Boosting Export Competitiveness of India’s Solar Photo Voltaic Sector

While India has not been able to fully exploit its manufacturing export potential, the sunrise sectors, like the solar PV industry, allow it to make its mark in the global export market. To become a competitive player in this segment, India needs to focus on the higher end of the supply chain like solar modules and panels and liberalise imports of raw materials like solar cells.

Sustainability has become an integral part of economic policy decisions across the globe, reflected in gradual changes in production and consumption patterns, like the transition from Internal Combustion Engine (ICE) to electric vehicles.  Global integration, in the form of Foreign Direct Investment (FDI) and trade flows, is also being driven by these sustainability choices. Analysis by GlobalData shows that between 2020 and 2023, renewable energy was the best-performing FDI category worldwide, attracting capital expenditure of USD 1.5 trillion between 2020 and 2023. On the trade front, solar PV-related products account for 0.6 per cent of total exported items, assessed at an 8-digit level, for 2023.  The trend implies that this segment is likely to be a key driver of global trade flows in the coming years.

The emerging green energy space offers India an opportunity to reposition itself as a global export leader and integrate into green Global Value Chains (GVCs).

While trade is an important engine for growth and job creation, India has not been able to leverage this opportunity and overall has a low share in trade, accounting for 2 per cent of global exports.  In this regard, this emerging green energy space offers an opportunity for India to reposition itself as a global export leader and integrate into green Global Value Chains (GVCs).

India’s solar Photo Voltaic (PV) segment is gaining strength, for instance, solar module exports increased 3 times within one year and went from USD 0.6 billion in 2022 to USD 1.8 billion in 2023, accounting for 3.3 per cent of its global exports. An assessment of India’s customs data reveals that top export firms in the electronics sector (HS code 85) consist of smartphone manufacturing firms occupying the topmost spots, followed by solar and wind energy companies. In the solar energy segment, it is possible that Production Linked Incentive (PLI) scheme for high-efficiency solar PV modules has made an impact in terms of its production and exports. At the global level, US tariff led trade diversion away from China has possibly added to this growth in India’s solar PV exports.

However, in terms of relative weight in India’s electronics export basket, the smartphone manufacturing segment takes the major pie. Out of the top 8 export firms in the electronics sector, the top 4 are smartphone manufacturers accounting for about 39 per cent of India’s exports from September 2023 to August 2024. On the other hand, Renewable Energy (RE)companies occupy the next 4 spots but account for only 5.3 per cent of electronics exports in the same period. This also gets translated in relatively low shares of India’s exports (in global exports) in the solar PV segment, as compared to key Asian economies. For instance, Malaysia, Thailand (in 2023) and Vietnam (in 2022) accounted for 5.4, 5.5, and 10 per cent, whereas India accounted for 3.3 per cent (in 2023) of global solar module exports.  It is important to identify the key steps to trigger India’s Solar PV manufacturing and exports.

The low export is driven by higher prices for solar modules made in India. For instance, in August 2024, the 540-watt mono solar modules were exported from India at a unit price of USD 117 while it was imported from other countries at a much lower price. This included China at USD 64.3 and Malaysia at USD 76. This is also reflected in the difference in the scale of exports from China and India. China’s export of solar modules (USD 73.5 billion) was around 22 times more than India’s export in 2023. How can Indian exports attain lower prices and better scale to lead the global export market for solar modules?

To enhance the competitiveness of India’s solar modules in the global market, it is imperative to lower the customs duties on solar cells, from the existing high levels.

It is important to ensure low input prices, which are way higher in India due to high import tariffs on key inputs for solar modules, like solar cells that carry a basic customs duty of 25 per cent. One of the important policy decisions that facilitated smartphone manufacturing in India was tariff reduction on key parts and components, with the recent announcement in January 2024, to reduce the duties from 15 per cent to 10 per cent.  To enhance the competitiveness of India’s solar modules in the global market, it is imperative to lower the customs duties on solar cells, from the existing high levels. While government of India offers duty drawback on the imported inputs used for exports, the rate for solar cells is just 1 per cent which is clearly insufficient to compensate for the high import bill for the PV module producers. Also, high import restrictions negate the export incentivising impact of schemes like PLI as it increases the overall domestic prices thereby pushing up the export prices as well, creating an anti-export bias.

It is difficult to compete with Chinese solar cell production due to their extremely low cost, and the Indian industry should focus on the higher end of the supply chain like solar modules and panels.

According to an industry expert, it is difficult to compete with Chinese solar cell production due to their extremely low cost, and Indian industry should focus on higher end of the supply chain like solar modules and panels. In this regard, lowering import tariffs on solar cells would help the entire supply chain. Even after obtaining cells at cheap price, attaining scale in module production is a challenge in India, due to the high energy and land cost. This needs to be resolved to attract foreign investments in the country. Additionally, as China has already championed silicon cell production, India needs to invest in innovation and R&D for alternate chemistry cells, to capture the global market, instead of putting its resources in incentivising cell production which is not going to provide competitive outcomes.

While this blog touched upon the solar PV sector, green manufacturing is a wide spectrum that includes eco-friendly packaging, sustainable textiles, electric vehicles, and so on, and according to the latest World Bank report on India’s trade opportunities, greening trade can speed up export diversification and growth for India.