugged along. Companies such as Tata Power Solar and Vikram Solar expanded capacities. Indosolar’s turnover rose 70 per cent in 2016-17 over the previous year, and its losses came down to less than half.

However, in September 2015, Indian manufacturers petitioned the Government again, seeking duty protection. By all accounts, the Government is very likely to bring in anti-dumping duty this time.

What made the Government change the stance it took three years ago? While DCR is no longer there, there is no change in the logic underpinning government’s position — that it would allow the energy companies the freedom to buy from anywhere in the world, while at the same time get its departments and government-owned companies to buy local.

In a parallel situation in the US, the International Trade Commission recently determined that the domestic industry there was indeed being injured by imports. This finding was made against the petitions of two US companies, Suniva and SolarWorld. It is very likely that the US government would accept ITC’s findings and bring in a protective duty, particularly given President Donald Trump’s protectionist proclivities. The ‘Suniva case’ will be a precedent, an example that Indian manufacturers will dangle in front of the Government and link it up with ‘Make in India’, making it more difficult for it to resist imposing anti-dumping duty.

For the energy companies, such a move could not come at a more inopportune time. Solar tariffs have crashed in successive auctions and have touched a record low of ₹2.44 a kWhr. Prices of imported modules are rising. Module prices had fallen below 30 US cents, but are now inching up again. The rupee, after helpfully appreciating for some time, is now going down, which means imported modules will be costlier.

The biggest fear of the industry is that an anti-dumping or a safeguard duty would not protect the domestic industry but make solar energy costlier.

Paula Mints, Founder and Chief Market Research Analyst of the US-based SPV Market Research, who is a well-known name in the solar industry, notes that “government intervention in business almost never results in the desired outcome.” Pointing to the US, Mints notes that like some of the earlier trade disputes, the ruling in the Suniva case will result in a thriving US manufacturing industry. Same for India, she told BusinessLine , in an e-mail interaction.

“Better to encourage people to buy Indian modules with some sort of financial incentive than to punish buyers of modules with tariffs that will be unlikely to result in thriving manufacturing industry and will further strain India’s already painful margin situation,” Mints said.

Anti-dumping will hinder any push towards meeting Government’s capacity installation targets. Already, the country is way behind the annual targets. By the end of 2016-17, the country should have had, as per the targets, 17,000 MW; it fell short of this target by 4,711 MW. The current year’s target is 15,000 MW against which the achievement in the first four months was 1,363 MW. In the four years between 2018-19 and 2021-22, the ambition is to add 87,700 MW of solar power capacity, or 22,000 MW a year. Making equipment costlier is not quite the way to go about it.

India has about 5,000 MW of module and 1,500 MW of cell capacity (cells are used to make modules). Such a small-sized industry can be protected by means other than tariff walls — such as interest subvention. Indosolar, for instance, makes a healthy EBIDTA but is in losses due to interest costs. But the best way to protect them is what the Government itself thought three years back — use cash rich public sector companies, who may not mind paying a little extra, to buy local.