India is on track to reach 150 GW of solar capacity by March 2026, targeting nearly 300 GW by 2030. However, the sector faces challenges, including US export tariffs and significant manufacturing overcapacity. While foreign investment remains strong, the mismatch between production capacity and actual domestic demand suggests that industry consolidation may be on the horizon for solar manufacturers.
What Happened
India is on track to become the world’s second-largest solar market by 2026, marking a rapid shift from its ninth-place position in 2015. Data indicates that cumulative solar capacity reached 150 GW by March 2026. Looking further ahead, projections suggest this figure could climb to nearly 300 GW by 2030. This growth reflects the country's push for renewable energy, backed by consistent policy support and strong interest from global investors.
The Overcapacity Challenge
Despite the positive growth, the solar manufacturing sector is facing a supply glut. India’s module manufacturing capacity has surged to approximately 210 GW, while annual domestic demand is estimated at only 40-45 GW. Because production capacity is significantly higher than what the country actually needs, many factories are running well below their potential. Reports suggest that module plant utilization—a measure of how much of the factory's capacity is actually being used—has dropped to about 40%.
For investors, this overcapacity creates a risk of margin pressure. Smaller manufacturers or companies using older, less efficient technology may find it difficult to survive if demand does not catch up quickly. This situation often leads to industry consolidation, where larger, financially stable players with better technology take over or gain market share at the expense of weaker ones.
Trade Barriers and Export Pressure
The sector is also navigating difficult global trade conditions, particularly with the United States, which is a major destination for Indian solar modules. High tariffs, including anti-dumping and countervailing duties that together exceed 200%, have made Indian modules less competitive in the US market. Consequently, solar module exports dropped from $1.97 billion in FY24 to $1.12 billion in FY25.
Reducing Dependence on Imports
While India is expanding its own manufacturing, it remains heavily dependent on imports for photovoltaic (PV) cells, which are a critical component. Between April 2025 and February 2026, PV cell imports reached $2.72 billion. Although China's share of these imports has decreased from 83% in FY25 to 65% in FY26, reliance remains a key concern.
To address this, the government has introduced the Approved List of Models and Manufacturers (ALMM) mandate, which encourages the use of locally produced components. The government plans to extend these rules to cover ingots and wafers by June 2028, aiming to build a more self-reliant supply chain.
Foreign Investment and Future Outlook
Despite the challenges, the sector remains a magnet for foreign money. In 2025, foreign direct investment (FDI) in solar energy hit nearly $2.37 billion. Notable investments include $100 million from British International Investment into ReNew, and a similar commitment from ALTÉRA and Brookfield Asset Management to Evren Energy.
What Investors Should Track
Investors may monitor a few key factors to understand the health of the sector. First, look for whether domestic demand can increase to match the massive manufacturing capacity. Second, keep an eye on how companies manage their utilization rates and whether they can successfully diversify their export markets to avoid heavy tariff zones like the US. Finally, watch for any updates on the ALMM policy and its effectiveness in shifting the supply chain toward domestic manufacturing.