Latest News | PLI Scheme Can Boost AC Segment Revenue by Up to Rs 75,000 Cr: Report

Mumbai, Apr 26 (PTI) The production-linked incentive scheme for white goods, aimed at encouraging domestic manufacturing, has the potential to generate incremental revenue of Rs 65,000-75,000 crore, according to a report.

The PLI scheme for air conditioners offers an incentive of 4-6 per cent on the incremental sale of locally manufactured goods over five years.

The minimum investment varies, depending on the nature of projects as well as on the nature of the component. The scheme is expected to attract investments from various domestic and global players.

The domestic white goods industry is heavily dependent on imports for critical components such as compressors, condensers and blower motors.

According to the Consumer Electronics and Appliances Manufacturers Association, 75 per cent components (by value) are imported. Compressors, condensers, blower-motors and PCB circuits, which account for 55-60 per cent of the total cost of an AC, are imported.

The total budgetary allocation for the scheme is Rs 6,238 crore for ACs and LEDs, but a proper breakup is not available.

Assuming 60 per cent of the total budgetary support goes to the AC segment, the scheme has the potential to generate incremental revenue of Rs 65,000-75,000 crore, India Ratings said in a note on Monday.

Accounting for the benefits derived from the scheme, the report expects the cost of local manufacturing to come down by 8-12 per cent, depending on the components being used, the note said.

Over the past few years, several players have been indigenising and making backward integration for various key parts like compressors, motors, outdoor and indoor units, heat exchangers, among others and have established manufacturing units.

For instance, Highly Electrical Appliances (a JV of the Hitachi Group) and Midea Group are setting up compressor facilities in the country. The domestic AC industry continues to import all critical components, especially from China and Southeast Asia.

However, given the small size of the industry and lower cost of imported components, it does not make economic sense for AC or component manufacturers to invest in local units.

But in view of various incentives, the industry could see increased investments by large players mainly to increase backward integration. If all goes well global players could consider India as their alternate supplying source.

Large contract manufacturers, who account for around 40 per cent of ACs made in the country, can also invest in this space as they are likely to achieve economies of scale faster than others. Localisation of non-critical components would happen faster than critical components due to a lower scale of investments and less technological expertise required.

To promote local manufacturing, the government has been increasing the import duty on completely built units and even components. The import duty on AC compressors was increased to 15 per cent in the current budget from around 7.5 per cent.

Similarly, import duty on fully finished ACs doubled to 20 per cent, while ACs with refrigerants were completely banned from October 2020. This had AC imports coming down to 40 per cent in the first nine months of FY21 from 49 per cent earlier.

The agency believes that an increase in import duty along with PLI incentives make domestic products more competitive than their Chinese counterparts which are otherwise 15-20 per cent cheaper. The government is also offering subsidies on Capex, lower corporate taxes on new plants, and allow 100 per cent FDI in the electronics industry to set up plants.

The agency says the white goods industry has the potential to grow 15-18 per cent annually over the next five years.

(The above story is verified and authored by Press Trust of India (PTI) staff. PTI, India’s premier news agency, employs more than 400 journalists and 500 stringers to cover almost every district and small town in India.. The views appearing in the above post do not reflect the opinions of LatestLY)