Context

The government recently re-imposed restrictions on import of solar modules. The move was taken to boost local manufacturing as domestic capacities are now ready to meet the demand and need to be supported.

1: Dimension- Need to focus on solar power generation in India

• To meet its targets: The government’s ambitious target of 500 GW of installed capacity from non-fossil fuels by 2030 is the main driver to scale solar power in India.
• To cater increasing demand for energy: India also accounts for the fastest rate of growth for demand of electricity through 2026 among major economies.
  • This is because of strong economic activity and expanding consumption of products to mitigate extreme weather. Solar power accounted for about one-third of all energy generated from renewables between April 2023 and February 2024.
• To tap full potential: The country has an estimated solar power potential of 748.99 GW. Hence, the potential of solar energy is not fully tapped, so far.

2: Dimension- Efforts made by India  

To address this over dependence, India made three significant efforts over the past five years.

• Notification of the ALMM order (2019: This list consists of manufacturers who “are eligible for use in Government Projects/Government assisted projects/ projects under Government schemes & programmes, including projects set up for sale of electricity to the Central and State Governments.
• PLI Scheme: The government proposed the Rs 19,500 crore PLI scheme in the Union Budget of 2022-23. This was to scale domestic manufacturing of the entire solar supply chain — from polysilicon to solar modules.
• Custom duty: The government also introduced a steep 40% customs duty on PV modules and 25% on PV cells. These duties were halved as solar capacity additions slowed.

3: Dimension- Reason behind China’s leading position as exporter

• Cheap power supply to industries: China was the most cost-competitive location to manufacture all components of the solar PV supply chains. This is mainly because of the lower cost of power supplied to the industry, as electricity accounts for more than 40% of production costs for polysilicon and almost 20% for ingots and wafers.
• Recognition as strategic sector: China’s policies prioritised solar PV as a strategic sector, and growing domestic demand enabled economies of scale and supported continuous innovation throughout the supply chain.

4: Dimension- Import restriction vs import substitution

• The government’s focus to increase local sourcing of solar modules has been widely reported as ‘import restrictions’.
• However, the government’s decision has been premised on the estimation that measures, such as the Production Linked Incentive (PLI) scheme, has boosted India’s domestic sector’s production capacities and bettered price competitiveness to meet local demand. This is an import substitution effort, and not an attempt to restrict imports.