India is looking at offering better subsidies to manufacturers – both local and foreign – of solar cells and modules so that the benefits cannot be challenged at the World Trade Organisation (WTO).

This idea is gaining ground as it’s a win-win for most — Indian companies need funding, which is available easily from the US, and the Americans need market access.

“Increasing capital and production subsidies available to manufacturers of PV cells and modules are a safe way to encourage local production – and goes with the ‘Make in India’ programme – as it cannot be challenged at the WTO. Ministry for New & Renewable Energy, the Department of Electronics and IT (DeitY) and the Commerce Department are in consultations on the matter,” a high-ranking official said.

The rejig of incentives is being considered following a WTO verdict on a complaint filed by the US on India’s National Solar Programme that mandates a portion of PVC (photo-voltaic cells) and modules be procured locally. The multi-lateral body ruled that this norm violates the principle of ‘national treatment’.

However, some countries may decide to impose countervailing duties when subsidised items are exported, but that will not affect domestic sales.

A capital subsidy of 25 per cent is already available to producers of PV cells and modules under the Modified Special Incentive Package Scheme handled by the DeitY, and recently it has been expanded to include a 10 per cent production subsidy as well.

Since production and capital subsidies are available for all companies that manufacture in India, the higher rates would also encourage US investments in the country. While both the US and India are engaged in a ‘Make in India’ versus ‘Make in the US’ battle, the two are also eager to cooperate in the sector which is dominated by China.

Minister of Power, Coal, New and Renewable Energy Piyush Goyal is currently in Washington to attend the India-US energy dialogue with a focus on green energy. Goyal is expected to take up this issue with his US counterpart.

New Delhi’s argument that since the power produced under JNNSM would be bought by an agency of the public sector company NTPC, all equipment purchases fall under the category of ‘government procurement’ has been rejected. The rejection has been on the ground that since local sourcing condition has been applied on power equipment and not power that will be bought by the government, it cannot qualify as government procurement.

Although the JNNSM mandates that just a small fraction (about 8,000 MW of a total of 1,00,000 MW) be created with domestic modules and cells, it means a lot to the fledgling domestic industry, which includes companies such as Moser Baer and IndoSolar, which is at least assured of some market for its products.

Meanwhile, whether India will appeal or not against the WTO verdict is yet to be decided, but official sources point out that they are not hopeful of the decision being reversed.

“Our main argument that power purchased under the JNNSM is actually government procurement and, therefore, out of the realm of WTO rules, has been rejected,” a Commerce Ministry official said. A challenge would, though, buy India some more time – about six more months – for implementing the decision.

Source: September 21, 2015, The Hindu