Sunny side up for domestic manufacturing

Solar power project developers have been barred from deferring payment of customs duties and GST on imports of modules necessary for production. This is a welcome corrective measure. Solar power companies and GoI have been at odds over this, particularly as the latter was losing revenue while firms were stockpiling modules. The revocation creates a level playing field, and will benefit domestic module manufacturers, who are facing a price disadvantage.

The deferred payment option provision of Manufacture and Other Operations in Warehouse Regulations (MOOWR) was designed to boost domestic production by allowing companies to defer payment of customs duties and GST on imported components critical to manufacturing goods until they are used in production. In the case of solar, the project was designated as 'warehouse', and the product as 'electricity'. Extending this provision to solar power projects doesn't serve its intended purpose. The clear instruction from the Central Board of Indirect Taxes and Customs (CBIC) follows the Delhi High Court's ruling upholding the application of MOOWR to solar power projects, as they were not specifically excluded from its scope.

The revocation will impact cash flows of solar companies, particularly where a change-in-law provision hasn't been included in the power purchase agreement. GoI could consider some form of arrangement to ease the transition. This should serve as a lesson for GoI to consider policy implications, especially those that affect revenue and competitiveness. Investors and businesses need policy certainty. Lack of clarity and frequent changes have a detrimental impact on domestic and foreign investments. India's transition - energy and economic - depends on it.