After mobiles, phased manufacturing push for AC firms

Phased manufacturing programme (PMP) — mostly associated with mobile phone devices — is set to be an integral part of the air-conditioning universe as well. The Union government is readying a scheme with an aim to curb import of AC products and components from China and Thailand.

Prime Minister Narendra Modi, while addressing India Inc on Tuesday, had stressed the need for reducing imports and strengthening local products across key categories including ACS.

Currently, the Light Engineering Industries Section under the Department for Promotion of Industry and Internal Trade (DPIIT) is finalising a blueprint for the scheme, an official said. It will be the second PMP after a similar scheme was launched for mobile components five years ago.

Like the previous scheme, the new PMP to promote indigenous manufacturing of AC units and its parts and subparts will provide incentive support to manufacturers. Along with this move, the import duty on key AC components is likely to go up in a phased manner over a five-year period till 2025 to discourage importers.

As per the draft plan, while fully finished indoor (IDU) and outdoor (ODU) AC units now attract 20 per cent duty, it will be raised to 30 per cent by the fifth year. Compressors, over 75 per cent of which continue to be imported from China and other countries, will attract 20 per cent duty from the fourth year onwards against 1 2.5 per cent now. Compressors account for more than 60 per cent of the total cost of an AC.

Among other components, duty on circuit board controller, motor, cross flow fan and evaporator etc will rise to 20 per cent by the fifth year from 10 per cent now, sources said.

The move is aimed at cutting down over ~15,000-crore imports of AC components a year. Out of the Rs 22,000crore AC market in India, only about 30 per cent value is added locally, according to estimates by industry bodies such as Consumer Electronics and Appliances Manufacturers Association (CEAMA).

“The government has discussed its plans on growing local value addition with all industr y stakeholders”, said Kamal Nandi, president of CEAMA and executive vice-president of Godrej and Boyce.

Some players have started showing interest in the scheme. For instance, Daikin India, the third largest player with 9 per cent of the domestic AC market, is planning to invest through this scheme, according to the company ’s managing director Kanwaljeet Jawa.

“We already have an R&D facility here and are seriously considering a third unit to expand the local capacity. The timing couldn’t be better as many Japanese manufacturers are looking to move their units from China,” Jawa pointed out.

The local unit of the Japanese AC major has already presented its proposal to the government. It’s ready to invest nearly ~1,000 crore to set up a plant in south India, according to a person in the know. Other leading manufacturers such as Voltas (17 per cent market share) and Blue Star (8 per cent) have also expressed interest in the scheme.

An investment of ~800 to ~1,200 crore will be necessary to meet the requirements of the PMP and add component manufacturing units in each phase, estimates suggest.

B Thiagarajan, MD at Blue Star, said, “We have been advocating localization for quite some time now. While the technical knowhow is with us, the only major challenge is the scale of production due to the smaller size of the domestic market. Thus, an incentive scheme and/or import substitution scheme is what is required.”

According to Krishan Sachdev, MD of Carrier Midea India, the company is preparing to set up a new plant this year.

At 6.5 million a year, the size of the local AC market is miniscule compared to China’s 100 million a year. However, a comprehensive scheme to support local manufacturing will help grow the India market significantly as AC prices are expected to come down, according to a section of the industry.

A local support scheme will also help generate jobs in the AC sector, which already employs maximum number of people among large consumer durable categories, estimates show.

In 2019, some 62,000 persons were employed in the country’s AC industry. That included 18,000 in manufacturing, 5,600 in distribution and 38,500 in maintenance. By 2025, the number of jobs could grow to over 115,000. Of this, 41,000 would be in manufacturing , 7,800 in distribution and 66,500 in service and maintenance, according to industry projections.