Krishnan Rajagopalan, Head - Solar Business, Anchor Electricals Pvt Ltd, Panasonic Group
Why have domestic manufacturers been unable to improve their capacities? Predominantly today, the solar industry is ruled by capital costs and the impact directly comes from the manufacturing capacity. The problem is that whatever manufacturing we have is either slightly outdated or not big enough to compete on cost. This restricts the pricing and domestic manufacturers are unable to compete with large scale Chinese manufacturers. Another problem is the lack of an integrated manufacturing capacity, which helps control the manufacturing quality and cost. But, we expect this will change. With the capacities being announced, there are large scale manufacturing being planned in India, which once completed will make us more competitive in the next 2-3 years.
Are government initiatives supportive of the sector?
It is absolutely the way it has to go. So, while on one side the government is probably trying to go towards achieving grid parity, imports are still continuing from the point of view that we don´t have the internal capacity as yet.
The Congress government spoke about ADD to promote the domestic industry. But this could have been a deterrent, because when we don´t have the manufacturing capacity, what is the point of having ADD? So, BJP has taken a conscious decision to extend the customs duty waiver.
Will manufacturing shape in line with new solar projects?
It may not be possible, but at the same time it is not impossible. Today, there is talk from groups like Adani, who want to set up about 3-4 GW of manufacturing capacities in India, with technology tie-ups with US and European organisations. Even Chinese companies are looking to set up manufacturing bases here. Generally for a vertically integrated company, it may take a horizon of about 2-3 years, and there will still be need for imports.
You cannot blindly refuse imports for a country like ours, if we are talking about achieving 100 GW of solar capacity.
Today, even if I build manufacturing capacities in India, I can probably go upto only 20-25 GW. Even if I have manufacturing base of over 2 GW and scale it up by 10 times, that will still not suffice for a 100 GW scope. So, for the plan that has been put up by the government till 2022, and the manufacturing capacity ramp up, there will still be a need for 50:50 ratio of domestic and imports.
Despite having multifold advantages, domestic manufacturing is still not attracting investment, compared to many other countries. Your opinion?
It is not so. Today if you see what the government has done for the industry--customs duty is zero, manufacturers are exempted from excise duty, certain states have made VAT zero and have accelerated depreciation--there are many benefits in terms of the taxations and duties that have already given.
Yes, compared to a country like China, where the government subsidises labour, electricity and land costs, and give all approvals in time, we lag behind. We have to understand that we are a democracy and can´t expect things to change overnight, but there are still a lot happening. There are commitments made by bureaucrats where the policy and kind of approval mechanisms are changing.
In India we are still a country where large populations are dependent on subsidy. In this situation, where our electricity prices are rising and our demand for energy is increasing, we have to understand whether the Chinese model is sustainable for us? If we start subsidising energy, land or utility to a industry like solar, will it be a sustainable model?
Today, the country is leaning toward de-subsidising daily requirements like diesel and petrol, because we need the economy to grow and countries cannot work on subsidies. Yes, for developed nations like in Europe or the US it helps, because they have enough cash reserves to work on, but we are still developing and for any developing country, a subsidy-based economy is not a sustainable one.
What the government is still trying to do is promote this nascent industry with a little subsidy, tax benefits, etc. and they want parity of grid, which once achieved, will help the industry sustain by itself.
What should the government do to provide maximum opportunities in this sector?
The government can help by building large industrial parks and giving infrastructural support for solar. The two major deficiencies that are probably grounding this industry today are the financing and unavailability of large scale infrastructure. The government needs to work on these two areas.
I think some states have taken notice, e.g. Andhra Pradesh is talking about large solar manufacturing parks for which the government will give land on lease basis for 100 years, some tax relaxations and infrastructure support like building of roads. Why are we only looking at Indian manufacturing for domestic consumption, why can´t India become an exporter? That is possible, because if quality is being talked about as a deterrent from Chinese products, why can´t India fill this gap and become an exporter and compete with China in the US, European or any other upcoming global solar markets? Today, Japan is a big market, also South America is emerging as a big market today and this is something that can become workable. India can become an exporter of technology If we have the proper infrastructure.
What solutions would you recommend to counter these problems?
Financial subsidy is what we can do. We don´t need free money, but cheap money, for e.g. If we take a loan from an Indian bank today, the interest is about 12-13 per cent for an MSE, at which rate he cannot compete with any Chinese manufacturer on a big scale.
Why can´t the government take bonds or give sovereign guarantee and buy Dollar loans or Euro loans at a cheaper rate? They can take the risk of hedging and probably give these industries an interest rate of 5-6 per cent--which is what China is doing. I think the government is looking at this and even talking about Dollar-based tariff. But the RBI has to be taken into confidence and the possibility of it fitting within the financial and legal realms should be looked into.
Another thing the government can do is come out with large scale infrastructure parks and provide 24x7 power and water supply, roads reaching the ports, and other such developments as this will automatically make an improvement.
Today, India has proved itself in the software industry. We are doing very well in the electronics-based industry, TCB manufacturing and the pharmaceutical industry, where pharmaceutical parks and SEZs infrastructure which was available made a difference.
So, if they work on this, these mechanisms which will definitely boost the sector.
How optimistic are you about future prospects? How much growth do you expect?
We have to be optimistic. If we are not optimistic, the economy will not move. There is a majority government in place, and of course there are some hurdles that a new government will always face in terms of policy by virtue of us being a democracy and having to take into confidence all the other political parties and state governments. The good things they are talking about are the land acquisition bill, GST and economic reforms, which once they go through with, will automatically move things ahead quickly for the sector.
We as a Panasonic organisation are very optimistic about India and have been investing here regularly. Our Japanese corporate team, including our President, continuously visits India every year and there is a clear focus on India as a manufacturing hub for Panasonic.