Teji Mandi Explains: PLI for ACs - Key objective is to make India ‘Atmanirbhar’ in component manufacturing

The commerce and industry ministry is set to launch the production-linked incentive (PLI) scheme for ACs worth Rs 5,100 crore on 1 April. This scheme will provide incentives to domestic manufacturers to make ACs and specific components in India. AC industry currently imports ~70% of its requirements which is pegged at ~Rs 11,000 crore annually. It includes the whole product and components. China accounts for a large part of imports due to its scale.

An effort to boost Make in India:

As per a Kotak institutional report, cost of manufacturing an AC with India-made components is ~15% higher than the AC imported from China or manufactured using Chinese components. PLI scheme will attempt to bridge this gap by offering incentives to local manufacturers.

The scheme is launched to reduce imports by incentivizing component manufacturing in India itself. But, the component makers will have to ramp up their production to cater to the increased demand. It will be a tall task considering the ecosystem in India is still under-developed. The country will even need foreign investors to set up domestic facilities for tech-heavy components such as compressors.

Massive export opportunities:

Global AC export market is ~US$50 bn in size per annum, significantly larger than the domestic AC market of US$2.5 bn. Hence, even a 2-3% gain in exports can increase the overall revenue base of Indian manufacturers. But, it is easier said than done.

India can succeed in capturing the global market share only if it manages to produce cost-competitive products like China. For that, the AC industry will be hoping the PLI scheme to boost component manufacturing capabilities in India.

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