Union Budget 2021 | Postpone imposition of BCD on solar equipment, demand developers

Solar power developers in the country have demanded that the government should hold back the imposition of basic customs duty (BCD) on solar equipment for the time being in the forthcoming budget.

They fear that this could derail the government's ambitious target of having 175GW renewables by 2022, requiring an investment flow of Rs 1.75 lakh crore.

According to industry estimates, as much as Rs 1.75 lakh crore investment is required to bid out 35GW of renewable energy capacity in the country. About 50 GW of clean energy is under implementation, while India has already installed over 90GW renewables, including 37GW of solar and 38GW of wind energy.

India has an ambitious target of having 175GW of renewable energy capacity by 2022, including 100GW of solar and 60GW of wind energy.

Finance Minister Nirmala Sitharaman would propose the General Budget on February 1.

Earlier in June last year, Power Minister R K Singh had clearly indicated about the government's intent to impose basic customs duty on solar equipment and also reiterated that again.

Talking to PTI, Director-General Solar Power Developers Association (SPDA) Shekhar Dutt said: "There is a need to postpone BCD on solar modules till domestic manufacturers mature. Considering the present disruption of the supply chain due to the COVID-19 pandemic, dependence on importing modules must be reduced, precisely targeted through the Government of India through its Atmanirbhar initiative."

However, he said that developing sufficient R&D in solar and manufacturing efficient modules domestically at competitive prices, which are at par with imported modules, needs adequate time.

"Imposing BCD in the intervening period will be counterproductive. Solar power developers will have to import modules to meet contractual obligations at a much higher price in the absence of necessary domestic capacity," he pointed out.

The SPDA is also worried about an abrupt increase in the unforeseen prices of metal and alloys, making the (solar) project unviable.

Dutt said the global market's steel prices have increased significantly due to the trade war between China and Australia. India's government has always protected domestic Indian steel producers' interest from importing steel through tariff barriers and other states' concessions.

However, he said that given the increased global price realisation, the Indian steel producers have resorted to profiteering and taking advantage of the situation through cartelisation, which can be noticed by the alarming increase in the domestic steel prices for HRC and Galvalume steel (used in MMS structures).

He suggested a suitable mechanism like export restrictions be devised to dissuade the firms from indulging in such behaviour.

The SPDA also wants relaxation in GST (goods and services tax) rate on Solar PV Projects.

The government has intended to simplify the tax structure for the Renewable Energy sector; however, under the current tax regime, the solar power projects, the breakup considers 70 per cent of gross consideration as 'value of supply of goods' attracting 5 percent of GST and remaining 30 per cent as 'value of services attracting 18 per cent GST.

The effective tax rate thus comes out to be around 8.9 per cent. The deemed ratio of 70:30 reflects only the industry average is incorrect as a proportion of the Solar Power project's goods is almost 90 per cent.

Dutt said: "It is pertinent to mention that any taxes, duties like GST that is imposed by the government in fact result in increase in generation cost of electricity. This in turn causes a cascading increase in the manufacturing or cost of living. And, therefore, is counter-productive to national growth. Hence, we request for rationalisation of tax rate and the imposition of 5 per cent tax across the board."

Last year, the government announced a liquidity infusion scheme for cash strapped discoms worth Rs 90,000 crore, which was expanded to Rs 1.2 lakh crore later. The funds were to be released in two equal tranches.

Dutt suggested that the second tranche of the scheme should also be released as soon as possible. He also made a case for a mechanism so that pending due are given directly to Generators by the government.

He asked for expediting the passage of the Electricity (Amendment) 2020 Act. Discom reforms envisaged through amendments proposed in 2020 are still pending.

Indian Wind Turbine Manufacturers Association (IWTMA) Chairman Tulsi Tanti said that the body has asked for restoration of accelerated depreciation at the rate of 80 per cent for windmills and solar projects especially for MSME (micro small and medium enterprises).

He has also urged the government that the generation and distribution of power through renewable energy devices should be added as a specified business under section 35AD (of income tax act) similar to an infrastructure facility.

He also asked to remove the restrictions on Balsa imports, which is the raw material for wind turbines' rotor blades.

The IWTMA has also urged to stop dumping of cheaper imported goods and to encourage DTA(domestic tariff area) buyers to buy their inputs from local SEZ (special economic zone) units (rather than importing the same), saying it is necessary to reduce the applicable customs duty on clearance of goods from SEZ to DTA from an average of 7.5 per cent to 1 to 2 per cent only.