India's Solar Manufacturing Boom Hits Overcapacity Roadblock

Renewables

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Updated on 16 Nov 2025, 10:29 am

India's solar manufacturing sector has witnessed remarkable growth over the past decade, expanding from a mere 2.3 gigawatts (GW) of solar module capacity in 2014 to an impressive 109 GW today, supported by 100 manufacturers and 123 production units.

This expansion was significantly boosted by government policies such as the Atma Nirbhar Bharat initiative, the Approved List of Models and Manufacturers (ALMM), basic customs duties on imported cells and modules, and the production-linked incentive (PLI) scheme. These measures aimed to reduce dependence on China, which still dominates the global solar supply chain.

However, this rapid build-out is now confronting a 'problem of plenty.' Annual solar installations are projected to be around 45–50 GW, falling short of the available module production capacity of 60–65 GW. Projections indicate module capacity could reach 130 GW by March 2026 and 165 GW by March 2027, while cell capacity is also set to rise significantly.

**Impact**

The overcapacity is expected to squeeze profit margins for domestic solar original equipment manufacturers (OEMs). Rating agency ICRA forecasts that operating profitability, which stood at an elevated 25% in FY2025, is likely to moderate due to competitive pressures. This could accelerate consolidation, with larger players potentially increasing their market share as smaller players face pressure.

Adding to the challenges, new US tariff measures have redirected solar exports back to India, intensifying price competition. Furthermore, modules made with domestic cells incur a higher cost (around 19.5 cents/W) compared to those using imported cells (around 16 cents/W), creating a cost disadvantage.

Despite the growth, Indian manufacturers remain dependent on China for crucial upstream components like polysilicon and wafers. Building capacities in these areas requires substantial capital and technological sophistication. Large corporates, including Reliance Industries and Adani Group, are investing billions in developing an entire solar equipment value chain to address this dependency.

A near-term reprieve exists for projects with bid submission deadlines before September 1, 2025, as they are exempt from ALMM requirements for domestic cells. This provides some support for non-integrated OEMs.

**Difficult Terms Explained:**

* **Gigawatt (GW):** A unit of power equal to one billion watts, commonly used for large-scale energy generation capacity. * **Solar Module:** A panel composed of solar cells that convert sunlight into electricity. * **Solar Cells:** The basic components that convert sunlight directly into electricity. * **Atma Nirbhar Bharat:** A Hindi phrase meaning 'Self-Reliant India,' a vision for India's economic growth and self-sufficiency. * **Approved List of Models and Manufacturers (ALMM):** A list maintained by the government of India of approved solar modules and manufacturers, often used to regulate imports and promote domestic production. * **Basic Customs Duties:** Taxes imposed on imported goods when they enter the country. * **Production-Linked Incentive (PLI) Scheme:** A government scheme that provides financial incentives to companies to boost domestic manufacturing and production. * **OEMs (Original Equipment Manufacturers):** Companies that produce equipment or components that are then sold by another company under its own brand. * **Operating Profitability:** A company's profit generated from its core business operations before interest and taxes. * **Integrated OEMs:** Manufacturers that produce both solar cells and solar modules. * **Non-integrated OEMs:** Manufacturers that produce only solar modules, relying on external suppliers for solar cells. * **Polysilicon:** A highly purified form of silicon used as the raw material for solar cells. * **Ingots:** A solid block of semiconductor material, typically silicon, from which wafers are cut to make solar cells. * **Backward Integration:** A strategy where a company expands its business operations to include the production of its own inputs, rather than relying on external suppliers. * **Value Chain:** The entire range of activities involved in the creation and delivery of a product or service, from raw materials to end-users.