The Economics of Cooling
Making Air Conditioners in India
How India's AC industry grew, why the government is encouraging local manufacturing of components, and what this means for jobs and imports.
India’s air conditioner market has grown rapidly and is expected to keep growing as cooling demand rises.
The industry
- Major brands include Indian companies like Voltas, Blue Star and Lloyd (owned by Havells), and global brands like LG, Samsung, Daikin and Panasonic.
- Many ACs are assembled in India, but key components like compressors, copper tubes and electronics have been heavily imported, often from China.
Local manufacturing push
In 2021, the government launched a Production Linked Incentive (PLI) scheme for white goods, including AC components and LED lights, to build domestic supply chains. Companies committed investments in compressors, motors and other components.
Tariffs
India raised customs duties on ACs and components at various times to encourage local production.
Why it matters
- Jobs in manufacturing.
- Reduced import dependence.
- Exports: India could become an export hub for ACs.
Challenges
- Scale: Chinese manufacturers have huge scale advantages.
- Technology: advanced compressors require expertise.
- Seasonality: AC sales peak in summer, making production planning hard.
Quality and efficiency
Local manufacturing must meet BEE star ratings and quality standards to deliver efficient products.
A company opens a compressor factory in India with PLI support. Before, it imported compressors from China for its ACs; now it makes them locally, employing hundreds of workers.
Many ACs are assembled locally with imported components, though this is changing.
- India's AC market is growing rapidly.
- Many key components like compressors have been imported.
- A 2021 PLI scheme supports local AC component manufacturing.
- Scale, technology and seasonality are challenges.
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