Powering the Future: GST Cut Accelerates India’s Clean Energy Ambitions

* GST reduction lowers renewable energy costs and stimulates demand across India’s power sector.

* Strengthening domestic manufacturing and supply chains enhances self-reliance and sectoral competitiveness.

* Investment in technology and skilled workforce ensures sustainable growth and long-term capacity expansion.

The GST Council’s decision to cut tax on renewable energy equipment is a welcome step to boost the sector. India is targeting the addition of 500 GW of non-fossil capacity by 2030 and aligning taxes with that goal is a big step forward in realising it. The reduction of GST from 12 to 5% on most renewable energy equipment, including components such as solar cells, modules, batteries for storage systems and electrolysers among others, will lower project capital expenditure costs and stimulate demand for renewable energy.

Industry leaders have announced their intent to pass on the cost benefits to power purchasers. Analysts expect that the price of renewable energy will come down by approximately ₹0.10 per kWh for solar and ₹0.15–0.17 per kWh for wind. These numbers may look small on a bill but at the gigawatt scale they matter for distribution companies (Discoms) and consumers alike.

However, the larger impact of the tax relief may lie outside the per-unit price cut. Electricity sold on the grid sits outside the purview of GST leaving developers with input tax credits on setting up their project combined with the revisions announced to expedite the processing of input tax credits that could not be fully set off in the past.

A lower rate on components along with the revisions announced to expedite the processing of input tax credit will make more working capital available for developers and their suppliers. The reform will act not just as a tax-enabled demand boost but will unlock additional capital for development and deployment to proceed on the ground.

The consequent reduction in the price of power will also nudge demand upwards and lead to increased offtake expectations. Discoms as they see relief in the price of power purchase agreements developers are likely to see larger and clearer order books.

The same applies to MSMEs setting up rooftop solar or other renewable energy plants primarily for captive use where costs are expected to be lower by around 5%. If policy remains consistent this will create a confidence loop for developers solar equipment manufacturers and suppliers to proceed with additional investments to meet this demand.

However, creation of this confidence loop should not be the only goal. The strategic goal must remain higher domestic value addition. This is true across sectors. For example, while India has expanded its module assembly capacity and can do so on cost-competitive terms it still relies extensively on imports for cells, ingots and wafers as well as for many cross-cutting components.

The finance minister in her 2024–25 budget speech unveiled the National Manufacturing Mission which focuses on clean-tech manufacturing providing an opportunity to change this. The GST step should now be backed by action through this mission which raises domestic depth and value addition across the entire stack.

Boosting India’s Energy Manufacturing

Several steps are needed to drive the ‘Make in India’ push for clean-tech manufacturing.

A robust clean energy manufacturing ecosystem in India requires a combination of sustained policy consistency, targeted investment and a focus on domestic value addition. To begin with, long-term stability in policy measures such as ongoing GST reductions and the waiver of inter-state transmission charges will ensure predictable demand growth benefiting both discoms and consumers.

On the manufacturing front, initiatives like the Approved List of Models and Manufacturers (ALMM) have already spurred increased demand for domestic components. Further broadening these requirements to cover additional component categories and implementing the announced ALMM on solar cells from June 2026 in a manner that supports domestic manufacturing without causing project delays are essential steps.

Beyond demand, strengthening upstream supply chains is critical. While India has added significant assembly capacities in the renewable sector, it remains dependent on global suppliers for essential inputs such as high-purity silicon and rare earth oxides.

A concerted push to establish domestic capabilities in polysilicon and wafer manufacturing alongside the diversification of critical mineral supply chains is needed. Similar gaps exist in the supply of magnetics, resins and ceramics—key materials for transformers and power modules—which must be addressed to ensure resilient domestic production.

Access to capital also plays a vital role in unlocking the full potential of renewable energy manufacturing. Production-Linked Incentives (PLI) have encouraged large-scale private sector commitments however strict compliance requirements and high upfront costs can sometimes deter optimal investments. By pairing PLI schemes with concessional credit lines, manufacturers can fund equipment and inventory with less strain and the cash freed up by GST changes can further catalyse capacity expansion when combined with more affordable financing.

Energising Domestic Production Chains

A significant portion of renewable energy deployment costs is not found in the primary energy-generating modules but rather in supporting equipment such as frames, trusses, power electronics and balance-of-plant systems. Here, India can enhance its competitiveness by encouraging MSME participation and upgrading existing capacities, thus targeting domestic value addition in areas where technology is not a bottleneck.

Fostering innovation and commercialisation of advanced technologies is another key enabler. Both public and private funding must be channelled into translational research and development programmes that bring cutting-edge solutions—like advanced PV stacks, power electronics and control firmware—to market. Currently, research is fragmented and underfunded and often lacks a focus on commercialisation. Establishing shared laboratories and pilot facilities for academia and industry would accelerate development and help generate valuable intellectual property within the country.

Ultimately, investing in human capital is indispensable for sustained sectoral growth. Building talent pipelines, from expert researchers and engineers to designers and technicians, requires industry-aligned training modules, cooperative programmes between skilling institutions and original equipment manufacturers and international partnerships for curriculum and faculty development. Such measures will create a skilled workforce able to support and sustain India’s renewable energy ambitions for years to come.

In conclusion, the GST cuts are a significant boost for all players in the ecosystem, whether consumers, Discoms, developers and manufacturers. However, long-term dividends will come not only from the tax reduction alone but also from a concerted long-term view of growing local manufacturing and transforming the sector into a self-sustaining powerhouse. The GST cut should be seen as a starting point with which a consistent follow-through can help India transition to designing and deploying domestically manufactured renewable energy hardware at scale.

(The views and opinions expressed in this article are solely those of the author)