Should India Say WTF to WTO on Solar?

Recently, a WTO ruling on solar went against India, in the context of “discriminatory trade practices”. The case was filed by the US against India.

I am sure there are lots of Indians having a knee-jerk reaction to this adverse ruling – WTF!

But I beg to differ from them. Let me explain this better.

To ADD or Not to ADD

I have always maintained that in the context of solar, the Indian government wants the cake and eat it too.

Our government wants solar power plant installation to grow at a rapid pace, which can happen only if solar power becomes cost competitive. In order for solar power to be cost competitive, the panels and inverters and the rest of balance of systems need to cost as low as possible. In order for these to cost as little as possible, they should be procured from the most economical sources possible. The most economical source, in most cases, happens to be China.

As a result, the government is hesitant to impose anti-dumping duties (ADD) on solar modules, so that Indian solar developers can procure solar modules from China without any additional duty.

Note that both the US and EU have however imposed ADD on imports from many prominent Chinese solar module companies. Surely then, a case exists for India to impose ADD on Chinese modules, but as the govt wants solar power to be as cheap as possible, it has withheld doing this.

So far, the logic is quite understandable, whether or not it is acceptable.

Where the government starts getting into troubled waters is when it wants to save the domestic solar manufacturing industry while not imposing ADD.

For those new to Indian solar sector: the Indian domestic solar manufacturing has been in a shambles. With capacity utilizations at best around 30% overall, most companies except for the top 3 or 4 are struggling to survive, as they find it difficult to compete with Chinese cells and panels.

The government wants to ensure that this segment survives and grows. But without the imposition of ADD, this is almost impossible (a few prominent Indian module makers indeed made a convincing argument to me some days back that their modules are cost competitive against the Chinese modules, but the general industry consensus is that Indian modules are 10-20% costlier than equivalent Chinese modules).

The simple equation thus is: No ADD = little demand for domestically made modules.

And Here Comes the DCR

What does the government do to get over the challenge posed by the above equation? It introduces a force-fitting concept called Domestic Content Requirements (DCR). The idea is, for a portion of the solar power allocations made by the government under the National Solar Mission, the government stipulates that the cells and modules need to be made in India. The logic being that, this way, at least some of the allocations for the solar power plants will benefit the Indian solar manufacturing sector.

No ADD, but still, through DCR, the Indian solar module makers get some business. Sounds like a brilliant balancing act, doesn’t it?

And Here Also Comes the WTO

Except that DCR flouts WTO rules. Plain and simple.

Now, you (like me), might not think much about international rules. Most times, they benefit the powerful countries more than others. Most laws are like that, aren’t they?

Whatever be our personal views on WTO, the fact is, India is a signatory, and DCR is at conflict with WTO “free trade” concepts, which stipulates that signatory countries should not follow discriminatory trade practices. DCR is discriminatory, mighty difficulty to deny that.

The USA is especially miffed because some US companies are not in a position to sell cells and modules to India owing to the DCR requirement. The US sued India at the WTO, and WTO has ruled in favour of the US.

While our government’s legal beagles presumably have ways, means, delaying tactics and what not to mitigate the harm from this ruling, in my opinion, this is just another example of our refusing to change. We like to continue being a soft state. We do not wish to bite the bullet, take hard measures, and put in all our efforts to build a strong solar manufacturing sector.

Instead, we take half measures. DCR is an example of a neither-here-nor-there. The way DCR proportions have been projected for the next few years, it does not provide enough incentives for the Indian manufacturing sector to scale fast and furious. Trust me on this inference because I just completed a 2 month survey during which I spoke to practically every second Indian solar module manufacturer.

Make in India? Looks Like Just Talk in India

So, what exactly am I trying to say?

Goddamit, let’s have ADD in place. That is the simple and straightforward way to growing our manufacturing sector. And ADD is justified. Chinese companies are able to produce at low costs because their government gives them significant subsidies and other incentives. Talk to any Indian solar module maker, and he will tell you that he can produce at the same costs as Chinese if similar incentives are provided to them. Either our government gives such incentives too (near-zero percent loans, significant capital subsidies on capital employed…) or just admits that the Chinese aren’t playing fair and impose the ADD.

Sure, it will hurt us for sometime, while the Indian companies adjust and scale. But seriously, what’s the super rush all about? Heck, solar power is not going to solve all our power problems overnight, in fact, not for a while – even at 100 GW it will provide just 5% of our country’s power requirements. So there is really no reason for the government to be in a terrific rush to have 100 GW of solar.

We have some time on our hand to grow our domestic solar sector. But by not imposing ADD now and trying to hoodwink the WTO, the government is essentially telling the manufacturing community “We do not trust you to deliver the goods. We do not trust you to apply your mind and scale fast and furious and match Chinese prices and costs”.

A very fine sentiment to project indeed, especially for a government which leaves no opportunity unused to tom-tom its Make in India ambitions.

Saying WTF is Easy, But…

The Indian government is possibly trying ways and means of telling WTF to WTO. That might buy it temporary success, but we are gonna hurt ourselves by not taking the difficult measures to grow our solar manufacturing ecosystem now.

This original version of this post appeared on EAI Blog

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