How PLI Scheme For White Goods Is Helping India's Air Conditioning Sector Move Towards Domestic Self-Sufficiency

For a long time, India’s air-conditioning sector remained highly reliant on external imports for both critical components and for fully-assembled air conditioners. These fully-assembled air conditioners were imported and directly sold to customers, implying no value-addition in India. However, with the right policy changes, the Indian air-conditioning sector is moving towards self-sufficiency in the sector.

In order to curb imports of fully-assembled pieces into India, and help the domestic industry do better, the government banned the imports of “air-conditioners with refrigerants” or fully-assembled AC pieces into India. According to AC manufacturers in India, the move would help curb fringe manufacturers from simply importing an AC and reselling it. In addition, it would incentivise AC manufacturers to move towards localisation, rather than remaining dependent on China for several models. Around a third of AC demand was fulfilled by imports, but the government’s actions have brought it down significantly according to reports.

“Emphasizing the Make in India initiative, the import of ACs with refrigerant (CBU) has also been banned, which will negatively impact several ‘import and sell’ fringe players, helping control market fragmentation,” AC manufacturer Voltas said in one of its quarterly releases.

On a similar note, Blue Star, another AC manufacturer said that the import of finished stock keeping units is lower, though it continues importing certain SKUs. Nevertheless, 70 per cent of the entire demand is fulfilled by the company through its own manufacturing capabilities.

Apart from the import curbs, the government introduced a production linked incentive (PLI) scheme as well, in order to substitute imports and provide jobs to Indians. Several companies have filed for applications under the PLI scheme, including Voltas, Blue Star, Daikin, Johnson Controls and several other prominent players.

Cumulatively, the government-approved investments for ACs and LEDs are worth Rs 4614 crores, while it expects the incremental production to stand around Rs 81254 crores. Of the Rs 4614 crores, around Rs 3,898 crores, is expected to be invested solely in the AC segment.

Similarly, Blue Star is building another plant in Sri City for a second deep freezer plant, in order to reduce the import of some SKUs according to the company. Two other plants are expected to come up, and the Sri City projects could help own-manufactured SKUs to ramp up to around 75 per cent, according to the company.

Voltas had previously announced plans to start a compressor manufacturing unit with an international partner. Currently, the company has committed Rs 100 crores to the manufacture of cross flow fans, heat exchangers, and plastic moulding components under the government’s PLI scheme.

The value addition for ACs in India has been 25 per cent in the air conditioner sector, where only 66 per cent of ACs were assembled in the country. It is expected that the manufacture of critical components such as air conditioners which were previously imported from China, could take the value-addition figure up to 75 per cent. Simultaneously, employment is likely to see a benefit as the manufacturing and assembly of ACs would require labour. The government expects the PLI for white goods to contribute to the direct employment of around 44,000 people.

As companies expect discretionary spending in India to rise, the inclination to invest in India has continued rising as well.

The government had reopened the PLI for white goods on March 10 in order to accommodate more players. The application window for PLIs would remain open until April 25. Though the previous round had attracted Rs 4,614 crores, the target of Rs 6,238 crores leaves some space for new players as well.

Overall, it is clear that the implementation of PLI in sectors such as mobile phones and ACs have been quite successful. Though the focus on assembling implies that value-addition is relatively low, the PLI scheme has helped create jobs and offers an opportunity for India to grow its manufacturing base.