India’s AC Industry Feels The Heat

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In today’s edition — is India heading towards an air conditioning shortage amid the early onset of summer? Picking up trade talks that are a long time coming; and bad news for India’s Apple exports thanks to US president Donald Trump’s tariffs. 

DECODE THE NEWS

India's Air Conditioner Market Faces Scorching Demand Amid Supply Chain Hiccups

IIt’s February, yet temperatures are soaring up to 40°C in some parts of India including Maharashtra, Kerala and Telangana, and the India Meteorological Department (IMD) has issued a yellow alert. This indicates an early onset of heatwave-like conditions arguably due to climate change.  

Buoyed by increasing temperatures, the Indian air conditioner (AC) industry is on a sizzling trajectory, with sales volumes projected to surge by 20-25%, reaching a record 12-12.5 million units in the financial year 2024-25, according to a study by rating agency ICRA. This momentum is expected to continue with a 10-12% growth in 2025-26, fueled by rising temperatures, urbanisation, higher disposable incomes, and attractive consumer financing options. However, retailers are currently grappling with inventory shortfalls, primarily due to supply shortages of key AC components and delays in BIS certification for Chinese suppliers.

Despite the soaring demand, the industry is still grappling with significant supply chain disruptions. Retailers currently lack sufficient inventory to meet the projected demand, and this is attributed to BIS certification delays and supply shortages of compressors and copper components, according to experts that The Core spoke with. Some reports also indicate that despite the high demand expected for 2025, supply chain disruptions, production constraints and stock shortages may contribute to industry losses of Rs 1,200-1,500 crore in 2024. Addressing these issues promptly is crucial to meet consumer demand and sustain the industry's upward trajectory.

PODCAST

On Episode 517 of The Core Report, financial journalist Govindraj Ethiraj talks to Kinjal Shah, Senior Vice President & Co-Group Head, Corporate Ratings, ICRA. We also feature an excerpt from our interview with C Vijayakumar, CEO at HCL Tech from yesterday’s Nasscom Technology Leadership Forum in Mumbai.

1. Markets hammered once again even as institutional brokerage buy calls rise

2. We need to transition from an input centric model to an outcome centric model, HCL Tech CEO C Vijayakumar to The Core

3. Rating agency ICRA projects improved revenues on rural revival and increased Govt spend

4. Indian IT to grow faster this year, expand workforce

5. Apple to hire 20,000 workers in US in definite hit to global sourcing

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FROM THE PERIPHERY

—🤝 UK’s Business and Trade Secretary Jonathan Reynolds called securing a Free Trade Agreement (FTA) with India a top priority. Reynolds arrived in New Delhi for focused discussions to enhance the GBP 41 billion annual trade. India, projected to be the world’s third-largest economy by 2028, offers huge growth opportunities for British businesses. On Monday, India and the UK advanced FTA talks, focusing on a balanced, mutually beneficial deal. Commerce and Industry Minister Piyush Goyal reaffirmed both countries’ commitment to strengthening trade and investment ties, with bilateral trade rising to $21.34 billion in 2023-24. The talks, set to foster collaboration in manufacturing, infrastructure, and services, signal to strengthen UK-India ties. 

—🚀 Rating agency ICRA has said that led by a revival in rural demand and increased government spending, Indian industries will see 7-8% revenue growth in Q4 FY2025. The report however said that government spending and global economic and political scenarios will need to be monitored in the coming months. Kinjal Shah, senior vice president and co-group head also said that rural demand is likely going to stay up. This is good news for India’s industries, which suffered last year because of slowing demand. “Beyond that, a normal and well-distributed monsoon in 2025 is crucial to support the agricultural outcomes,” Shah said. 

—📈 India’s global capability centres (GCCs) have hit a major milestone, with 24 centres surpassing $1 billion in export revenue in FY 2023-24, up from 19 the previous year, The Times of India reported. These GCCs, part of MNCs’ operations in India, generated over $43.6 billion in exports. The growth signals the rise of giga capability centres, with projections showing India could host 2,100 GCCs by 2028, contributing $90 billion to the economy. Experts highlight that GCCs, unlike traditional IT service providers, focus on value addition, innovation, and global strategic influence, making them vital to MNC operations.

—📊 India’s IT industry among India’s largest industries, saw slow growth in the last year. On Monday, IT industry body NASSCOM said that in FY25 revenues for the sector will grow 5.1% to $282.6 billion and will cross $300 billion in revenues in FY26, a 6% growth from FY25. PTI quoted NASSCOM president Rajesh Nambiar as saying “This is a good outcome broadly given everything happening around us." Nambiar made the remarks at the Nasscom Technology & Leadership Forum 2025 being held in Mumbai.

UGGH

What happens when a US company, Apple, gets hurt by the US’ own tariffs? That’s the bizarre reality unfolding as the Trump administration considers slapping reciprocal tariffs on Indian exports.

According to a report by the Times of India, Apple has been scaling up its ‘Make in India’ push, with an estimated $8-9 billion worth of iPhones expected to be shipped to the US this fiscal year. That too at zero import duty making it a very profitable deal for the company.  But Trump’s proposed reciprocal tariff on Indian electronics could turn the entire equation upside down. The US administration is considering these reciprocal tariffs since India imposes a 16.5% duty on imported phones and other electronic goods.  

The problem facing the industry is that if Trump imposes the equal 16.5% tariff back on Indian shipments, then suddenly, manufacturing in India would become more expensive than its neighbor China. So Apple will have no benefit of making In India anymore, a vendor was quoted as saying to TOI.

And it’s not just Apple. India’s auto component industry, which exports $7 billion worth of parts to the US, is staring at a similar disaster. Right now, Indian exporters benefit from zero to 2% duties when sending parts to the US, but the 7.5-15% Indian import duties on American components make them a prime target for retaliation, the report added. 

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