In the half-hour slot he had before boarding a flight to Tokyo, Manish Sharma, Chairman of Panasonic Life Solutions-India and South Asia, as well as FICCI Electronics Manufacturing & Energy Storage Chair, spoke to businessline on the success of the PLI (production-linked incentive) scheme for air-conditioner components. With a budget of ₹6,238 crore the scheme is being implemented from FY21 to FY29. It aims to boost local production, reduce imports and turn the sector into a global player. The third round closed in October 2024 with 21 applicants proposing ₹3,679 crore investment in manufacturing AC components such as copper tubes, compressors, heat exchangers, control assemblies, et al. Also, 43 per cent of the applicants are micro, small and medium enterprises (MSMEs).
Sharma says 20 per cent of the materials used in making ACs in 2019 came from within India. This has jumped to 60 per cent, while the target is 80 per cent by 2029. The AC market has also doubled from seven million units to 14 million units. From relying on imported compressors, local capacity has risen from one million to nearly eight million units. In this interview, Sharma talks about how the scheme has boosted the ‘make in India’ theme. Excerpts:
How has the PLI scheme transformed the AC industry?
To give you the background, back in 2019, air conditioners were identified because of three reasons. The first is that it was at a very low penetration which meant the growth potential was high. Second was that not only was AC penetration low, but the local value addition was also low; only 20 per cent. ACs involve the use of many commodities such as aluminium, copper and plastic. There’s a lot of construct involved – from compressors to motors – which means the manufacturing process is also complex because you need to bend the sheets, roll the pipes, braze the tubes and stuff like that. So, it’s complex manufacturing, and then you need to fill the refrigerant carefully as it has a significant impact on the environment. Thirdly, about 12,000 jobs are created for every million AC units produced.
And we also did a comparison with mobile phones; what will it take for the mobile phone industry to create jobs compared to air conditioners? And ACs far exceeded that as not only do you create manufacturing jobs as well as in distribution and sales, but you also need to maintain the ACs throughout their life cycle. So that generates more jobs.
The other significant move was that all the CEOs of AC companies directly came on the forum and setting aside our competitive rivalry for a common purpose we agreed that we will not look at incentivising air conditioners as a finished goods but incentivise the manufacture of components such as compressors, motors, heat exchangers, inverter controller, PCBs, which will improve the value addition and do away with whatever extent of disability which exists comparative to manufacturing cost in the country compared to China.
To cut a long story short, it’s been a few years since it came into existence, and originally, we made few commitments and we also gave a written letter to the ministry that if industry is supported with this PLI, then this is what we will deliver. And part of those deliverables was a vision to take this industry from a 2019 revenue of Rs 16,000 crore to Rs 1,00,000 crore by 2029. And local value addition from then 20 per cent to 80 per cent by 2029.
Participation came from 62 companies for both white goods and LED lights, of which 38 were for air conditioners. And then the investments happened, and the situation is such that industry not only has grown faster than the estimates and the value addition from 20 per cent has shot up to 62 per cent. So, the value addition has increased rapidly in just about two-and-a-half to three years, and this is scheduled to be 80 per cent, much ahead of the original target of 2029.
It has beena phenomenal success and I’m sure this has benefited the entire industry and eventually the end consumer. It is a fantastic case study, which has in such a short duration done away with the disability of imports and made local manufacturing competitive for almost all the components.
So, what has it done for the consumer? Has it meant better prices for them?
The benefit of pricing may be very small because even if a manufacturer passes on 1 per cent of the 5 per cent PLI, it doesn’t matter. It will not move the needle much.
The big benefit which has happened is in the total lead time of the air conditioner supply chain. I did a study myself a few years before. When the purchase order for a component is placed, for example, through a factory in China, to procure the raw material and dispatch, they will take about 15 to 20 days. And then it takes 20-25 days to ship. Once a manufacturer receives the material, it’s kept in inventory for 25-30 days. Then the Acs are produced and dispatched. It gets to a branch location and again gets stored in a warehouse, then gets sold. This total lead time used to be 240 days and imagine if there is news that any commodity price has gone up or down; consumers may think that pricing of the product is changing, but the fact of the matter is that the material for that commodity was sourced 240 days before. So now these are challenges and if a country has to operate efficiently, lead times have to come down.
Earlier, inventory accumulation happened and there were huge supply chain inefficiencies. The biggest benefit of the PLI is that lead times have got shorter, which means industry will be able to service the customers faster.
There will be fewer shortages in the market; if you go back to last summer, which was very severe, there was a shortage of air conditioners in the market. You will not see that happening to that extent in the upcoming summer because we have little dependency on imports. So, if you must increase the production of a compressor or a motor or any other product, it is totally sourced locally. We have faster supplies and faster lead times. This is a game changer and that has been a big benefit to the country and eventually it may be passed on to the consumer in the form of better pricing or faster deliveries or with more brand choices to make.
So now what would be the lead time?
I’ve not done a scientific study, but I can make a safe assumption here. The country would have definitely saved at least 60 days of lead time in this whole process, which is phenomenal. And imagine 60 days will also amount to a saving in the capital employed, especially in a country where interest costs continue to be high.
Have ACs now become more efficient in terms of power consumption?
If you look at the past 20 years, the Bureau of Energy Efficiency, almost every alternate year, has been coming up with norms and industry has continued to comply with that and I think they’re scheduled to again get revised in 2026. We are almost at par with European standards. So, our air conditioners are efficient on a global standard now.
On the efficiency front a good job has been done in the years gone by, and another thing which has happened in the last four to five years is that air conditioners have become more intelligent and smarter and connected. For example, the gas which you use, the heat exchanger, the compressor sufficiency, all that is consistently evolving. On top of that, digital technologies, including connectivity, are helping smart energy management.
Sensors incorporated into air conditioners are optimising energy consumption: if there are a fewer number of people in the room, and depending on the activity happening, it optimises the cooling, adding to better energy efficiencies.
What has Panasonic itself done on this front?
Panasonic with its Miraie platform has built on four fundamentals. The firstis comfort and convenience, second is energy efficiency, third is safety and the fourth is well-being. We have a sleep profile which helps people with our air conditioners to sleep well. And with sensors incorporated, it feeds data real time of the activity level and optimises energy consumption.
So, what is the overall industry contribution to exports?
The underlying objective of PLI was to make India globally competitive. Last calendar year we will have produced 14 million; it will be less than half a million exports, but it’s growing fast. In 2020 this was less than 200,000 units, so we can always exaggerate by saying that exports have more than doubled, but that’s not what we are looking at and this is a process. Once you have the ecosystem, as I said, it’s 60-62 per cent indigenous content now, and once you cross a critical threshold of 80 per cent, then you are in a strong position because economies of scale will kick in.
Imagine this: 14 million units in a couple of years will exceed 20 million but when you are doing 20 million, China would have done 120 million. You know, that’s the difference of this game. So, we’re catching up. They have a domestic market of 70-80 million AC units and then they export 50- 60 million. So, we are getting there and I’m sure when I narrate this story to you in a couple of years, I’ll say that we have become four times of our present exports. So, it’s a work in progress.
Published on January 19, 2025
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