India's Solar Manufacturing Surges Past Demand, Faces Overcapacity and Export Hurdles

India's solar module manufacturing capacity is poised to surpass 125 GW by 2025, far exceeding the domestic demand of approximately 40 GW, according to Wood Mackenzie. This rapid expansion, largely driven by the government's Production Linked Incentive (PLI) scheme, is expected to result in an inventory surplus of 29 GW, heightening the risk of overcapacity for the industry. Compounding these challenges is a significant drop in exports to the United States, with module shipments falling 52% in the first half of 2025 due to new 50% reciprocal tariffs. Many Indian manufacturers have consequently paused their US expansion plans and are redirecting focus to the domestic market.

However, achieving cost competitiveness remains a significant hurdle. Indian-assembled modules using imported cells are reportedly $0.03 per watt more expensive than fully imported Chinese modules, and fully 'Made in India' modules could cost more than double their Chinese counterparts without continued government support. Protective measures, including the Approved List of Models and Manufacturers (ALMM) and a proposed 30% anti-dumping duty on Chinese modules, are being implemented to support domestic producers. Experts believe India has the potential to become a large-scale alternative to China's solar supply chain, but long-term success will depend on significant investment in research and development (R&D), next-generation technology, and strategic diversification into export markets such as Africa, Latin America, and Europe.

**Impact** This news has a significant impact on the Indian stock market, particularly affecting companies in the renewable energy and industrial manufacturing sectors. The rapid increase in solar module manufacturing capacity, while driven by government incentives, now raises concerns about overcapacity and potential pressure on profit margins for domestic producers. A sharp decline in exports to the US, a key market, further intensifies these challenges. However, the government's protective measures and the potential for India to become an alternative solar supply chain to China offer opportunities. Long-term success will depend on companies' ability to achieve cost competitiveness through research and development, invest in advanced technology, and diversify their export markets. Rating: 8/10.

**Explained Terms** * **GW (Gigawatt)**: A unit of power, equal to one billion watts. It is used to measure the large-scale capacity of solar panel manufacturing. * **PLI Scheme (Production Linked Incentive)**: A government initiative designed to boost domestic manufacturing by providing financial incentives based on incremental production. * **Overcapacity**: A situation where the production capacity of an industry significantly exceeds the market demand for its products, potentially leading to price drops and reduced profitability. * **Reciprocal Tariffs**: Taxes imposed by one country on imports from another country, often as a response to similar tariffs imposed by that country. * **Cost Competitiveness**: The ability of a business or country to produce goods or services at a lower price than its competitors while maintaining acceptable quality. * **ALMM (Approved List of Models and Manufacturers)**: A list maintained by the government of India specifying solar modules and manufacturers eligible for inclusion in government-funded or regulated projects. * **Anti-dumping Duty**: A tariff imposed on imported goods that are sold at a price below their fair market value, intended to protect domestic industries from unfair competition. * **R&D (Research and Development)**: The process of scientific inquiry and experimentation aimed at discovering new knowledge and developing new or improved products and processes.