India’s DCR Woes

By Aanal Purani

When in the World Trade Organisation, do as the World Trade Organisation says!

The World Trade Organisation (WTO) declared on the 25^th of February that the US had won a case against India about the local content rules for solar panels and modules.

Let us rewind a little and see exactly what brought about this conclusion. Initially in 2013, the US objected to India’s initiative to manufacture solar cells and modules domestically, alleging that it promotes local manufacturers and discriminates against American businesses. They also indicated that India’s domestic content requirement (DCR) scheme discriminates against the American solar manufacturers by mandating (and subsidizing) local developers in India (mainly PSUs and all government organizations) to use locally manufactured cells and modules.

Presently, the US Government and its solar fraternity believe that it is a necessitated step towards free trade, and a warning to other countries to avoid protection of the domestic market. Although environmental groups in and around the US feel that this decision might hamper India’s sustainable energy growth potential.

With an objective to establish India as a global leader in solar energy, the country’s Ministry of New and Renewable Energy launched the Jawaharlal Nehru National Solar Mission (JNNSM) in 2010. To promote the local manufacturers, the Indian Government brought in a policy of domestic content requirement, intending to promote local manufacturing of solar components. In case of Phase I Batch I (2010-2011) when solar PV projects were selected, it was mandatory for projects based on crystalline silicon technology to use modules manufactured in India, while in Phase I Batch II, it became mandatory for all the projects, be it thin film or crystalline, to use cells and modules manufactured in India. The table shown below gives a summary of the technology use in Phase I, Batch I and II.

Table – 1

Table – 2

Source: State of Renewable Energy in India, A citizen’s report

Further under the JNNSM Phase II Batch I 750 MW guidelines by Solar Energy Corporation of India (SECI), the Government provided for VGF support to developers who opted for DCR as a financial support. The problem here is that even though DCR enables local capacities, any kind of fiscal benefit provided to encourage local manufacturing is likely to be challenged under the WTO agreement as a prohibited subsidy and breaching the principle.

The bigger question here is whether India needs DCR or not? If yes, what are its options post this ruling. Also what should the Government do to save the manufacturers and keep the market viable?

Before we answer this question, let us look at the US. How has it tackled such initiatives in its states? According to a paper published by Timothy Meyer from Vanderbilt University Law School titled, How local discrimination can promote Global Public Goods, it says that out of the 44 states’ renewable programs, 23 violate the WTO’s 2013 decision (here).

Given below is a table from the paper with information of some states having their renewable energy LCR Policy/ Regulations within the United States:

This table is an example of how US supports some degree of subsidies for local renewables in many of its states. Every country would want to set it’s own clean energy future. Such “Buy Local” rules are a standard to motivate new industries which help the country reach it’s target.

If we talk about India, the National Solar Mission program aims to achieve 100 GW of solar installed capacity by 2022. The country has also initiated the International Solar Alliance in collaboration with France. India is strongly keen on going green and doing its part to “save the climate”. Currently India’s total solar PV installed capacity is 5.24 GW, out of which approximately only 10% of the power comes from domestically produced solar panels and cells. This amount practically seems almost negligible. And the US argues that under the domestic content requirement it has suffered up to 90% decrease in its solar exports to India since 2011 (here), which led it to file the case.

What does India and it’s Government have to say about this development? According to a senior Commerce Ministry official of India, who spoke on the condition of anonymity, “This case has brought in several dimensions such as climate change, trade, energy access, domestic manufacturing, and deployment. The ruling has affected India’s ‘Make In India’ program and should be viewed for its long-term implications” (as quoted here).

Mr. Tarun Kapoor, Joint Secretary of India’s Ministry of New and Renewable Energy has commented that, “This ruling will not inhibit any of India’s future plans and that this will not, therefore, cause any dent in the ‘Make In India’ program, because we still have several options to support the domestic industry while remaining within the WTO regulations.”

In conclusion, this is a multi-faceted issue. To answer the earlier stated question whether India needs DCR or not, shall be decided as time unfolds. The need of the hour is to have a structured regulatory approach that will genuinely advance the domestic manufacturers and address their issues, while making their business cost-competitive in the coming time.

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Aanal Purani currently works as a Senior Project Fellow at Gujarat Energy Research and Management Institute (GERMI), Gandhinagar. Her area of work consists of policy analysis, database management, solar energy research work, DPR writing, market research and analysis, preparing and reviewing tender documents, and Request of proposals in the field of solar. She also has a keen interest in Corporate Social Responsibility and sustainability related activities, market research.