The government of India has always been emphasizing on “Green Energy” and its role to emerge as a global leader in the renewable energy sector. Not only it acts as a booster for India’s target of Net Zero Carbon Emission by 2070, but would also promote domestic manufacturing in solar sector. However, with multiple changes in policies and rulings that has forced the solar industry to realign reluctantly, do you really think it will impact the growth of solar sector?
What has changed?
There are two main factors driving the change…
1. GST increment
With recommendation of GST Council in its 45th meeting held on September 17, 2021, the government has hiked GST rates on solar products from 5% to 12%. This had severely impacted many EPC contractors, solar panel manufacturers and other companies manufacturing solar parts and accessories. This has increased the overall cost of solar projects by 12-13% and would shoot up to 30% after April, 2022
2. BCD (Basic Custom Duty)
As part of Aatmanirbhar Bharat, the government has decided to increase BCD on Solar Modules to 40% and Solar Cells to 25% after April, 2022. This can be seen as a step to promote domestic manufacturing in solar sector. In addition, with schemes such as 4500 crore PLI (Production Linked Incentive) scheme for photovoltaic modules, India is expected to ramp up its domestic capacity. This will be in line to its goals of installing 175 GW of solar modules by 2022 and 450 GW by 2030.
While many believe this to have direct impact on Solar Industry and the burden would fall on to the consumers, the government has a different viewpoint…
Prior to this change, in case of solar power generating projects, 70% of the cost was taxable at 5%, now increased to 12%, while 30% of the cost considered as supply of services continues to be taxed at 18%. Since, this is a case of Inverted structure, wherein the supply of power is not taxed, GST paid on the solar projects is a significant cost. With this in mind, the committee felt that the existing rate of 5% on renewable products created an inverted rate of structure as most of the solar products attracted GST rate of 18%; Minimising the gap between input and output supplies would help domestic manufacturers.
Do you agree with the government of India that it would boost the domestic manufacturing? Please share your views in the comments…