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'PLI to make AC component manufacturing more competitive'
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SME Times News Bureau | 26 Apr, 2021
The new production-linked incentive (PLI) scheme aimed at encouraging
domestic production of white goods will reduce import dependence over
the medium term, said India Ratings and Research (Ind-Ra).
Accordingly,
the scheme for ACs will provide an incentive of 4-6 per cent on
incremental sales of goods manufactured in India over a period of five
years.
"The minimum investment varies depending on the nature of
projects (i.e. large or small) as well as upon the nature of component.
India's high reliance on imports in the sector exposes the companies to
forex risks as well as supply chain disruptions, on account of
dependence on select geographies," the agency said in a report.
"As such, the scheme is likely to see increased investments from various domestic and global players in the sector," it added.
According
to the agency, the total budgetary allocation for the scheme is 'Rs
62.38 billion'; however, the split between air conditioners (ACs) and
LEDs is not available.
"Assuming that 60 per cent of the total
budgetary allocation goes towards AC segment, Ind-Ra estimates the
scheme has the potential to generate incremental revenues in the range
of Rs 650 billion and Rs 750 billion," it said.
"Furthermore,
accounting for the benefit derived from PLI, the agency expects that the
cost of manufacturing in India could be cheaper in the range of 8-12
per cent, depending on the component," the report added.
As per
the Consumer Electronics and Appliances Manufacturers Association, out
of the total 75 per cent components (by value) being imported,
assembling is completely done in India.
Also, critical components
such as compressors, condensers, blower motors and PCB circuits, which
account for 55-60 per cent of the total cost of a RAC, are largely
imported.
"Over the last few years, several players have been
working towards indigenisation and backward integration for various
parts such as compressors, motors, outdoor and indoor units, heat
exchangers, among others and have established manufacturing units in
India," the report said.
"For instance, Highly Electrical
Appliances (JV of Hitachi Group) and Midea Group (GMCC) have set up or
are setting up their compressor facilities in India," it added.
However, the agency said these are still small in size and inadequate to cover the entire industry.
As
such, the Indian RAC industry continues to depend on imports,
especially from China and South East Asia, for majority of critical
components, the report said.
"Given the small size of domestic
RAC industry and lower cost of imported components, it does not make
economic sense for AC or component manufacturers to invest in local
units. However, in view of various incentives or policies launched by
the government, Ind-Ra believes that the industry could see increased
investments by large players mainly to increase backward integration,"
it said.
"Some global players could also consider India as their
alternate supplying destination. Large contract manufacturers, which
account for around 40 per cent of the total ACs manufactured in India,
could also invest in this space as they are likely to achieve economies
of scale faster than other players," the report added
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