ACs to get cheaper as govt launches new project

A 1.5 tonne, 5-star rated split AC that now costs Rs 40,000 could cost less than Rs 30,000 by 2018

Want to buy an air conditioner (AC) that does not come with a three-digit electricity bill, but can’t afford one? You may have to wait for just a few more months, as prices of highly energy-efficient ACs are expected to come down significantly very soon.

The union government is finally launching a scheme that can radically bring down prices of energy-efficient ACs. The power ministry has been contemplating such a project for quite some time now (Business Standard first reported about it in 2015). 

Also Read: Energy-efficient ACs, fans to get cheaper soon

The ministry has now decided to roll it out through one of its arms – Energy Efficiency Services Ltd (EESL) – a joint venture firm formed by various state-run power companies.

Once operational, the project may bring down prices of highly energy efficient ACs by 30 per cent in the near term. A 1.5-tonne, 5-star rated split AC that now costs some Rs 40,000 could be available for less than Rs 30,000 by 2018. But that’s not all. Apart from lower upfront price, these ACs may reduce your monthly electricity bills by 20-45 per cent depending on usage. So, the cost of ownership of an AC may decrease by 30 to 60 per cent, industry experts said.

Under the scheme, EESL will make bulk procurement of highly energy-efficient ACs from manufacturers like Blue Star, Voltas, Daikin and Whirlpool, among others. It will offer them to consumers under zero down payment schemes where one would have to pay only equated monthly instalments (EMI) which, the government expects could further encourage consumers to opt energy efficient products.

Major AC manufacturers in the country had been lobbying to the government for bringing down taxes on more energy efficient ACs (like five star or above and inverter ACs), lower tax rate under the upcoming goods and services tax (GST) and incentivizing buys through subsidy. However, the recent trigger came from the power ministry as minister Piyush Goyal himself took interest in it. The minister is keen to roll out a scheme that increases sales of AC in the country which will eventually bring down the cost of manufacturing, sources said.

Currently, the AC market in India is pegged at four million units a year,  of which only six per cent are inverter fitted (which are more energy efficient than a 5-star AC) and 17 per cent are 5-star ACs. During the past four years, the AC market in India has grown at about five per cent per year, from 3.5 million in 2013 to 4.1 million units in 2016. 

However, if implemented properly the scheme has the potential to boost sales. According to Pradeep Bakshi, president and chief operating officer, Voltas, the market is expected to grow by over 10 per cent in the coming years. This could increase the size of the market to 7 million units (per year) by 2020.

Energy efficient AC market in India remains very small as penetration of ACs is still at three per cent of the total households in the country – lowest among all large consumer durable items. While in China, out of the total 10 million ACs sold every year, over 55 per cent are inverter ACs, in Australia and Japan the figures are 85 per cent and 100 per cent respectively.

To encourage buyers to go for higher energy efficient ACs, manufacturers have also asked the government to bring down the tax rate under GST for ACs which otherwise is expected to be at 28 per cent.

During the initial phase, EESL has decided to procure 2,00,000 ACs from companies and sell them to institutional buyers like Banks (for office usage and ATM counters) and big corporate buyers. EESL has been given the task to implement the scheme keeping an eye on its successful implementation of a similar scheme on LED bulbs. Earlier, the firm had initiated a bulk buying and marketing scheme for LEDs which eventually brought down prices by 80 per cent.

According to B. Thaiagranjan, whole time director, Blue Star, the extent of decrease in prices would depend on the quantity of ACs that the agency manages to procure and sell during the initial phase. Higher the number of units sold, higher the cost benefits are.