Import substitution can set climate action back

Source: The post is based on the article “Import substitution can set climate action back” published in the Livemint on 30th March 2023.

Syllabus: GS – 3: Energy.

Relevance: About India’s solar panel producers.

News: India has set a target of 500GW of carbon-free capacity by 2030 (The present capacity is 122GW). The government is using public funds to spur the local production of solar panels by private players.

Import substitution under Atmanirbhar Bharat is India’s biggest policy shift in recent times. But that is failing to provide results for India’s renewable energy sector.

About India’s solar panel imports and steps to curb imports

China has been the world’s big supplier of solar panels. Imports accounted for over four-fifths of the panels set up in India until last year.

To curb these imports, a) India imposed a safeguard duty of 15% on Chinese and Malaysian imports that were allegedly being dumped—sold below their cost of manufacture, b) India is charging a 40% import duty on photovoltaic modules and 25% on cells, and c) The government is providing an incentive scheme for polysilicon and wafers to solar cells and modules.

What are the challenges India is facing with import substitution?

a) Over half the incentive schemes fund is going to only three firms, b) The job gains from the incentive scheme is modest, c) Domestic panel-makers were still unable to compete with global players, and d) Import barriers allow India’s local market to function at policy-elevated price levels.

Note: Module prices of imported goods are exactly 40% higher than the local goods. But the profit motive of private producers are selling their modules at par with the imported price.

-India and the world are not exploring the logic of permitting global market forces in renewable space to reduce fossil fuels applications in energy needs. So, import substitution might be a setback for climate action targets.

-Of the 280GW of solar capacity aimed for by 2030, India has only a little above 64GW right now. With import substitution, the pace might be delayed.

What should India do to make India’s solar panel producers competitive?

If India’s overall aim is to reduce carbon exhaust, then it should be done at the lowest possible cost. The best way to make Indian industries competitive is by dropping duties and capping local prices by exposing Indian industries to global competition.