Promoting green industrial development through local content requirements: India's National Solar Mission

Abstract

In order to make renewable energy technology deployment strategies politically acceptable, many countries are linking them to other socio-economic goals. A controversial industrial policy tool that is increasingly popular is the use of local content requirements (LCRs). These regulate the extent to which certain projects must use local products and are often justified on the basis of supporting local employment and private sector development. The LCR debate has centred on the rights and wrongs of protecting infant industry, with little progress being made in finding common ground. This article aims to move beyond this stalemate to understand conditions under which LCRs might be an effective tool for promoting local manufacturing. To do so, an effectiveness framework is applied to LCRs for solar photovoltaics in India's National Solar Mission. The article finds that for LCRs to be effective, they must be (1) limited in duration and incorporate planned evaluation phases, (2) focused on technologies and components for which technical expertise is available and global market entry barriers are manageable, and (3) linked to training and promotion of business linkages and linked to support for other stages of the value chain and wider services integral to success of renewable energy industries.Policy relevanceIt is widely appreciated that governments need to support renewable energy technology deployment in order to mitigate climate change. However, policy makers face increasing pressure to link such support with other socio-economic goals, such as job creation, economic development, and poverty reduction. One such policy support mechanism is the use of local content requirements (LCRs) linked to feed-in tariffs. Policy makers are faced with a difficult choice as manufacturing interest groups lobby for the establishment of protection measures such as LCRs whilst the international trade community led by the World Trade Organization (WTO) seeks to limit their use. This difficulty is amplified by the limited information on the impact of LCRs on job creation and economic development. In this context, this article documents the use of LCRs in India's National Solar Mission and seeks to understand the conditions under which LCRs are an effective policy tool for building a competitive local manufacturing industry.