Air conditioner (AC) manufacturers in India may face challenges meeting peak summer demand due to inadequate domestic compressor production. The country currently produces about 6 million compressors annually, falling short of the estimated 10 million units required. The gap is filled through imports, primarily from China. Delays in the Bureau of Indian Standards (BIS) certification process have also disrupted production schedules.
India Faces AC Supply Strain Amid Rising Demand and Limited Compressor Production
AC demand is projected to grow by 19-20% annually until 2030, with a 20% increase expected in 2024, reaching 12-13 million units. The supply chain can handle moderate demand increases, but a sharp rise, like the 55% surge in April-May 2024, could strain availability. B Thiagarajan, MD of Blue Star, noted that the supply chain could cope with up to a 25% increase, but anything beyond that could lead to shortages.
India has four main compressor manufacturers: GMCC (China), LG Electronics, Highly India, and Daikin. Daikin, producing 3 million compressors annually, can handle up to a 20% demand increase but plans for a new compressor facility won’t begin until late 2025, too late to address immediate shortages. Stockpiling AC units is risky due to the seasonal nature of sales, which could result in high inventory costs.
Challenges in Domestic Compressor Production Amid Stricter Standards and Cost Concerns
Additionally, the Bureau of Energy Efficiency (BEE) will implement stricter efficiency standards in 2026, adding further complexity to production planning. To address long-term issues, the government introduced a production-linked incentive (PLI) scheme in 2021 to boost domestic compressor production. However, local value addition remains low, with only 15-20% of components produced domestically. Investments under the scheme have reached Rs 10,478 crore, but new plants won’t produce until 2025.
Cost concerns and rising material prices, like copper and aluminum, discourage companies from setting up local compressor manufacturing. Major brands like Voltas and Havells still rely on imports, highlighting the challenges in domestic production.
