Council on Energy, Environment and Water Integrated | International | Independent
The Union Budget 2025, presented by Finance Minister Nirmala Sitharaman, announced the “National Manufacturing Mission” with a focus on increasing domestic value addition in clean energy manufacturing including solar PV, EV batteries, wind turbines, and grid-scale batteries. Through this initiative, India is doubling down on its Production Linked Incentives (PLI) to expand its manufacturing base. The intentions are in the right place but it is coming at a time when countries, especially the US, are focusing on revitalising their domestic manufacturing industry to create new jobs. Adding to the inward-looking policies to Make America Great Again, Trump is using tariffs as a coercive tool to make this happen. He has imposed an additional 25 per cent tariff on Mexico and Canada and a blanket 10 per cent tariff on Chinese imports starting February 2025. While India is not directly targeted yet, there is a risk of “reciprocal tariffs” that Trump hinted at, citing India’s high tariffs.
The stakes are high. In FY2024, the US imported goods worth around USD 3100 billion, of which only 2.5 per cent came from India. Yet, for India, the US is the largest export market with nearly 18 per cent of its total exports, amounting to USD 77.5 billion. The US market alone is equivalent to the next three largest export markets for India which are UAE, Netherlands, and China. The solar sector is emblematic of this lopsided dependency. In FY2024, Indian manufacturers exported USD 2 billion worth of solar photovoltaic (PV) modules to the US.
The imposition of tariffs on Indian solar modules could significantly impact the industry. The export market for Indian solar manufacturers could shrink dramatically due to price disadvantages. For instance, Indian manufacturers are currently selling TOPCon solar modules (manufactured with imported cells) to the US at around USD 0.30 per watt-peak (Wp), compared to USD 0.17-0.19 per Wp domestically. Tariffs would further inflate these prices in the US market, worsening the disadvantage.
India’s solar module exports accounted for 4.7 per cent of US solar imports in Q1 CY2024, compared to 87 per cent from other Southeast Asian countries, where many factories are Chinese-owned. While US anti-dumping duties on these imports (up to 271 per cent) create an opportunity for Indian manufacturers, new tariffs could erode their competitiveness. Key homegrown players like Waaree Energies and Vikram Solar, which exported over 50 per cent of their production to the US in FY24, could see revenues plunge. To mitigate these risks, the Indian solar manufacturing industry must prepare.
First, manufacturers should pivot towards components that are less likely to be targeted by tariffs. Typically countries including India have imposed high tariffs on solar modules and cells but lower or no tariffs on other raw materials like silver paste, junction boxes, solar glass, cables, solar net-meters, ethylene vinyl acetate, backsheets and aluminium frames. Recent analysis by the Council on Energy. Environment and Water (CEEW) suggests that India may already have a competitive edge in such components, catering to both domestic and international module manufacturing sectors, including the US. However, for components that can be targeted, the announcement of the Export Promotion Mission in the union budget driven jointly by the Ministries of Commerce, MSME, and Finance is a timely intervention.
Second, winners of Production-Linked Schemes should accelerate the process of manufacturing upstream solar PV components like wafers and cells. Made-in-India modules with higher levels of domestic content can continue to attract premiums in developed countries, which can bolster solar manufacturers export revenues. Similar to the EV battery sector, the exemption of import duties on capital goods in the Union budget can be extended to solar manufacturing capital goods too.
Third, manufacturers must aggressively diversify their exports by exploring new and underdeveloped markets such as South America and Africa. Manufacturers with expertise in project development, such as ReNew Power and Avaada Energy, can offer end-to-end solutions to countries scaling up solar power deployment, which will ensure offering scale and profit. Collaboration with the International Solar Alliance can further such efforts to tap into new markets. The announcement of ‘BharatTradeNet’ (BTN) should be leveraged by such companies to streamline integration of their products in global supply chains.
Finally, in diplomatic negotiations with the US, India could leverage its position as a viable alternative to China for exporting solar modules and components, thereby de-risking the US supply chain. The FY25-26 Budget in general discusses revamp of Bilateral Investment Treaties (BIT), strengthening trade ties and lowering barriers could create mutual benefits for both countries. Green opportunities, such as collaboration on green hydrogen and battery storage systems should be emphasised despite Trump’s fossil fuel-focused agenda. Existing bilateral platforms like the Strategic Clean Energy Partnership and the US-India Trade Policy Forum along with multilateral forums such as QUAD and Indo-Pacific Economic Framework, could facilitate sector-specific partnerships to enhance clean energy supply chains. These negotiations can also focus on reciprocal market access for solar PV and include sector-specific trade policies similar to the US-Japan Critical Minerals Agreement.
The 2025 Budget provides a much-needed boost to India’s manufacturing ecosystem, particularly in the clean energy sector. However, looming global trade uncertainties, particularly the risk of US tariffs, underscore the need for India’s solar industry to recalibrate. By improving the competitiveness of solar components, increasing domestic content, and proactively engaging in diplomatic negotiations, India can position itself as a reliable supplier of solar PV modules to global markets while creating jobs domestically and supporting its green growth ambitions.
Aarathi Srinivasan is a Research Analyst and Rishabh Jain is Senior Programme Lead at the Council on Energy, Environment and Water (CEEW). Share your comments with [email protected].
Add new comment