Budget 2024: Industry Calls For Rationalising Solar Gear GST, Boost To Export-Oriented Segments

With renewable energy capacity additions rising to 71% of the new capacities added in FY24, industry officials are calling for the rationalisation of the Goods and Services Tax for solar equipment and incentives for export-oriented segments in the July 2024 Union budget to support the achievement of the 2030 renewable energy target.

Sumant Sinha, chairman and chief executive officer of ReNew—a major renewable energy producer in India—has requested the government prioritise three measures for renewables in the July budget.

First, the government should introduce an incentive package for export-oriented sectors like green hydrogen and solar component manufacturing. Second, a new carbon mission should be launched to synergise current efforts. Third, all renewable energy projects above 50 MW should be classified as projects of national importance under the PM Gati Shakti initiative.

According to Sinha, India should capitalise on the abundant opportunities available in the sector to become a global hub for renewable energy technology, green hydrogen, and related services. He also advocated for a uniform GST rate of 5% for battery energy storage systems and related components, as well as a reduction in customs duty on batteries for utility storage purposes.

Manjesh Nayak, co-founder and chief financial officer of Oorjan Cleantech Pvt., said that while the PM Surya Muft Bijli Yojana subsidy scheme generated interest among residential users, there have been issues in obtaining the subsidy. Nayak emphasised that the budget must incentivise the sector beyond this.

Key areas that need to be addressed include:

• Reducing the GST levy from 13.8%, which negatively impacts returns for non-commercial users.

• Ensuring easy access to working capital finance for engineering, procurement, and construction contractors.

• Incentivising power distribution companies for exceeding rooftop solar targets.

• Deferring the basic customs duty on imported modules until domestic capacity is sufficient to meet domestic demand.

Tanmoy Duari, chief executive officer of Axitec Energy India Pvt., a solar module manufacturer, is optimistic about the budget and expects the government to rationalise GST on solar equipment.

He added that the PM Muft Surya Bijli Yojana, which aims to provide 300 units of free electricity to 10 million households through rooftop solar installations, should be expanded and promoted to empower more households to adopt solar energy.

“These measures would lead to significant savings and contribute to India's sustainability goals,” Duari said. He also noted that the recent increase in budget estimates for grid-based solar power from Rs 4,757 crore to Rs 10,000 crore is a positive step.

However, continuing this trend with more financial support can help accelerate the installation of solar power systems, particularly in the rooftop segment. Enhanced funding can drive substantial growth and help achieve national renewable energy targets, Duari said.

According to SK Gupta, CFO of AMPIN Energy Transition, India's solar sector will need over Rs 3,00,000 crore of funding to meet its growth targets for the next two years.

"While funding for good projects are available from both international and domestic sources, government should continue to help reduce lending costs of renewable projects by putting them in ‘priority sector lending’ and raising cheaper green funds from international markets through green bonds, etc., and routing them through domestic DFIs, banks and NBFCs at very competitive rates," Gupta said.

This will aid rapid growth of industry at rational tariffs. Re-introduction of lower tax rates for tax deducted at source, lower interest on external commercial borrowings and rupee denominated bonds will support reduced cost of funding for this industry, said Gupta.

Another key focus area in the budget should be to encourage equipment manufacturing for solar modules and cells in India by promoting suitable policy, regulatory, financial and tax regime for the same.

"India has a strong history of in-house equipment manufacturing, yet our reliance on RE manufacturing machinery and equipment is almost 100%. In the next phase, this reliance should be reduced to zero," Gupta said