A Policy Conundrum: Balancing India's Interests on Chinese Solar Imports

India has been making significant strides in adopting different forms of renewable energy in recent years. The policy space is imbued with decisions which are slowly pushing for more sustainable forms of energy in an attempt to diminish the burden on our rapidly exhausting fossil fuel reserves. This shift is characterized by India’s adoption of non-traditional forms of energy like solar, hydro, wind, biomass etc. 

Among the different manifestations of this progress, solar energy has turned out to be one of the prominent ones. Its adoption aligns with India’s goals of energy independence, economic growth, and climate change mitigation, making it a cornerstone of the nation’s energy strategy. As a result, India’s landscape is now full of solar panels across deserts and a few rural areas followed by rooftop solar panel installations in metropolitan cities. Consequently, the need for solar panels has increased significantly. 

However, this rapid progress has its own challenges. India’s solar industry is heavily reliant on Chinese import of solar cells. According to the Ministry of New and Renewable Energy (MNRE) report published in 2022, India imports over 80% of its solar photovoltaic (PV) modules from China, highlighting the country's substantial dependence on Chinese manufacturers for its solar sector. Certain components like polysilicon and wafers are imported from China at highly competitive rates, reducing the overall local value addition to only 30-40 % minimizing the output to 7GW.  This is a huge obstruction to India’s energy goals, and therefore India is now bringing in a series of policy changes to reduce its  import dependency. 

India's Dual Strategy on Solar Imports From China: 

Signifying a shift in policy on solar power, India has decided to reintroduce the Approved List of models and manufacturers of solar photovoltaic [PV] modules (ALMM) from April 1, 2024. The list falls under the governance of the Ministry of New and Renewable Energy (MNRE) and consists of the approved manufacturers of solar cells and module types in India that have been certified by the BIS (Bureau of Indian Standards). The Ministry has specified that only the manufacturers specified in the list would be eligible to be used in government projects, government assisted projects and projects under government schemes & programmes. The initiative would thereby boost domestic manufacturing while reducing dependence on China by restricting government-sponsored projects to ALMM-listed manufacturers. The mandate acts as a non-tariff barrier, shutting out modules made by Chinese companies from all solar projects that are government-backed. According to Ishver Dholakiya, Managing Director of Goldi Solar, ALMM has provided a significant benefit to domestic manufacturers, levelling the playing field as it seeks to impose restrictions on the dumping of  cheap Chinese solar panels. 

However, now India is considering easing the Chinese investment restrictions on areas which are deemed non-sensitive, including solar panels and battery manufacturing. This strategic change coupled with India's share in global goods exports continuing to witness a tremendous decline, highlights the need for a transformative revival of the domestic manufacturing industry. Consequently, even our Finance Minister Smt. Nirmala Sitharaman has also hinted at the possibility of mending the broken economic relationship with China to increase the country's exports. This is further followed by India’s Chief Economic Adviser, V. Anantha Nageswaran, expressing India’s readiness to welcome billions of dollars of blocked investments from China. This dual strategy reflects the delicate balance India aims to maintain, while trying to enforce protectionist  policies like ALMM. 

Quad Context: Maneuvering Tensions in Geopolitical Equations

India's strategic choices, shaped by its Quad (Quadrilateral Security Dialogue)  alliance, and added up with its geographic and geopolitical centrality, must balance a deterrent approach toward the growing power of China in the Indo-Pacific region. The Quad alliance is instrumental in limiting its reliance on Chinese imports while building its domestic manufacturing capacity. India realizes that in spaces where Indian expertise and manufacturing capabilities are at an early development stage, like advanced electronics and telecommunications, strategic alliances with like-minded nations within the Quad can become a mechanism to contain the Chinese surge. Through a platform of shared research and development, and subsequently shared manufacturing, it is possible that the alliance would be able to reduce the dependence of India on the dragon. Moreover, through sheer momentum, the Quad’s reliance on Chinese technology could decrease, thereby fostering innovation and economic growth in a real manner.

Yet, its economic reality has to mean a more nuanced approach in the handling of China. Taking this lens into consideration, India cannot quite afford to divorce itself from China, nor can it attempt to isolate the comprehensive global strategic partnership that it enjoys with the U.S. and other Quad members. It has to manage China, seeking its strategic interests, while negotiating with the United States for relevant outcomes that prioritize its own self-interests.

The solar sector is the epitome of this balancing act. Even as the whole ALMM mandate has been emphasized to reduce dependencies on imports from China, relaxing restrictions on Chinese investments in non-sensitive sectors certainly acknowledges the important role China is going to play in India's economic landscape. These dualities are not free from challenges as India's reliance on Chinese components is synonymous with the competitive pricing of Chinese solar panels, thereby limiting the facet of self-reliance in solar manufacturing.

The Indian experience in the solar sector also raises some significant questions about the Quad’s approach to other non-strategic investments. Should the Quad reconsider their approach to Chinese investments in their respective non-strategic sectors? Indeed, a sector-by-sector analysis would perhaps be the correct answer, with the benefits of the Chinese investment pitched against the risks of over-dependency and geopolitical vulnerability. 

Balancing solar policy with global geopolitical relationships

India's strategic approach needs to balance its economic needs and strategies with its geopolitical aspirations. India's decision to reinstate the ALMM list, is a game-changer in its solar policy. This comes amid the new tariffs imposed by the Trump administration on Chinese imports, combined with the already existing tariffs on US imports of Chinese solar equipment. While US sanctions offer India an export opportunity, analysts fear that balancing exports with domestic solar capacity could hurt local project viability due to higher module costs.

Strengthening domestic manufacturing through protectionist measures, such as the ALMM, is a necessity, and so is harnessing Chinese investments and technology where needed. The key is to calibrate the approach in a way that mitigates risks while maximizing the opportunities. The Quad alliance leaves enough space open for collaborative efforts for India  in addressing shared challenges and reducing dependencies on China. Fuelled by innovation and technological advancement through joint initiatives, the Quad can support India's quest for self-reliance. However, the Quad, and India within it, is navigating a very fine line between nurturing home-grown industries and leveraging Chinese investment, particularly in new partnerships with the United States and other Quad members. 

As Atal Bihari Vajpayee wisely remarked: 'You can change your friends, but not your neighbours.' This sentiment underscores the inevitability of India’s geopolitical reality, where maintaining stable ties with China, despite tensions, is as crucial as fostering relations with the U.S. and other Quad members. This approach is the highlight of India's need to balance growth, stability, and global relationships.