BENGALURU: The safeguard duty India imposed on solar cells and modules coming from China and Malaysia, which enjoyed 85-90% market share in the country, is just a few months away from completing its two-year course, and the government may have a tough time deciding whether to extend it or not.The safeguard duty imposed in July 2018 was pegged at 25% for the first year, 20% for the next six months, and 15% for the last six months ending in July this year. The idea was to somewhat level the playing field for Indian manufacturers who were unable to compete with their Chinese rivals on price. Under WTO rules, such duty can be imposed for a maximum of four years to protect domestic industry but it has to be progressively lowered.But the question before the government is, has the duty done local manufacturing any good?Industry insiders maintain that hardly any local manufacturing unit has been started since the duty was imposed. They claim that the few new solar manufacturing units which have been set up were mainly driven by other long-term considerations, and that the duration for which the duty was announced was too short for them to make such a major financial commitment based on just this concession.The solar cell manufacturing capacity today stands at 2GW and has remained unchanged through the course of the duty. The operational solar module capacity today is 6.5GW has increased by 2GW over the past year. “But the module assembly business is low tech in nature. It doesn’t meet the objective of the government in driving creation of jobs and more economic growth,” said Vinay Rustagi, Managing Director of renewable energy consultancy firm Bridge To India.In fact Vikram Solar, one of the leading module manufacturers in the country shut down one of its units in West Bengal , sources said. Although the company did not comment on the development, Gyanesh Chaudhary, Managing Director said they are taking the EPC route as far as expansion plans go. Besides EPC, most Indian module manufacturers are also relying heavily on exports to the West (Europe and the US). “This is because there is higher realization of pricing in the international market. In 2019, Indian exports of modules to the US accounted for 80% of the total module exports,” said Sujoy Ghosh, India CEO, First Solar , a leading solar panel manufacturer.Existing manufacturers which had a lot of idle capacity two years ago are not utilizing it better. Ghosh noted that although new module capacity has been added, that doesn’t mean old capacity is being fully utilized. “The operative word is active production. So many manufacturers have the capacity but a lot of it is not active,” he said.Utility scale projects continue to rely on imported modules for more than 80% of their requirements, according to Rustagi. Demand for domestic modules mostly comes from the rooftop solar business. “On the rooftop side, many of the smaller retail level players prefer to buy domestic modules because they need quick shipments and don’t want to take exchange rate risk etc. If they place an order, they want equipment in two weeks’ time rather than wait for three months,” Rustagi said.Finance Minister Nirmala Sitharaman had also announced a basic customs duty of 20% on imported solar cells and modules in her budget speech this year. However, since the relevant rules do not permit safeguard duty and customs duty to be imposed together on any product, this has not yet been enforced. If indeed safeguard duty is not extended beyond July, basic customs duty is expected to kick in.If it does, manufacturers fear that far from helping, it may even affect them adversely. While safeguard duty was applicable only on cells and modules imported from China and Malaysia, customs duty will apply to all imports and may even be applicable on units domestic manufacturers have located in special economic zones (SEZs). There are a good many such units. “Our modules might be considered imports and this could affect us badly,” said Chaudhary. “We need clarity on this. We have put our long-term expansion plans on hold because we’re not sure what the government plans to do.”Not all manufacturers were sympathetic, with some pointing out that they set up units in SEZs since they were targeting markets outside India, and SEZs allow various tax concessions. “The investment decisions were clearly made focusing on the international market. You can’t have your cake and eat it too,” a manufacturer said, requesting anonymity.The commerce ministry recently came out with a notification saying they have initiated an investigation into whether safeguard duty should be extended or not.The industry feels the larger ecosystem around manufacturing needs to be examined, and not just the extension of the safeguard duty, because India has set a target of achieving 100GW of solar power by 2022.“The government needs to move fast because people are worried about over-dependency on China. With the Coronavirus outbreak, everyone is thinking about how do we de-risk our supply chain,” said the manufacturer quoted above.