In a budget bereft of big-bang policy statements, the sops cornered by the renewable energy industry provide a keen insight into one priority area for the new government. Ahead of the budget, the solar energy industry was expecting a conservative Rs200 crore allocation but finance minister Arun Jaitley’s proposals have trumped most expectations. The plans to set up “ultra mega” solar power projects in Rajasthan, Gujarat, Tamil Nadu and Ladakh for which Rs500 crore has been allocated points to what lies ahead. But it is the other budget proposals — to incentivise domestic manufacturing through excise and customs duty cuts for inputs and machinery — that suggest a long-term perspective on developing renewable energy sources. Considering that Prime Minister Narendra Modi tapped solar energy successfully in Gujarat, this unprecedented focus on renewable energy is, perhaps, Modi’s brainchild.

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Jaitley’s proposal to energise one lakh solar-driven agricultural pumpsets and water pumping stations by allocating Rs400 crore is another quantum leap. For long, power subsidies to farmers and power shortages in rural areas have been a vexing socio-political and economic issue around which raging debates over populism and misgovernance swirled. Though deploying solar energy to resolve the twin-problems was floated long ago, only 13,000 pumps have been installed till date. By earmarking Rs100 crore for developing 1 MW solar parks on canal banks, a replication of Modi’s idea to develop solar parks along the Narmada canal network, this budget also opens up immense possibilities for creatively deploying solar power.

The Indian solar photovoltaic (SPV) manufacturing industry is on the cusp of a revolution. When the current solar energy programme, the National Solar Mission was launched in 2010, a target of 20,000 MW was set for 2022. The country’s grid connected solar power capacity has reached only 2,632 MW, but from Rs18 per KwHr(unit) the cost of power generation has fallen to Rs7.5 per unit in just three years and promises to decline further. Though domestic manufacturers have a capacity for installing only 700-800 MW annually and foreign manufacturers contribute a bulk of the capacity, the right policy initiatives will catalyse the domestic industry’s growth. Despite demands to impose anti-dumping duties on foreign manufacturers of SPV modules to ensure price parity and discourage imports, Jaitley appears to have wisely desisted from this move because doubts persist over the domestic makers’ ability to quickly ramp up capacity. The arguments cited for anti-dumping duties — that it preserves India’s foreign exchange reserves and protects domestic manufacturers — are valid only when the government has exhausted all policy options, which is clearly not the case yet.

In this context, the budget’s waiver of customs and excise duty for inputs used in fabricating SPV cells and modules will help domestic manufacturers competitively price solar panels. While imported solar modules cost 58-60 cents per watt, domestic ones cost 70-72 cents per watt and this could help bridge the gap. Priority lending and concessional financing, larger public fund allocations, mandating states to purchase solar power, and streamlining the tax regime are other policy options the government can consider. This is a sunrise sector that the government must nurture with care. Among the UPA’s failings was the stagnation in the domestic coal, gas and telecom industries through policy missteps and corruption allegations. The SPV industry’s potential to supply clean and cheap energy, achieve rural electrification, provide employment and fight climate change could make it the most important driver of India’s future growth.