Domestic air-conditioner compressor manufacturing is gaining focus as demand for room ACs surge and China’s dominance leads to import pressures.

Leading AC brands and compressor manufacturers are exploring investment opportunities for large-scale production facilities within India as concerns over supply-chain resilience mount.

India’s room AC market is projected to reach 14-15 million units in FY25, up from 10 million units in FY24 and 8 million units previously. In the near future, demand is expected to rise further to 18 million units. However, the total installed capacity for room AC compressors remains restricted to just 6 million units, highlighting the pressing need for domestic expansion, industry players note.

“The challenges surrounding compressor availability were recently discussed at a high-level meeting with the Commerce Minister. A significant concern is the shortage of critical compressors needed for room air conditioners. Leading compressor manufacturers like Hailey and Sanyo have exited the market, creating a supply gap that needs to be addressed,” B Thiagarajan, Managing Director, Blue Star, said.

China currently dominates the compressor market, producing over 110 million units annually, whereas India’s market stands at about 14 million units thus resulting in high dependence on imported compressors.

Imports surged

Government data reveals compressor imports surged 43 per cent y-o-y in volume (24 per cent in value) from April to December 2024. Analysts at Nuvama Research note that the government has not renewed BIS licenses for several China-owned units, sparking concerns about compressor availability and pricing. However, the Centre recently relaxed import norms for compressors of 2 tonnes or more from China, but this covers only about 10 per cent of the industry. A notification is still awaited for compressors below 2 tonnes.

Voltas, Blue Star, PG, and Amber are among a few players who have expressed interest in making fresh, large-scale investments in compressor manufacturing. However, setting up these facilities requires at least three to four years.

“Compressor production demands precision machining, which is a specialised field,” Thiagarajan said, adding, “The government has also suggested industry collaboration to establish a compressor manufacturing facility, and Blue Star is open to partnerships with relevant players in precision machining and assembly.”

Voltas had planned to establish compressor manufacturing capacity through a technological collaboration with a Chinese partner, but the plan did not materialise. Under PLI 3.0, the company has committed approximately₹260 crore to set up compressor capacity and is currently assessing potential partners for technological collaboration, per analysts at Motilal Oswal Financial Services.

Compressor manufacturing plays a critical role in energy efficiency, with evolving regulations requiring newer models every 1–2 years. Reliability is paramount, as even minor defects (failure rate below 0.5–0.7 per cent ) can impact performance. The sector demands advanced technology and high capital investment, making it a challenging industry for Indian manufacturers to enter despite strong demand, Thiagarajan said.

PLI scheme

The PLI scheme is not considered a viable option for compressor manufacturing due to its stringent investment-to-revenue requirements. Under the scheme, a company investing ₹500 crore must generate at least ₹2,500 crore in revenue, a target that is difficult to achieve in the compressor segment. 

The Budget of February 2024 introduced a ₹1 lakh crore line of credit for R&D, and discussions are underway on whether some of these funds can be utilised for compressor technology development. Also, the World Bank-led AHEAD program, which focuses on affordable cooling devices, including fans, has a $700 million fund that could be channeled into this initiative.

Meanwhile, as summer approaches, the demand for room ACs is expected to rise sharply. While companies claim to have stocked adequate compressor inventory, an unexpected surge in demand could pose supply challenges, even as they explore tie-ups to secure additional stocks.