Introduction
With 68 GW of solar capacity, India has risen to the fifth-largest
solar country as it attempts to meet its energy needs
independently.
An activist trade policy is where the government policies and plans
actively support a sector through subsidies and other incentives. In India,
the government adopted an Activist Trade Policy in the solar panel sector.
The developments in solar energy has become a substantial energy
source for India's rising energy demand while advancing the government's
aim of sustainable growth.
The Indian government has recently enhanced the capacity for renewable
energy with the introduction of numerous financial and funding
programmes, such as the Solar Energy Subsidy Scheme, UDAY Scheme,
and Rooftop Scheme. The nation is working to reach its goal of
280GW capacity by 2030 and is attempting to draw large-scale solar PV
production. With 68 GW of solar capacity, India has risen to the fifth-
largest solar country as it attempts to meet its energy needs
independently.
In order to encourage domestic manufacture and lessen reliance on
imports in the renewable energy industry, the government has also
produced guidelines for implementing a Production Linked Incentive (PLI)
Scheme called the "National Programme on High Efficiency Solar PV
Modules."
Why was this sector chosen?
1. To boost green electrification :
the Ministry of New and Renewable Energy (MNRE) will provide Central
Financial Assistance to residential consumers for installing rooftop solar
systems (RTS), allowing them to save up to 40% on the installation costs .
2. To achieve ‘Atma Nirbharta’ and reduce reliance of
Chinese imports
After the launch of atma nirbhar bharat and border conflict with
china solar module imports from China plummeted from 9.8 GW in
the first half of 2022 to a mere 2.3 GW during the corresponding
period in 2023 .
3. Capitalize on the Anti-China sentiment to shift
supernormal profits from China to India
Some of the largest solar energy markets in the world such as the EU and
US have imposed import bans and tariffs on imports of Chinese solar cells
and modules in light of the massive subsidies provided by China to its
domestic manufacturers and human rights violations in Xinjiang. To
capitalize on this trend, India has provided companies with an alternate
manufacturing destination, by offering subsidies and incentives under the
PLI scheme worth a whopping INR
4500 Cr. This has led to an exponential increase of 364% y-o-y in solar
module exports in FY2023, signaling an ongoing shift in supernormal
profits from China to India. The supernormal profit argument may also be
viewed as a market failure justification for adopting an activist trade
policy in solar component manufacturing.
4. Boosting Domestic Manufacturing/ Establishing
manufacturing base via acquired CA
In 2020, GOI saw an opportunity in the rising uproar against China and the
skyrocketing demand for solar energy. These factors made the goal of
acquiring comparative advantage in a high tech, future oriented industry,
seem feasible. With high production costs in the largest solar markets
such as Germany, US, Italy etc. India could take advantage of
technological developments in developed nations and produce high
quality products at a fraction of the cost by leveraging its large labor
force.
5. Incentivizing R&D investments
By providing heavy subsidies to manufacturers . India is trying to combat
the appropriability problem wherein manufacturers introducing advanced
technologies are given adequate runway to recover their investments and
earn supernormal profits.
Investment and Policies of the government :
Launched in 2010, the National Solar Mission (NSM) aims to make India a
leader in solar energy by constructing 100 GW of grid-connected solar
power plants by 2022, achieving about 40% of installed capacity for non-
fossil fuel-based energy sources.
1. High-Efficiency Solar PV Module Production Linked
Incentive (PLI) Scheme:
the Ministry of New & Renewable Energy (MNRE) released the
Scheme Guidelines for Production Linked Incentive Scheme 'National
Programme on High-Efficiency Solar PV Modules', with an outlay of Rs.
4,500 crores, in an effort to improve India's manufacturing and export
capacities. By offering Production Linked Incentive (PLI) on sales of high-
efficiency solar PV modules, the Scheme provides provisions for assisting
in the setting up of integrated production facilities.
2. Imposition of Basic Customs Duty on Import of Solar PV
Cells & Modules:
The Ministry of Finance has announced the imposition of Basic
Customs Duty (BCD) of 25% on the import of solar PV cells and 40%
on solar PV modules effective from 1st April 2022 in order to scale
the domestic solar manufacturing and to improve the export market
for solar cells & modules/panels.
3. Government Yojana Solar Energy Subsidy Scheme:
According to the Government Yojana, a person is qualified for a subsidy if
they have solar panels put on their roof. The subsidy is determined based
on the solar power plant's capacity. The major goal of the plan is to
promote the use of solar energy in power looms. The major goal of the
plan is to promote the use of solar energy in power looms. The strategy
would solve the lighting issue, and the facility will use solar energy to
expand the textile industry by raising production. Another advantage is
that customers will be able to lower their electricity rates, and power
generation will increase as the load on thermal power plants decreases.
200 MW of projects are being carried out by SECI (Solar Energy
Corporation of India), and 45 MW of their total capacity have already been
put into service. Additionally, special programmes have been introduced,
including 50 MW for the Central Public Works Department and 73 MW for
warehouses.
Additionally, SECI intends to launch a 1,000 MW rooftop tender that may
not include a subsidy.
4. Jawaharlal Nehru National Solar Mission
In January 2010, the Jawaharlal Nehru National Solar Mission was begun.
By 2022, it aims to lower the cost of solar energy generation and install
20,000MW, but in June 2015, that objective was changed to 10,000MW of
grid-connected solar power through a long-term plan with R&D
investment, and home production of raw material.
JNNSM's purpose includes improving India's rural economy in addition to
providing large-scale grid-connected power. India's rural economy has
transformed as a result of the rapid adoption of solar lighting systems,
water pumps, and other solar power-based uses. The goal is to grow the
solar energy industry in India till it becomes a world leader.
Impact of Government Policies and Investment
on Major Macroeconomic Indicators
1. Employment –
Renewable and fossil fuel energy systems, such as Solar Photovoltaics (Solar PV), have high
employment rates. Solar PV jobs, mainly involving plant construction and rooftop panel
installation, surpass those in manufacturing. Local downstream roles, like engineers,
salespeople, and electricians, rely on local demand, subject to market shifts and legislation
changes. Manufacturing jobs, though fewer, support regional economies, a priority for many
governments.
In a nutshell Solar panel production and the entire solar energy value chain create jobs, boost
labor markets, and reduce unemployment.
Additionally, the PLI scheme will result in the creation of 1,01,487 jobs
overall, of which 35,010 will be hired directly and 66,477 indirectly.
2. Growth and Development -
Unemployment Rate:
The country's efforts to grow its renewable energy sector are being
hampered by the 5% to 11% tax rate increase on solar components and
the 40% and 25% import levies on photovoltaic modules and cells,
respectively (April 2022). The domestic manufacturers' input costs have
grown due to taxes and rising raw material prices, making domestic
panels more expensive. The Indian producers imported raw materials from
China, including cells, polysiloxanes, and ingots. Due to the significant
increase in installation costs, this has an impact on the Ministry of New
and Renewable Energy's (MNRE) Rooftop Solar Program.
Before COVID-19, 40,000 MW solar projects were approved. Customs duties and GST hikes
raised costs, causing withdrawal in the project . The only way the Center will be able
to achieve its goal of renewable energy is by getting rid of customs tariffs
and cutting the GST. All this has increased the increased unemployment
rates.
Growth in Trade:
For a long time china was the main solar products and india an importer of solar products .
however with the anti china sentiments around the world and increasing access for the
domestic producers of india in the western countries the situation. Is changing
Original Equipment Manufacturers (OEMS)
Solar cells and modules worth Rs 8,840 crore were exported by domestic original equipment
manufacturers (OEMs) in India in FY23, a startling 364% increase from Rs 1,819 crore in
FY22.
Restrictions on Chinese solar module imports led to a surge in demand for Indian-made
modules in the US, boosting solar exports. The expansion of the domestic module
manufacturing industry further fueled exports. India is now eyeing increased exports due to a
growing focus on foreign markets. Pending compliances will enable bids for larger projects in
the US and Europe. This surge in exports has led to a current account surplus and increased
foreign direct investments, as foreign companies seek to establish solar power plants in India.
Government Budget :
the Union Cabinet has approved a Production Linked Incentive (PLI) of Rs
19,500 crore. In order to lessen the industry's dependency on panels
made in China, this is a follow-up to the RS 500 crore tranche that was
approved in November 2020.
This would bring in a direct investment of around Rs 94,000 crore. It would
save India close to Rs. 1.37 trillion in imports.
Impact on International Relations :
India-China Relation :
India on 1st April 2022, imposed a 40% and 25% import duty respectively
on solar panels and solar cells from China. there have been indirect
measures and statements that suggest strained relations in the context of
the solar panel trade.
1. Increased Scrutiny and Delays: China has increased scrutiny of
Indian imports,leading to delays in customs clearance and higher
costs for Indian businesses.
2. Obstacles for Indian Companies: Chinese authorities have made
it more difficult for Indian companies to operate in China by
imposing new regulations and making it harder for Indian
businesses to obtain visas and work permits.
3. Lobbying Other Countries: CHINA HAS BEEN PRESSURING OTHER
NATIONS AND INTERNATIONAL WORLD INCLUDING US AND CHINA
TO REMOVE THE IMPORT TARRIF IMPOSED BY INDIA AND CREATING
PRESSURE ON INDIAN GOVt.
4. China's solar exports grew by 34%, showcasing its industry's
resilience despite India's import duties. Imports from China fell 12%,
but were offset by imports of Chinese solar products from Vietnam
and Malaysia. These circumventions led the US to impose duties on
these nations as well. India has borne the brunt of import
restrictions, with rising solar prices and panel shortages hindering
its green energy goals, according to a recent Indian government
report.
India-World Relation
India's vigorous push toward solar energy has yielded substantial real-
time benefits, bolstering its international relations across various
dimensions:
Climate Leadership: India stands as the world's fourth-largest solar power
producer, with an installed capacity exceeding 71 gigawatts (GW), a
remarkable leap from just 4.2 GW in 2014.
Bilateral and Multilateral Cooperation: India has made strong clean energy
agreements with countries like France, Germany, and the UK. It's also
actively involved in global initiatives like the US-India Clean Energy
Partnership and the International Solar Alliance, which help nations work
together for clean energy.
Global Inspiration: India's solar success inspires developing nations like
Egypt, Morocco, and South Africa, encouraging them to launch their
ambitious solar programs and promote global collaboration in renewable
energy.
In conclusion, India's dynamic and real-time solar push is exerting a
positive impact on its international relations. It positions India as a
formidable leader in climate action, fosters collaboration with other
nations, opens doors to economic opportunities, and sets an inspiring
example for the world.
Linitations :
This research study acknowledges several limitations that affect its
interpretation and scope:
Data Availability and Historical Context: The study's analysis starts
from 2014, focusing on India's activist trade policies in the solar panel
sector under the Modi government. It does not explore developments or
policies preceding this period, potentially missing crucial groundwork for
India's solar dominance.
Data Accuracy and Completeness: The study relies on publicly
available data sources, which may have limitations or inaccuracies. The
quality of the data is dependent on the sources used, and any biases
within these sources can impact the research findings.
Lack of Quantitative Analysis: The research mainly concentrates on
the economic and international relations aspects of India's trade policies
in the solar panel sector after 2014. It does not use quantitative analysis
due to a lack of accessible data, potentially limiting a more
comprehensive understanding of policy effects.
National Focus: The study primarily assesses the impact of these
policies at the national level, considering their implications for India as a
whole. It does not extensively explore local or regional variations and
nuances within the country, which could reveal localized impacts and
disparities.
Conclusion
The government's proactive stance and comprehensive policies have not
only driven the growth of the solar energy sector but have also influenced
macroeconomic indicators and international relations. These policies have
created a resilient and dynamic solar industry, fostering job creation,
enhancing energy security, and positioning India as a global solar energy
leader.
In conclusion, the adoption of activist trade policies in the solar panel
sector has proven to be a strategic move, aligning with India's energy
needs, economic goals, and international positioning. This approach has
not only transformed the country's energy landscape but has also set the
stage for India to play a pivotal role in the global solar energy arena. The
comprehensive methodology employed in this research provides a
nuanced understanding of the multifaceted implications of these policies
during the tenure of the Modi government, offering valuable insights for
future policy considerations and research endeavors in the renewable
energy sector.