The air conditioning market is growing thanks to the government’s PLI scheme


  • The domestic room air conditioner market had a volume of 6.4-6.8 million units and a value of ₹17,000-18,000 crore in FY22.
  • The industry has significant growth potential given its low penetration rate of 7-9% of total urban Indian households.
  • Currently, RAC manufacturers in India only 30-40% have localization levels.

The room Air conditioning (RAC) industry volumes are expected to grow an additional 15-20% in FY24, following strong growth of 26-28% in FY23. This growth is partly due to the government’s Production Linked Incentive (PLI) scheme, which has been positively received by both international and domestic RAC businesses. These companies have pledged a capital expenditure of ₹4,806 crore which will help reduce imports and support the industry’s margins through backward integration, a report by credit rating agency ICRA said.

The study also revealed that the domestic RAC market had a volume of 6.4-6.8 million units and a value of ₹17,000-18,000 crore in FY22, after recovering from the low caused by the pandemic in FY21.

In FY23, the industry experienced a significant increase in sales volume due to an extended and intense summer season and pent-up demand.

“ICRA foresees a healthy 15-20% increase in RAC volumes in FY24, supported by under-penetration of the market and expected harsh summers this year. The industry has significant growth potential given its low penetration rate of 7-9% of total urban Indian households, compared to 90% in developed countries. Increasing urbanization, growing disposable income, better availability of consumer finance and increasing RACs per household are expected to further support volume and revenue growth,” said Sheetal Sharad, VP and Sector Head, Corporate Ratings, ICRA,

The demand for air conditioners will pick up further in the summer

The uptick in demand for air conditioners was slightly delayed in January due to the cold weather, but demand has picked up since then, according to an industry update from BOB Capital Markets. Sales are up month-on-month, with March showing particularly strong growth.

As temperatures rise, demand is expected to pick up further in April and May. Dealers expect sales growth of 10-15% yoy for the summer season, with rural markets expected to grow 10-15% and urban markets 30-40%.

Corporate sales outperformed retail sales and are expected to remain strong through the summer season (March-June). In March, AC prices were increased by 4-8% (₹2,000 – ₹2,500).

Heavy dependence on imports for essential components

However, ICRA research says RAC manufacturers rely heavily on imports for essential components. The central government’s PLI scheme for the AC sector, which offers manufacturers incentives worth ₹6,238 crore, has been positively received.

ICRA predicts that this arrangement will lead to capacity expansion in the medium to long term, reducing import dependency from the current 60-70% to 20-30% and eventually promoting AC exports.

Currently, RAC manufacturers in India have only 30-40% localization levels. Major components such as compressors, controllers, motors, fans, heat exchangers and PCBs are imported from China, Thailand and Malaysia.

RAC manufacturers have faced input cost pressures since the start of FY 22, given the high prices of raw materials such as copper and aluminum and heavy reliance on imports.

In addition, unfavorable currency fluctuations affected the cost structure of players. As a result, the industry had to pass on cost increases through multiple price increases in FY22. In FY23, with commodity prices weakening, these cost pressures are estimated to have eased to some extent.