India's Solar Energy Plan: Trees in a Greenhouse Difficult

Recently, the World Bank released a report that, as of the end of 2017, about 344 million Indians lived in an environment without electricity, which accounted for 23% of India's total population. Among all non-powered populations in the world, India accounts for a quarter and is the highest in the world.

At the same time, India is the world's most suitable country for the development of the solar energy industry. The average annual amount of solar radiation is ranked first in the world’s top 20 economies. Therefore, Indian Prime Minister Modi put forward a solar energy plan, that is, by 2022, India will have the capacity to add 100 GW of solar power. The World Bank report also shows that the power shortage caused by India’s economic losses is equivalent to about 7% of the country’s GDP. Once the solar energy plan is successful, it means that the Indian economy will be able to accelerate again on an existing basis. However, the ideals and reality of the Indian economy are always separated by an insurmountable gap. Why is this?

"According to India's current industrial structure characteristics, if the solar industry wants to achieve rapid development, it will be inseparable from the support of small and medium-sized enterprises. But nowadays, small and medium-sized solar energy companies in India have not been stimulated by the solar energy plan and have grown up vigorously. Instead, they are struggling. Even It is ushering in a closure tide.” Xu Liping, a researcher at the Asia-Pacific and Global Strategy Research Institute of the Chinese Academy of Social Sciences, said in an interview with a reporter from the China Trade Daily that all this stems from the implementation of the Goods and Services Tax (GST) in India last July. Solar developers are required to pay 5% tax on various equipment, and the current negative impact of India's introduction of huge tariffs on imported solar panels.

On April 7, 2017, the Indian House of Commons passed GST, the most important act known as the Modi government. Modi said after the passage of the bill: “The adoption of GST in the House of Commons is a historic step. This decision will create a unified India and will greatly help the provinces that are economically backward.” Xu Liping believes that although GST has changed, India's tax structure and rules, especially the complex taxation system previously used by India in the combination of state tax and land tax, have negative effects on some industries. Solar power developers like India need to pay an additional 5% tax, which is not good news for the solar industry in India, which is still very fragile in the long run.

As the saying goes, "Blessing is unparalleled, misfortune is not one-way." On March 5 this year, the General Directorate of Safeguards of India (DGS) announced that it imposed a 70% tariff on imported solar panels, and this tariff was effective immediately and lasted for 200 days. Sunil Kurkani, who is responsible for the renewable energy business at India's Shapurj Palange, said that import duties may increase the price of solar electricity in India by 45%, and these tariffs will hurt the Indian solar industry.

According to Abinaf, head of India’s solar energy program, this taxation has led to the cancellation of over 3 billion watts of solar power development plans for the current fiscal year. In addition, the Indian solar company gave up its plan for bidding for 950 megawatts in July last year, and decided to wait until the tax rate was lowered. The other 200-megawatt development plan in the Central Province also suffered the same fate.

Taxes 70% hurt others

"Although India's relevant departments have stated that this tax increase is aimed at protecting the country's solar energy equipment manufacturing companies, its fundamental purpose should be to slow down the huge trade deficit with China," said Song Song, researcher at the Institute of South Asian Southeast Asia and Oceania, China Institute of Contemporary International Relations. Qingrun stated that 90% of India’s solar energy equipment is imported, and most of this comes from China. So far, it is hard to say how taxation will have any effect on reducing the trade deficit, at least for Indian solar companies.

Song Qingrun believes that a large number of imported solar panels can keep the price of this product going down. Indian companies can significantly reduce the cost of building a new solar farm and bring more profits to the company. After the taxation, India's existing solar energy manufacturing companies simply can not meet the demand, solar panel prices are inevitable, the Indian Prime Minister Modi plans to build 100 GW photovoltaic power plant in 2022 is also likely to become a bubble.

At present, the 70% tax on imported solar panels has caused a strong reaction in India. Some Indian media said that before the substantive issues are resolved, the government protects domestic companies through trade barriers. This is a failed policy. Professor at Imperial College, UK, commented: "Perhaps for India, the use of 'cheap' solar energy is only a dream because it requires someone to increase solar energy production to industry scale and reduce costs. For India, we can only Saying 'protecting the mattress' is not necessarily good for 'rake'."