India’s solar manufacturing sector, once buoyed by rapid capacity additions and strong policy support, is now entering a phase of consolidation. According to a recent report by credit rating agency ICRA, a sharp rise in domestic manufacturing capacity for solar photovoltaic (PV) modules and cells is expected to outpace near-term demand, leading to heightened competition and pressure on profit margins. While long-term fundamentals remain strong, the industry’s near-term profitability could moderate as manufacturers adjust to an oversupplied market and a gradual normalization of module prices.
Overcapacity Threatens Short-Term Margins
ICRA’s analysis indicates that India’s solar PV module manufacturing capacity has expanded rapidly over the past two years, spurred by government incentives such as the Production-Linked Incentive (PLI) scheme, basic customs duty on imports, and strong policy push for domestic sourcing.
As of mid-2025, India’s installed solar module manufacturing capacity exceeds 65 GW, while domestic demand is estimated to be around 35–40 GW annually. This imbalance is expected to create overcapacity in the short term, pushing module prices downward and eroding the high margins manufacturers enjoyed during the post-pandemic supply crunch.
“The rapid capacity expansion is a double-edged sword,” ICRA noted. “While it strengthens India’s position as a key global player, it also exposes the industry to pricing pressure and utilization risks in the near term.”
Price Correction and Global Trends
Globally, solar module prices have fallen sharply — by nearly 40% year-on-year — as supply has surged, particularly from Chinese manufacturers. The Indian market, which was previously insulated due to import barriers and logistics challenges, is now aligning with international pricing trends.
ICRA expects module prices in India to decline further by 10–15% in FY26, as new capacities ramp up production and manufacturers compete for domestic orders. This fall, while beneficial for solar developers and end consumers, could squeeze margins across the manufacturing value chain, especially for companies with higher leverage or limited scale.
At the same time, manufacturers with integrated operations — spanning cells, wafers, and polysilicon — are likely to remain more resilient, benefiting from cost efficiency and control over raw material sourcing.
Demand Outlook Remains Robust
Despite short-term headwinds, ICRA maintains a positive long-term outlook for India’s solar manufacturing ecosystem, driven by ambitious renewable energy targets and the government’s focus on self-reliance.
India aims to achieve 500 GW of renewable energy capacity by 2030, of which solar power is expected to account for nearly 300 GW. This implies an annual installation rate of 25–30 GW, ensuring steady demand for domestically manufactured modules in the medium to long term.
The expected surge in utility-scale and rooftop solar installations, coupled with emerging opportunities in green hydrogen and distributed generation, will further bolster domestic demand once the temporary oversupply stabilizes.
PLI and Policy Support to Cushion Impact
The PLI scheme for high-efficiency solar PV modules, with a total outlay of Rs. 24,000 crore, continues to underpin the sector’s competitiveness. Under this scheme, selected manufacturers receive financial incentives tied to sales performance and local value addition, enabling them to offset margin pressures caused by falling prices.
In addition, policy measures such as approved list of models and manufacturers (ALMM) and customs duties on imported modules (40%) and cells (25%) provide a buffer against cheaper imports, ensuring domestic players maintain a foothold in the market.
However, ICRA cautioned that any relaxation in import duties or ALMM norms could amplify pricing pressures and delay recovery in profitability.
Profitability and Credit Outlook
ICRA expects solar module manufacturers’ operating margins to decline by 200–300 basis points in FY26, reflecting the effects of price normalization and competitive pricing strategies. However, credit profiles of large players are expected to remain stable due to robust balance sheets, policy incentives, and order pipelines supported by ongoing solar projects.
Smaller and mid-sized manufacturers, on the other hand, could face liquidity stress if price competition intensifies or capacity utilization drops below optimal levels. The agency advised firms to focus on operational efficiency, backward integration, and export diversification to mitigate risk.
Export Potential and Global Market Share
India’s emerging role as an alternative global supply hub presents an important opportunity amid growing geopolitical concerns and supply chain realignments. Several Indian manufacturers have already begun exporting to markets in the U.S., Europe, and Southeast Asia, benefiting from anti-China sentiment and supply diversification strategies.
With the U.S. Inflation Reduction Act promoting friend-shoring, India’s integrated facilities could see export demand growth of 15–20% annually over the next few years. However, ICRA noted that global competition remains intense, and sustained investment in technology and efficiency will be key to maintaining competitiveness.
Conclusion
The Indian solar manufacturing sector stands at a pivotal juncture — supported by strong policy tailwinds but challenged by near-term oversupply. While the ICRA report highlights temporary margin compression, it also underscores India’s long-term potential to become a global solar manufacturing powerhouse.
As the industry navigates the transition from a protected domestic market to a more competitive global ecosystem, companies that prioritize innovation, cost efficiency, and scale are likely to emerge stronger. In the broader context, the current correction phase may be precisely what the sector needs — a recalibration toward sustainable, value-driven growth.
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