In August 2024, the US Customs and Border Protection (CBP) agency detained shipments of solar panels from India valued at nearly $43 million. This action aligns with the Uyghur Forced Labour Prevention Act (UFLPA), aimed at prohibiting imports linked to forced labour in China, particularly from the Xinjiang Uyghur Autonomous Region (XUAR). The CBP’s scrutiny of polycrystalline silicon, important raw material for solar photovoltaic (PV) modules, reflects the growing tension between the US and China, and presents both challenges and opportunities for India’s solar industry.
The Solar Supply Chain
China has maintained a dominant position in the global solar PV supply chain, accounting for over 80% of all manufacturing stages. The heightened scrutiny of Chinese companies has opened a window for India to position itself as an alternative supplier. However, despite claims of achieving self-sufficiency in solar module production still faces challenges in solar cell production capacity. This discrepancy marks the complexities in transitioning from reliance on imports to establishing a robust domestic manufacturing ecosystem.
India’s Manufacturing Ambitions
The Government of India has accelerated efforts to enhance self-sufficiency in renewable energy, particularly in the aftermath of supply chain disruptions during the Covid-19 pandemic. Initiatives such as the Production Linked Incentive (PLI) scheme for solar PV modules, with a substantial outlay of ₹24,000 crore, aim to bolster manufacturing capacity. Despite these efforts, many successful bidders under the scheme have listed Chinese vendors as their suppliers, indicating an ongoing dependency on Chinese components.
Economic Implications
The Union Budget for 2024-25 allocated ₹250 crore for the National Programme on Advanced Chemistry Cell Battery Storage but did not specifically allocate funds for a PLI scheme for solar PV modules. This raises questions about the government’s commitment to reducing dependence on Chinese imports in the solar sector. The Economic Survey marks the reality that, in the short termn firms may have to continue integrating into China’s supply chain due to economic constraints and the lack of viable alternatives.
Geopolitical Considerations
The geopolitical landscape is shifting, and India must navigate its relationship with the US while managing its reliance on Chinese suppliers. There is potential for India to negotiate sector-specific exemptions from UFLPA with the US, drawing parallels to the 123 Nuclear Agreement. Such strategic diplomacy could facilitate smoother trade relations while ensuring compliance with international standards on labour practices.
Challenges for Indian Companies
Indian companies face hurdles in understanding the dynamics of Chinese domestic politics and supply chains. Their reliance on foreign consultancies for vital information about Chinese sourcing practices may lead to longer-term complications. A more nuanced comprehension of the geopolitical and economic factors influencing the Chinese market is essential for Indian firms to mitigate risks and leverage opportunities in the renewable energy sector.
Future Prospects
The Indian solar industry stands at a crossroads, with the potential for growth tempered by the realities of global supply chains and geopolitical tensions. The emphasis on export-led manufacturing necessitates a proactive approach from Indian companies to adapt to shifting market conditions. By investing in domestic research and development, and encourageing partnerships that enhance supply chain transparency can strengthen its position in the global solar market.
Questions for UPSC:
- Discuss the implications of the Uyghur Forced Labour Prevention Act on India’s solar manufacturing sector.
- Evaluate the effectiveness of India’s Production Linked Incentive scheme in achieving self-sufficiency in solar module production.
- Analyse the challenges faced by Indian companies in navigating the Chinese supply chain for solar components.
- What strategies can India adopt to reduce its dependency on Chinese imports in the renewable energy sector?
- Assess the potential impact of geopolitical relations between India and the US on the Indian solar industry.
