Whalesbook
The Department for Promotion of Industry and Internal Trade (DPIIT) has imposed new import restrictions on compressors, arriving at a critical time for India's air conditioner and refrigerator makers. The policy, aimed at boosting local production and saving foreign currency, lands just as a severe heatwave drives unprecedented demand. This combination creates a difficult situation: meeting rising sales targets with limited component supply could shift competitive advantages.
The DPIIT order, effective May 8, 2026, caps compressor imports for the current fiscal year. For units up to two tonnes, which make up over 85% of the market, imports are limited to 40% of FY25 volumes for refrigerators and a stricter 30% for air conditioners. Capacities above two tonnes can import up to 90% of FY25 volumes. This quota system naturally favors companies that imported more historically, potentially creating an uneven playing field.
Industry leaders warn the policy risks a supply crunch. India currently makes about half its AC compressor needs and 60% of its refrigerator compressor needs locally. Adding to this, new local components can take up to six months to validate, making a rapid switch to domestic suppliers impossible, even if supply is available. This delay means manufacturers can't switch suppliers immediately to meet the current demand surge, which has seen AC sales climb 20-25% year-on-year in late April. The situation is worsened by earlier production cuts due to unsold inventory from a milder previous season, and LPG supply issues.
India's domestic capacity for AC compressors is an estimated 7-8 million units annually against a demand of about 15 million. For refrigerators, the gap is similar, with 8.5-9 million units produced versus a demand of 14.5-15 million. Production for compressors over two tonnes is negligible domestically. Major global compressor makers like GMCC and Highly operate significantly in India, alongside local production from LG Electronics and Daikin. However, import dependence is high, with about 66% of compressor imports coming from China.
Key players like LG, Daikin, and Mitsubishi Electric are investing heavily to expand facilities and boost local sourcing. However, full self-sufficiency in compressor manufacturing is not expected until the end of 2028. The government's Production Linked Incentive (PLI) scheme for white goods aims to bridge this gap with investments of ₹10,478 crore. Despite these efforts, local value addition is still low, at 15-20%. The import restrictions, tied to past import volumes, will likely limit companies that were more conservative with their import strategies. India's foreign exchange reserves are robust at around $696 billion as of May 8, 2026, suggesting the policy prioritizes industrial localization over immediate forex concerns.
While the DPIIT's import restrictions aim to boost domestic manufacturing, they carry significant risks for market stability and competition. The quota system, tied to historical FY25 import volumes, may favor established importers and large, integrated players like LG and Daikin, who are already investing heavily in local compressor production. This could lead to market concentration, leaving smaller manufacturers or those with less import history facing critical component shortages.
Companies that haven't focused on backward integration or partnered with domestic suppliers may struggle to meet the current demand surge. Even if local supply is available, the mandatory six-month validation period for new components creates a major hurdle, preventing quick adaptation. This rigidity, combined with insufficient domestic capacity, could lead to price hikes passed to consumers – a situation manufacturers like Voltas and Blue Star might want to avoid before peak season – or, critically, unmet demand and lost sales. Full self-sufficiency in compressor production is projected by the end of 2028, indicating a prolonged period of vulnerability. The policy could worsen existing supply chain fragilities, possibly benefiting larger players who can manage these transitions, while penalizing smaller firms and potentially slowing market growth despite strong consumer interest.