BCD Status. Only Quantum The Issue

In what is now becoming the most common way to pick up views of the ministry, yet another Webinar, Amitesh Kumar Sinha, Joint Secretary in the Ministry of New and Renewable Energy has clarified yesterday that a decision will be taken on Basic Customs Duty, and soon.

The issue is, in some way, a foregone conclusion, considering the heavy thrust, and optics around make in India, manufacturing in India, or even assemble in India, as the government has made it clear.

With the July 2018 Safeguard duty on schedule to wind down to zero by the end of the July 29, 2020, the union budget had approved an enabling mechanism to raise tariffs on imports of green energy equipment such as solar cells and modules.

Thus, it gives the government an option to issue a notification to enable a fresh duty structure like a  basic customs duty (BCD) on cells and modules, the targets of such measures until now. Currently, there is zero duty on both, with the Safeguard Duty left to provide whatever protection domestic industry needed.

The Safeguard Duty move has clearly been a resounding failure, with its short term nature and graded reduction not really encouraging any domestic manufacturer to expand. Going by the feedback of industry bodies like NIMMA and others, it was also poorly implemented. Capacity expansions where they have been done, have only been done by a few exiting majors.

While the general consensus is for a 20 percent basic customs duty, we expect the government to throw in a few surprises along the way. The graded reduction’s seen in SGD might make way for a graded increase in duty to 25-30 percent levels for instance, to allow existing projects which have been priced on certain costings to proceed, even as manufacturers have a long term visibility on protection from cheap imports, as their plants go on stream. Thus, instead of a two year window, we could be looking at a minimum 5 to 10 year window possibly. In effect, make Indian manufactured supplies the cornerstone of the solar expansion from 2022 to 2030, a period when the momentum is expected to continue.

The 100 GW solar target by 2022 might be looking increasingly difficult, but adding costs with duties to projects expected to contribute to that doesn’t make sense, and might yet make the strongest case for a graded increase. It is no secret that the MNRE has been very keen to kickstarting domestic manufacturing, and is willing to consider upto 30 percent protection for the right scale, technology and ticket size of investment.

Kamal Singh, an energy industry veteran and consultant, tells us that “there is a strong hope in the ministry that open competition will keep a lid on prices climbing too high domestically under a tariff protection umbrella, which would impact final power prices. Eventually, a 20 to 30 percent barrier dies not have to translate into the same price differential vis a vis imports.” Plus, at multiple fora, we have heard MNRE as well as representatives from SECI and other relevant agencies stress on the need to move up the quality chain.

Removing price ceilings on auctions was one way to try and achieve that, along with the trend towards higher minimum CUF norms now. All the steps together will ensure that the right kind of technology and investments flow in, and not more of the pre-owned plant and equipment that churns out products which are raising a serious worry on viability of some projects today.

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