Industry executives are calling for a more measured approach that accounts for the current gap in quality local production while ensuring that the rural poor are protected from expected price hikes until that gap is filled.
New Delhi: With a goal of promoting local manufacturing, India’s new budget tripled to 15 per cent the duty on imported solar lanterns, while the duty on solar inverters would rise from 5 per cent to 20 per cent. The off-grid solar industry, which already saw a 10 per cent decline in solar lantern sales in 2019-2020, is bracing for an ever bigger hit because of the new tariffs.
As a result, off-grid industry executives are calling for a more measured approach that accounts for the current gap in quality local production while ensuring that India’s rural poor are protected from expected price hikes until that gap is filled.
“We understand that the increase in duties has the undesirable effect of making certain products in the market expensive for end-customers,” said Piyush Mathur, board member of CLEAN, a trade group representing over 200 distributed renewable energy companies. “However, the new duty structure also offers our member companies an opportunity to build and scale their local manufacturing to a globally competitive standard.”
Viewed in isolation, Mathur said, the new customs duty “appears to run against the national imperative to accelerate clean energy adoption,” but ultimately, tax concessions and manufacturing incentives offered by Make in India point to a future of greater self-reliance through local manufacturing.
According to Ministry of Commerce statistics, more than 95 per cent of the roughly six million solar lanterns sold in India in 2019-2020 came from China.
As a result, India lacks capacity to immediately replace those millions of quality-assured solar lanterns with domestic production. At present, there is only one locally manufactured product (a Frontier Markets torch) that has passed standards established by the IFC Lighting Global Framework.
It will be important for the domestic market to keep a focus on the consumer and ensure they get access to safe, high-performing, affordable, and durable products. Adhering to global quality assurance frameworks is a first step.
A gap exists in local manufacturing of high-quality products and also the availability of a healthy supporting ecosystem of Indian companies to build sales channels, consumer demand, after-sales service and marketing, experts say.
To encourage domestic manufacturing, private sector executives say, the government’s focus should be supporting local product R&D, enforcing robust quality frameworks, making testing facilities easily accessible, creating demand while avoiding subsidy-driven tenders that can distort the market and offering tax incentives.
The near-term impact will largely be felt in higher prices for consumers, affecting their ability to pay. Company executives also said that it would impact their bottoms lines, forcing them to frantically adjust budgets.
But CLEAN’s Mathur says that the ultimate goal is a worthwhile one for domestic companies.
“CLEAN will be working with its members closely to build local manufacturing scale, such that the two objectives — self-reliance and low prices for customers — can both be achieved at the soonest possible date,” Mathur said.
According to Praviin Kumar, India coordinator for GOGLA, the global off-grid solar trade association, local off-grid solar companies recognize that the solar lantern business needs to rapidly shift its product manufacturing to India.
“But the government needs to provide policy support and create a manufacturing-friendly environment to ensure that the sector can access high-quality products locally and continue to create strong impact for customers,” he said.
GOGLA plans to conduct a market study this quarter to provide information to off-grid companies on the local manufacturing industry. The study will highlight any gaps in local manufacturing.
Source: Energizing Rural India
