India is contemplating a significant reduction in its import tax on solar panels in an effort to bridge the gap in local production and meet the surging demand for renewable energy. Government sources reveal that the renewable energy ministry has engaged in discussions with the finance ministry to seek approval for cutting the import tax on solar panels from 40% to 20%. Additionally, they are also considering recommending a rollback in the goods and services tax (GST) on solar panels from 12% to 5%.
The proposed changes would be a boon for Indian solar power giants like Tata Power, Adani Green, and Vikram Solar, who have secured solar power supply contracts but face a shortage of domestic equipment to fulfill them. India had imposed the higher import tax in 2022 to discourage Chinese imports and promote self-reliance in line with Prime Minister Narendra Modi’s clean energy agenda.
However, the domestic production capacity has fallen short, necessitating imports to meet the growing demand. The move to lower import taxes and GST aims to address this shortfall. India has set a target of achieving 365 gigawatts (GW) of installed solar capacity by 2031-32 as part of its ambitious green energy drive.
India’s annual solar panel manufacturing capacity currently stands at 32GW, while the demand requires 52GW due to the increasing adoption of green and cost-effective energy solutions by corporate offices, industrial units, and large factories.
The proposed tax cuts could lower the cost of imported solar panels by approximately 20%, making them more competitive with domestically manufactured modules. In the fiscal year 2021-22, India imported solar panels worth $3 billion, with 92% of them coming from China. Reducing import taxes and GST could help align the prices of imported panels with those of domestically produced ones.
As India seeks to accelerate its transition to clean energy, these tax revisions would stimulate the growth of the solar industry, enhance energy self-sufficiency, and support the country’s ambitious renewable energy targets.
