The Sun Sets on Duty-Free Solar Imports: Analyzing the Policy Shift

India's commitment to achieving its renewable energy targets has recently encountered new challenges. The Central Board of Indirect Taxes and Customs (CBIC) has introduced significant restrictions on duty-free solar imports, alongside the exclusion of solar projects from the MOOWR scheme (Manufacture and Other Operations in Warehouse Regulations, 2019). These policy changes aim to promote domestic manufacturing while potentially altering the dynamics of India’s solar energy sector.

End of Duty-Free Solar Imports

The Finance Act (No. 2), 2024, through Section 101, empowers the central government to designate specific manufacturing activities and operations associated with particular classes of goods that will be restricted from being carried out in a warehouse under the MOOWR framework as per Section 65(1) of the Customs Act.

Under the Finance Act (2024), the Using the powers conferred by the Finance Act (No. 2), 2024, CBIC issued a notification withdrawingwithdrew duty-free benefits for solar modules, cells, and panels. This move aligns with India's push for self-reliance and the ‘Make in India’ initiative, requiring solar imports to bear customs duties of 25% on cells and 40% on modules. These tariffs are intended to incentivize local production but have sparked concerns about increased project costs and potential delays.

The solar industry, which heavily relies on imports, now faces higher financial pressures. While the Production-Linked Incentive (PLI) scheme offers hope for strengthening domestic manufacturing, India's dependence on Chinese imports remains a pressing issue.

Exclusion from MOOWR Benefits

The recent CBIC notification (86/2024-Customs) further complicates the scenario. Goods imported for solar power generation are no longer eligible for warehousing under the MOOWR scheme if they contribute to electricity production. This exclusion effectively bars solar developers from leveraging the duty deferment benefits offered under MOOWR.

Previously, a Delhi High Court ruling had allowed solar companies to access MOOWR benefits, even for non-integrated goods contributing to manufacturing. The government’s amendment to the Finance Act (No. 2), 2024Customs Ac t empowering the government to

specify operations that would not be allowed under the scheme.

nullifies this judgment, restricting solar-related operations in warehouses.

The amendment to the Finance Act (No. 2), 2024, under the Customs Act, grants the government authority to specify operations prohibited under the scheme, effectively overturning this judgment and limiting solar-related activities in warehouse.

Implications for the Solar Industry

1. Increased Costs and Tariffs:

The dual impact of tariffs and MOOWR exclusion is likely to raise the cost of solar projects. Developers might transfer these costs to consumers, potentially affecting India's solar adoption rates.

2. Domestic Manufacturing Boost:

These restrictions aim to bolster domestic manufacturing. With the PLI scheme in place, India could emerge as a global supplier of solar components. However, questions about scalability, quality, and production efficiency linger.

3. Renewable Energy Goals Under Pressure:

India aims to achieve 280 GW of solar capacity by 2030. These policy changes may create short-term setbacks, especially for developers reliant on imports. Maintaining a balance between boosting local production and sustaining solar capacity growth will be crucial.

Mixed Reactions from Stakeholders

The solar industry is divided over these developments. Domestic manufacturers view the changes as an opportunity to expand, while project developers express concerns about delays and reduced competitiveness. Environmentalists worry about the potential slowdown in renewable energy adoption, emphasizing the need for swift governmental intervention to minimize disruptions.

The Road Ahead

• Streamlining Domestic Production:

Accelerating investments in domestic manufacturing facilities is crucial. This includes providing technological support, financial incentives, and market access to local players.

• Phased Policy Implementation:

Gradually imposing tariffs and restrictions would allow the industry time to adapt.

• Promoting Technological Advancements:

Encouraging innovation in domestic solar manufacturing could improve competitiveness and reduce reliance on imports.

• Facilitating Collaboration:

Public-private partnerships can help bridge gaps in expertise, technology, and resources to ensure the solar sector’s growth.

Conclusion

The recent policy changes underline India's commitment to self-reliance and domestic industry growth. However, these measures must be carefully balanced to avoid derailing the country’s renewable energy ambitions. A collaborative approach involving stakeholders, manufacturers, and policymakers is essential to overcome immediate challenges while paving the way for a sustainable solar ecosystem.

India’s solar story is at a crossroads. Whether these policy shifts accelerate self-reliance or create roadblocks depends on the government’s ability to address industry concerns and drive transformative change.