India Finalizes $1 Billion Plan to Boost Domestic Solar Manufacturing Amid Growing Dependence on China

India is proceeding with a $1 billion subsidy program to bolster its domestic solar manufacturing industry, a significant step in the country's broader plan to diversify away from China and take advantage of the world energy transition. The program, to be presented in the Cabinet for approval in March 2025, will aid in local production of wafers and ingots, two vital components of solar panels. This subsidy, that has been tabled by the Ministry of New and Renewable Energy, is among the steps that India is taking to create a domestically robust solar industry that could provide the nation's energy needs and globally make the industry even more sustainable.

India's solar sector now depends significantly on imports, especially from China, for the raw materials and equipment required to manufacture solar cells. Even with a domestic boom in solar cell manufacturing, India remains heavily dependent on China for crucial components like silicon wafers and polysilicon. As the world is shifting towards renewable energy with growing momentum, India is determined to cut this dependence and attain its energy security.

Subsidy Scheme Aims at Wafers and Ingots
The $1 billion subsidy scheme is aimed directly at Indian producers of solar wafers and ingots, inputs for the production of solar cells. These inputs are vital in solar panel production but have been India's vulnerable spot in solar manufacturing in the past. The attention of the Indian government towards building this part of the solar supply chain is viewed as a move significant to bolster the local capability and reduce dependency on Chinese imports, among others.

India has been quick to accelerate the production of solar power in recent years and is now one of the world's fastest-growing solar markets. India will need, however, to move beyond dependence on foreign sources of essential raw materials and leading-edge manufacturing techniques to become totally self-reliant in solar manufacturing.

Greater Dependence on China
India's domestic solar manufacturing industry, as in the case of Europe and the US, is highly dependent on China, which has controlled the solar supply chain for years. India's excessive dependence on China for essential inputs like polysilicon, wafers, and sophisticated equipment employed to produce them was brought into focus by the Global Trade Research Initiative (GTRI) report released in October 2024. India's energy security, along with its long-term solar manufacturing vision, is threatened by such over-reliance.

Even post-domestic manufacture of solar cells, India continues to be import-reliant to a significant degree as it continues to be dependent on foreign nations, like China, for key inputs such as silicon wafers, raw material, and machinery to manufacture solar cells and modules. Such ongoing reliance is sure to remain a principal hurdle for India to achieve self-reliance in solar manufacturing.

Adding to the complexity, China restricted exports of critical equipment utilized in solar manufacturing in January 2025, another addition to India's challenge in achieving an independent solar industry. The export restrictions have further complicated it for new cell plant factory operations to succeed in India, which would be a blow to the country in progressing towards an end to its reliance on China.

Issues in Becoming Solar Totally Independent
According to a study by CRISIL Market Intelligence and Analytics, even if solar cells start manufacturing in India, it will continue to be import-dependent for essential items like polysilicon and wafers. India is bound to become more import-dependent in the next three years and hence cannot dream of being self-reliant in solar manufacturing.

To reduce its import reliance, India would need to gain the capability of producing solar cells from refining silica. It involves manufacturing polysilicon, which is energy-intensive and costly, and requires advance technology. Currently, there is no Indian company that can produce solar cells from raw materials through silica sand to produce wafers.

India's top solar player, Adani Solar, became India's first ingot manufacturer in April 2024, employing imported polysilicon. While it is thought to be part of the effort to wean India off foreign suppliers, it has a long way to go before it can fully develop on its solar making capabilities.

The Risk of Greater Reliance on Imports
The GTRI report also cautions that if the solar generation capacity of India does not increase in the next couple of years, the import dependence of the country could increase up to $30 billion per year by the year 2030. This will only add to the energy security burden of India and work against the efforts of establishing a sustainable and independent solar industry. The $1 billion subsidy plan is thus seen as a key step to prevent such a situation and keep India competitive in the international solar market.

Although India's solar sector has experienced a huge boom in recent years, the nation is still seriously lagging behind in becoming completely self-reliant from foreign sources, mainly China. The $1 billion subsidy scheme is a big step towards solving these problems, but it is questionable whether India can become fully self-reliant in solar production in the next couple of years.

Conclusion
India's $1 billion subsidy program to develop its local solar manufacturing sector is a sign of a country that is bent on lessening its dependence on China and assuring its energy future. While the initiative aims at the crucial wafers and ingots industry, India's journey towards complete solar independence will need sustained investment in technology, capacity building, and nurturing an internally dependent supply base. The success of the plan will be crucial not just for India's energy security but also for India's role in the world transition to renewable energy. 

Source: Bloomberg, The Print, Business Standard, CRISIL Market Intelligence and Analytics, Global Trade Research Initiative (GTRI)