India’s solar PLI scheme spurs strong manufacturing growth but faces major structural challenges: IEEFA report

India's journey towards sustainable energy has seen a significant push for solar power, a critical component of its ambitious climate targets and energy security aspirations. The Production Linked Incentive (PLI) scheme for High-Efficiency Solar PV Modules, approved by the Union Cabinet in April 2021 with an outlay of over INR 4,500 crore (later enhanced to INR 19,500 crore under Tranche-II in 2022), stands as a cornerstone of this strategy. This initiative aims to foster a robust domestic manufacturing ecosystem, reduce import dependence, and integrate India into the global solar supply chain. An recent report by the Institute for Energy Economics and Financial Analysis (IEEFA) acknowledges that the PLI scheme has indeed spurred strong manufacturing growth in the sector, marking a positive step towards self-reliance in solar energy production.

Historically, India launched the Jawaharlal Nehru National Solar Mission (JNNSM) in 2010, setting ambitious targets for solar capacity addition. Despite rapid deployment, a significant portion of solar cells and modules were imported, primarily from China, due to cost advantages and established manufacturing ecosystems abroad. This import dependency posed challenges to India's energy security and economic resilience. The 'Make in India' initiative, launched in 2014, and the subsequent 'Atmanirbhar Bharat Abhiyan' (Self-Reliant India Campaign) in 2020, provided the overarching policy framework for schemes like the solar PLI, emphasizing domestic value addition across various strategic sectors.

While the PLI scheme has generated momentum, the IEEFA report highlights several critical structural challenges. A primary concern is the high capital intensity required for upstream integration, which includes the manufacturing of polysilicon, ingots, and wafers – the fundamental building blocks of solar cells. Currently, India's manufacturing largely focuses on downstream activities like module assembly. Moving upstream requires substantial investment in advanced technology and infrastructure, making it a capital-heavy endeavor. Furthermore, the report points to inadequate incentives, suggesting that the current level of financial support might not be sufficient to attract the necessary investments for developing a fully integrated domestic supply chain, especially in the capital-intensive upstream segments.

Inconsistencies in trade policy also present a significant hurdle. Frequent changes or uncertainties regarding Basic Customs Duty (BCD) on imported solar components and finished products can create an unpredictable business environment, deterring long-term investments. This is compounded by persistent import dependency, not just for finished products but also for critical raw materials. The volatility in global raw material prices, particularly for polysilicon and silver, adds another layer of risk for domestic manufacturers, impacting their cost structures and competitiveness. These challenges collectively threaten to dilute the scheme's effectiveness in achieving complete self-reliance.

Key stakeholders in this ecosystem include the **Government of India**, primarily the Ministry of New and Renewable Energy (MNRE), the Ministry of Commerce & Industry, and NITI Aayog, responsible for policy formulation, implementation, and oversight. **Domestic manufacturers** are the direct beneficiaries and implementers of the scheme, striving to scale up production and integrate vertically. **IEEFA** acts as an independent research and analysis body, providing crucial insights into the scheme's performance and challenges. **International suppliers** of raw materials and technology also play a role, influencing global supply chains and pricing. Ultimately, **Indian consumers and industries** benefit from increased access to affordable and domestically produced solar power.

This initiative holds immense significance for India. It is central to achieving its climate change commitments, notably its updated Nationally Determined Contribution (NDC) to achieve 500 GW of non-fossil fuel electricity capacity by 2030 and meet 50% of its energy requirements from renewable energy sources. From an economic standpoint, a thriving solar manufacturing sector promises job creation, technological advancement, and a boost to the 'Make in India' vision. Strategically, it enhances energy security by reducing reliance on volatile international energy markets and foreign suppliers, bolstering India's geopolitical standing. The push for renewable energy aligns with the Directive Principles of State Policy (DPSP) in the Indian Constitution, particularly Article 48A, which mandates the State to endeavor to protect and improve the environment. The Electricity Act, 2003, also provides the regulatory framework for promoting renewable energy sources.

Looking ahead, the future implications are profound. Addressing the identified challenges requires a long-term, stable policy framework with targeted incentives for upstream manufacturing. This includes exploring R&D support for indigenous technology development and fostering a skilled workforce. India's ability to navigate global supply chain disruptions and raw material price volatility will be crucial. Success in this endeavor could position India as a global solar manufacturing hub, contributing significantly to its energy independence and global climate action goals. Failure to address these structural issues might limit India's progress, keeping it dependent on imports for critical components and hindering its full potential in the renewable energy transition.