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11Th
Aug 2016
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| WTO norms(The Total Investment & Insurance Solutions) |
The
World Trade Organisation (WTO) recently ruled against India's
Domestic Content Requirement (DCR) for setting up solar power plants.
Yet, there are ways to meet DCR in a way that it does not violate the
multilateral trading norms.The Total Investment & Insurance
Solutions
To
backtrack a bit, the national solar target was revised to an
ambitious 100 GW in 2015, with a focus on indigenous manufacturing of
solar cells, modules and other associated components of solar power
plants.
Currently,
India has 5.62 GW and 1.21 GW of PV (photovoltiacs) module- and
cell-manufacturing capacities. However, the industry is operating at
only 30 per cent capacity because of lack of demand as imported
modules are cheaper.The Total Investment & Insurance Solutions
Although
3.33 GW was installed in India over the past two years, more than 75
per cent of the capacity employs modules imported from China and
other competitive countries.
Indian
modules and cells become expensive because of complicated mechanisms
to avail of subsidies like the MSIPS (Modified Special Incentive
Package Scheme) and a lack of vertical integration, economies of
scale, low-cost finance and, finally, adequate dedicated
infrastructure such as silicon-processing plants and stable power
supply.
Without
a strong manufacturing base, India will end up spending $3 billion on
imported PV modules to reach the ambitious 100 GW target. Energy
security, which is another objective in JNNSM (Jawaharlal Nehru
National Solar Mission), will not be achieved. There are various
policy instruments that the government can engage to boost domestic
manufacturing like tax exemptions, soft loans and the DCR.
The
DCR clause mandates a part of solar installations to use indigenously
sourced or manufactured components. It incentivises nascent domestic
manufacturers by providing them a secure market for a stipulated
period. In principle, it should be phased out when indigenous
manufacture becomes competitive with its international counterparts.
The Indian government had stipulated DCR in some projects of JNNSM
Phase 1 and Phase 2.The Total Investment & Insurance Solutions
In
February 2013, the US filed a dispute against India at the WTO
claiming bias against imported cells and modules through this DCR.
The US claimed that this clause was inconsistent with the General
Agreement on Trade and Treaty (GATT) Article III:4, which demands
equal treatment for domestic and foreign products.
India
defended its case by seeking an exemption under GATT Article
III:8(a), which says that GATT Article III:4 shall not apply to laws
and regulations governing the procurement of products by governmental
agencies for governmental purposes and not for commercial resale.
The
WTO rightly ruled against India on grounds of discrimination against
solar panels while procuring electricity. This essentially means that
the government was purchasing the electricity that was generated from
the panels under the DCR clause.
According
to WTO norms, the goods being discriminated against and the goods
being procured should be either similar or have a competitive
relationship, which was not the case in this dispute. India is now
planning to appeal against the decision at WTO's highest court, the
Appellate Body.The Total Investment & Insurance Solutions
This
decision of the WTO leaves no elbow room for India to implement DCR
in its current form. However, DCR can be employed in another way. A
majority of the government entities planning to install rooftop
photovoltaic (RTPV) systems can use domestically manufactured
modules. In this case, India will be able to support the DCR clause
for government usage as India is not a signatory to the Government
Procurement Agreement (GPA), which enforces otherwise.
The
argument because of which India lost the case will not hold good
since the government is no longer procuring electricity, but only
consuming whatever is generated with no associated monetary value or
transaction. The only condition should be that these RTPV systems do
not generate more than the consumption in each building.
Indian
Railways alone consumes 17.5 billion units of electricity (1.8 per
cent of the country's total electricity demand) with an annual
expenditure of over Rs 11,000 crore ($1.6 billion). If 10 per cent of
this demand is met by DCR, this would add 1 GW capacity. Similarly,
there are a large number of government entities such as hospitals,
schools and institutions that consume a large amount of electricity.
These buildings typically have large rooftop areas suitable for RTPV
installations.
Further
research using tools such as Geographical Information System (GIS)
can be used to estimate the suitable rooftop area available to such
government entities.The Total Investment & Insurance Solutions
Once
the potential assessment exercise is completed, India can decide the
magnitude of DCR it wants to implement within the WTO norms. This
will allow domestic manufacturers to operate within a niche space
till they achieve cost competitiveness and strengthen the indigenous
manufacturing base.The Total Investment & Insurance
Solutions
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