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China-India Tension Might Indirectly Cause Higher Custom Duty on China's Exported Solar Products

published: 2020-07-11 10:30

The solar energy trade relation between China and India has been tense. India's 15% safeguard duty on solar cells and modules from China and Malaysia will expire at the end of July. According to some foreign media, the India government might intend to extend the safeguard duty and impose extra custom duty. In particular, solar cells and modules might be imposed custom duty of 20~25%. In 2021, it might double to 40%. India hopes to reduce its dependence on made-in-China products. This decision might reflect the clashes between India and China along their disputed border.

India set the goal of reaching 175 GW solar power installation by 2020. They hope to lower the electricity prices, reduce imported energy, achieve low-carbonized energy, and develop local energy providers' capacity. From July 30, 2018, India began to impose 25% safeguard duty on solar cells and modules imported from China and Malaysia. Then in 2019, the tariff was lowered to 20%, and to 15% which will expire in the end of July 2020.

Despite India's ambitious goal, China's solar products still take around 80% of India's market share. Amid 2.16 billion USD imported products, China's products' value amounted to 1.69 billion USD. So far, India hasn't reached its initial goal by setting the tariff. China's manufacturers could set up factories in Vietnam or other countries, in order to avoid India's tariff. Therefore, India's solar industry has asked to raise the custom duty on China's PV products for the long term and criticized about China's unfavorable balance of trade. Not only that, the recent geopolitical issue between these 2 countries intensifies the atmosphere.

The India authority is planning to steadily increase tariff. Minister RK Singh of Ministry of New & Renewable Energy expressed that imported solar module's basic customs duty (BCD) might rise to 20%~25% from August 1st, and might rise to 40% in 2021. As for solar cells' tariff, it might increase to 15% in August 2020 and grow to 30%~40% in 2021. Further details haven't been announced by the India government.

In comparison, the more hawkish camp believes that 25% tariff isn't enough to stop China's solar industry from dumping their products to India. Hitesh Doshi, Chairman of All India Solar Industries Association (AISIA) said, "We want the safeguard duty on modules and cells to continue for another three years." He demanded that the India government should raise solar module's basic customs duty (BCD) to 50% in July 2020.

On the other hand, developers might not agree to rapidly increase solar tariff. Parang Sharma, CEO of a developer (O2 Power) required to slowly increase imported tariff in different stages. India's solar industry's capacity is enormous, but only few manufacturers can access to banks' loans. When the tariffs are suddenly raised to 40%~50%, developers might face undersupply from the upstream supply chain in India.

So as to fulfill the target of 175 GW of solar capacities by 2020, the India government needs to set a new capacity of 10 GW per year by providing incentives. India needs PV module net worth of Rs 15,000 crore, in order to fulfill its domestic demand. According to Council on Energy, Environment and Water (CEEW)'s report, when India's domestic production takes 50% of solar energy demand, the foreign exchange outflow of Rs 7500 crore per year might be reduced.

India's bottleneck is the 33% higher cost of India products than that of China's imported products. Besides, according to Xiaojing Sun, a senior analyst of Wood Mackenzie's solar systems and technologies division, India's PV manufacturing capacity currently cannot satisfy its targeted solar demand.

Note: 1 crore is 10,000,000 rupees. Rs 15,000 crore is 1.5 trillion rupees. Rs 7500 crore is 75 billion rupees.

(Photo credit: Flickr/Bureau of Land Management CC BY 2.0)

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