Cost of Manufacturing of AC Components to Get Reduced Through PLI Scheme: Ind-Ra

The new production-linked incentive (PLI) scheme aimed at encouraging domestic production of white goods will reduce import dependence over the medium term, India Ratings and Research (Ind-Ra) said.

The scheme for air conditioners will provide an incentive of four to six percent on incremental sales of goods manufactured locally over a period of five years. The minimum investment varies depending on the nature of the projects (large or small) as well as upon the nature of the component.

India's high reliance on imports in the sector exposes companies to forex risks as well as supply chain disruptions on account of dependence on select geographies. "As such, the scheme is likely to see increased investments from various domestic and global players in the sector," said Ind-Ra.

The total budgetary allocation for the scheme is R 6,238 crore. However, the split between ACs and LEDs is not available.

Assuming 60 per cent of the total budgetary allocation goes towards AC segment, Ind-Ra estimates the scheme has the potential to generate incremental revenues in the range of Rs 65,000 crore to 75,000 crore.

Besides, accounting for the benefit derived from PLI, the agency expects that the cost of manufacturing in India could be cheaper in the range of 8 to 12 per cent depending on the component.

Out of total 75 per cent components (by value) being imported, assembling is completely done in India. Also, critical components like compressors, condensers, blower motors and PCB circuits which account for 55 to 60 per cent of total cost of a residential AC are largely imported.

Ind-Ra said the reliance on imports will reduce over the next three to four years as the government could announce phased manufacturing programme for ACs, similar to that announced for mobile phones, and the import duty can increase to the extent of 30 per cent for residential ACs and 20 per cent for compressors by FY25.

Moreover, the fairly low AC penetration in India (at less than 10 per cent) compared to other emerging countries and other white goods offers a long-term growth potential.