The Indian government is planning to give another try at promoting the manufacturing of solar cells in the country. The Indian finance minister announced some important measures to attract investment into this and other energy-related sectors.

Indian finance minister Nirmala Sitharaman, in her budget speech for financial year 2019-20, announced yet another incentive for the promotion of solar cell manufacturing in the country. The minister proposed that her government shall offer tax incentives to companies involved in the production of solar cells. These incentives will also cover production of semiconductors, lithium storage batteries, and solar electric charging equipment.

The tax incentives shall be offered through the Income Tax Act of India wherein the investors can claim tax deductions on the expenditures incurred for setting up the production facilities and during operations. The minister also talked about certain other indirect tax incentives without providing any details in her speech.

At present the Indian government offers incentives for solar cell production, among several other electronic items, under the Modified Special Incentive Package Scheme (M-SIPS). This scheme offers investors reimbursement of several taxes levied by the central government as well as a subsidy on the capital expenditure for setting up production facilities. The government has set up a portal where investors can submit their proposals.

The government has claimed that it received 419 investment proposals worth US$16.5 billion up to December 2018. Of these, investments worth US$1.5 billion have already been made. The government, however, did not state how many of the 400-plus proposals were for solar cell production.

Such investment measures are extremely critical for India as it depends heavily on imported solar cells and modules to power its ambitious solar power program. We have extensively covered the domination of Chinese modules in India’s solar power market. China’s share in India’s solar module imports, in value terms, in 2018-19 was around 78% down from an overwhelming 89% in 2017-18. India imported solar modules worth US$2.16 billion in financial year 2018-19, down 44% likely due to the imposition of safeguard duties.

We have also covered the ambitious electric mobility targets set up by the Indian government. Battery storage and charging infrastructure is a critical part of this program. Hence, the inclusion of lithium storage and solar charging equipment in the new tax incentive program.

Lithium-ion import in India reached US$1.23 billion in financial year 2018-19, up from just US$0.55 billion in the preceding financial year. India’s self-reliance in lithium-ion and other battery storage solutions would be a decisive factor in the proliferation of electric vehicles in the country.