Green Growth & Trade Restrictions: Assessing Socio Economic Impacts of Local Content Requirements in Indian Solar Policy

Abstract

The renewable energy policies of many countries have actively endorsed Local/Domestic Content Requirements (LCR/DCR) on the assertion of providing protection to their niche technology markets. However, potential usefulness and legality of local content requirements (LCRs) are regularly contested on the premise of their trade distorting impacts and lower allocative efficiencies. The initial Indian solar policy also provided differentiated incentives for ground mounted grid connected solar deployments using domestically manufactured Crystalline-Silicon (C-Si) panels (DCR) over the imported ones. This study maps socio economic impacts of the two categories of deployment using Input Output (IO) analysis. The methodology introduces solar generation as a new production activity into Indian economy. An independent solar I-O block is constructed and integrated as a new sector in 35x35 national input output table (2011) obtained from world input output databases (WIOD). The analysis involves tracking Inter industry transactions involved in installing a unit of grid connected ground mounted photovoltaic solar power capacity in India. Both solar blocks compile data at purchasers' price for PV module, mounting structure, power conditioning unit, construction and preoperative costs of the power plant. Followed by adjustments for existing fiscal elements like applicable subsidies, VAT, excise duty and incurred transportation costs. The DCR block is differentiated by dissociation of solar panel manufacturing Industry into inputs for manufacturing module, wafer and cells with in the economy while in case of non DCR solar blocks, solar panels feature in the imports column. Direct and indirect impacts in terms of output, employment and income generation are estimated followed by distributive efficiencies of the sectoral wage generation associated with the two categories of deployment. The results reveal that direct and indirect output (GDP generation) of DCR deployments is 24.74 % higher than of open category projects. The DCR projects also produce 36.64 % more economy wide employment when compared to open category projects. Further, distributive efficiencies associated with quality of employment generated favors DCR deployments in India. This study thus provides initial evidence and policy guidance on usefulness of domestic content requirement in promoting regional green growth for the growing solar sector in India.