Tuesday, 24 May, 2022
HomeEconomyGST is slowing down India’s renewables industry, cutting jobs potential, says study  

GST is slowing down India’s renewables industry, cutting jobs potential, says study  

The study has been conducted by two nonprofits along with the Modi government’s Skills Council for Green Jobs. 

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New Delhi: The goods and services tax (GST), the Modi government’s landmark reform meant to make taxation more transparent, is taking a toll on India’s fight against fossil fuels, a study has found.

According to a study released Thursday by the Council on Energy, Environment and Water (CEEW), a Delhi-based nonprofit research organisation, GST slowed the growth of the renewable energy industry in 2018-2019.

The study was released in collaboration with the Natural Resources Defense Council (NRDC), a US-based nonprofit with a dedicated India programme, and the Modi government’s Skills Council for Green Jobs (SCGJ). 

The research discovered a similar impact from the 25 per cent safeguard duty — the import duty imposed on cheaper foreign variants of goods also manufactured in India, to protect local manufacturers — imposed by the Modi government on solar cells for two years in 2018.

According to the researchers, there were 30 per cent fewer capacity additions in utility-scale (large-scale) solar plants in 2018-2019, as compared to the previous year (2017-18). GST kicked in on 1 July 2017. 

Capacity additions in rooftop solar grew by 27 per cent in FY19, a far cry from the 128 per cent growth recorded in FY18, the report states. 

According to CEEW founder-CEO Arunabha Ghosh, the main issue is the “uncertainty” over how GST is implemented. “There is GST on the products, and there is GST on the components — different rates are being applied,” said Ghosh.

“Basically when you are placing a bet on a tender you need as much certainty about your costs (as possible). The revenues are anyway uncertain because renewable energy generation is intermittent,” he told ThePrint. “Because of this uncertainty, there has been a little bit of conservatism that has kicked in on part of the developers,” he said.

Also read: Freak weather events pose new risk to India’s renewable energy goals

Long-term solutions

When GST was introduced two years ago, the Ministry of New and Renewable Energy had petitioned the GST Council for reprieve, as the indirect tax increased both capital and operational costs for renewable energy companies.

As for the safeguard duty, Ghosh said, though it was meant to protect domestic manufacturers, it has not helped manufacturing pick up.

“One reason is because you are applying a duty on the module. But the module has some components. So, suppose I want to manufacture the module at home, but I will still have to import some of the components,” he said in explanation.

Ghosh added that trade remedies like the safeguard duty are used “to deal with an emergency”.

“For example, you know, if we have an established industry and someone else’s anti-competitive practices are… undermining me. But if I don’t have the industry, I need 20 GW capacity to be installed — my domestic manufacturing base is 2-3 GW,” he said.

Ghosh said long-term solutions to boost manufacturing would include cheaper loans and tax breaks. 

The jobs factor

According to the CEEW’s analysis, India’s renewable energy workforce grew seven-fold between FY16 and FY19, from nearly 14,000 workers to 1 lakh. 

In 2017-18 alone, over 30,000 new workers were employed by utility-scale solar, rooftop solar, and wind energy projects, with rapid capacity addition in solar and wind energy believed to be the primary driver of this growth. 

However, in FY19, only around 12,000 new workers were employed by the sector owing to lower capacity additions, which the study attributes to GST, safeguard duty, lack of finance, and infrastructure constraints.  

Under the current arrangements, it is more cumbersome to get a loan to set up a rooftop solar panel than to get a loan for a vacation to Europe, Ghosh said.

“For renewables, the technology prices are now quite low, but the real challenge is the cost of finance. Between 60 and 70 per cent of the tariff is the cost of finance,” he added.

Misconceptions about the risks involved in investing in renewable energy is what drives up the cost of financing such projects, said Ghosh, adding that public outreach to clear these misconceptions can help boost interest in the industry.

Apart from the apparent climate-related benefits, the study notes that if India were to meet its ambitious renewable energy target of 175 GW by 2022, over 2.3 lakh additional workers could be employed.

 Even if India’s capacity reaches 100 GW by 2022, an additional 45,000 jobs could be created. 

However, policy certainty, government support, and lowering the cost of finance would be key to sustaining the growth of India’s renewable energy workforce, the study adds. 

Under the Paris Agreement, which aims to restrict global warming by 2100 to 2°C over preindustrial levels, India has committed to reducing the greenhouse gas (GHG) emissions intensity of its GDP by at least 33 per cent below the 2005 level by 2030, besides achieving 40 per cent of installed electric power capacity from non-fossil-fuel sources by the same year. 

Also read: Coal will still meet nearly 50% of India’s energy needs in 2030 despite focus on renewables

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