India’s PLI Scheme for Boosting Solar Power Raises more Questions than Answers

India has been desperate to increase its solar manufacturing capacity for a long time but its ad hoc policies and relentless competition from China have made it near impossible to create a competitive industry. Now the government has thrown a wrecking ball against imports to make sure that large domestic industry develops. The biggest support given to the industry is a production linked incentive scheme whereby the government will give around 4%-6% of the sales of a solar manufacturer as an incentive for five years. This will help create around 5-10 GW of solar capacity in the country with winners under this scheme to be decided based on their investment size, the efficiency of their technology, vertical integration as well as domestic sourcing.

This will help create large-sized manufacturers who hopefully can compete on the global stage, particularly, China which has a massive advantage over other solar manufacturers in terms of scale, technology, and supply chain. It is being hoped that a critical mass of Indian manufacturers will be created through this scheme which would eventually compete on the global stage without the government crutches in the future.

However, doubts remain as the Chinese players like Longi are shipping 20-30 GW of solar products annually which is more than three times the size of the entire Indian market. They also have a large vertically integrated supply chain which can keep the costs very low and distribution across the world. Indian manufacturers, on the other hand, are small players with less than 100 MW capacity mostly. If players like Tatas, Adani, and others seriously invest using this scheme, then Indian manufacturing can become a global force like the chemical and pharma industries. However, if they just only game the system to milk the subsidies then after five years, the Indian industry will remain a second-class sick industry like how it is now.