India is contemplating a substantial reduction in import taxes on solar panels to address the increasing demand for renewable energy and bridge the gap in local production, sources told Reuters.
The government seeks to accelerate the adoption of clean energy by cutting the import tax from 40 percent to 20 percent and potentially lowering the goods and services tax (GST) on solar panels from 12 percent to 5 percent.
Sources within the renewable energy ministry told Reuters that discussions have taken place with the finance ministry to seek approval for these tax cuts. The move aims to support the renewable energy sector and enable companies to meet the surging demand for solar power.
Major players in the Indian solar industry, including Tata Power, Adani Green, and Vikram Solar, have faced challenges in sourcing sufficient domestic equipment to complete their projects. The proposed tax cuts could alleviate these supply constraints by reducing the reliance on imports.
The tax increase on solar panels was implemented in April 2022, aligning with India’s vision to enhance self-reliance and reduce emissions by expanding renewable energy generation. However, the local capacity for solar panel manufacturing is yet to keep up with the growing demand. With a current annual capacity of 32 gigawatts (GW), India’s requirement stands at 52 GW due to the rising adoption of sustainable energy by corporate offices, industrial units, and factories.
Tax Makeover To Drive India’s Renewable Revolution
India has heavily relied on solar panel imports to bridge this gap, with an estimated need for 8 to 10 GW per year in the next two years. In the previous fiscal year alone, India imported solar panels worth $3 billion, with a staggering 92 percent originating from China. The proposed tax cuts could reduce the cost of imported panels by 20 percent, making them more competitive with domestically manufactured modules.
Prime Minister Modi has set an ambitious target of achieving 365 GW of installed solar capacity by 2031-32. However, slow progress in domestic component supplies and higher import taxes have hindered the growth of the renewable energy industry. The recent tax reduction aims to boost the sector’s expansion, supporting Prime Minister Modi’s comprehensive green energy strategy.
If implemented, the tax cuts would benefit solar power companies and facilitate the country’s transition to a cleaner and more sustainable future. The increased affordability of imported solar panels could encourage wider adoption of solar energy across various sectors and contribute to reducing India’s carbon footprint.
(With inputs from Reuters)
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