Safeguard Duty on Solar Cells

Why in news?

The Directorate General of Safeguards (DGS) has proposed a 70% safeguard duty on solar cells and modules imported from China and Malaysia.

What is a safeguard duty?

• The provision is facilitated in GATT (General Agreement on Tariffs and Trade), 1994.
• It allows a WTO member to restrict temporarily, imports of a product if its domestic industry is affected by a surge in imports.
• In contrast to antidumping duties and countervailing duties, safeguard measures are, in principle, applied regardless of the exporting country.
• The Central Government after conducting an enquiry, if satisfied of a potential impact, may by notification impose a safeguard duty.

What is the rationale for DGS proposal?

• While solar cells are imported from Malaysia, Singapore and Taiwan as well, a major quantity is being imported from China.
• China's huge production and excess capacities of solar cells faced with hindrances in exports to the EU and USA recently.
• It naturally had to find an alternative outlet and thus shifted its export focus towards India.
• The DGS move thus comes after a plea was filed by Indian Solar Manufacturers Association (ISMA) before the DGS.
• It claimed that the surge in imports in solar cells had led to many domestic production facilities lying idle and incurring heavy loss.

What are the concerns?

• Cost - There are apprehensions that the duty, if levied, would shoot up the project cost by about 40%.
• The Indian solar industry is thus concerned about the project costs and solar tariffs going up on account of the proposed duty.
• Notably, the burden on account of the above would fall on solar original equipment manufacturers (OEMs).
• Sadly, the ultimate burden gets passed on to the end consumer.
• Solar Mission - The Indian government has set a target of installing 175 GW of renewable energy capacity by 2022.
• Notably, an ambitious 100 GW of this is to come from solar projects.
• There are fears that the proposed safeguard duty on imported solar cells would thwart India's solar mission.
• Domestic players - India recently lost a case in the WTO brought on by a US complaint against the domestic content requirement programme.
• The requirement mandated that only locally manufactured cells and modules could be used to build solar projects.
• The ability of the local players to compete has already been weakened by losing in WTO.
• Given this, while the proposed duty may help the domestic manufacturers in the short term, its sustained benefits are uncertain.
• Also, for domestic manufacturers situated on special economic zones, the safeguard duty would yield counterproductive results.
• Notably, solar cell makers in special economic zones account for about 60% of the installed capacity.
• Discoms - Chinese imports have played a vital role in enabling bidders to quote progressively lower tariffs.
• If the proposed duty is levied, the Discoms will be further dissuaded from signing power purchase agreements on account of the resultant tariffs rise.

What is the way forward?

• The decisions on duty should consider the country's manufacturing capacity and the prevailing energy requirements.
• The government has to ensure that the duty is prospective in nature and not impact the ongoing solar projects.
• The government should thus be aware of the possibility of a policy paralysis leading to slow down in new investments.
• Chinese imports are a threat to Indian manufacturers, but a lasting solution lies in reassessing domestic duty structures and addressing other impediments to the sector.

Source: Economic Times, Business Standard

Quick Fact

DGS

• The Directorate General of Safeguards works under the Ministry of Finance, Department of Revenue.
• It has been created to conduct investigations for imposition of Safeguard Duty, Specific Safeguard Duty as specified under the Customs Tariff Act, 1975.