GST Cut Fails to Kickstart Indian AC Sales – Primary Market Stays Subdued
- brg_news_room
- Dec 23, 2025
- 2 min read
The recent reduction of the Goods and Services Tax (GST) in the Indian AC market from 28% to 18% has provided price relief for consumers. However, primary sales, shipments from manufacturers to distributors, have yet to see the anticipated boost, with industry insiders citing high channel inventories and cautious dealer ordering as key factors.
Distributors Hold Back Amid High Inventories
Distributors are carrying significant stock from earlier purchases in anticipation of strong seasonal demand, which did not fully materialize due to unseasonal weather and uneven sales cycles. While consumer demand is improving, the upstream supply chain remains cautious, slowing new orders.
Retail Demand Shows Early Signs of Recovery
At the retail level, consumer purchases have begun to rise following the GST reduction. Increased inquiries and pre-bookings observed during the festive season. The lower tax burden has made ACs more affordable, stimulating demand in key markets. However, this growth has not yet translated into higher primary sales, as distributors focus on managing existing inventory.
Overcapacity and Competitive Pressures
The Indian AC market continues to grapple with overcapacity and intense competition. A large number of brands operate in the sector, some relying on imported or re-labeled products, while others focus on domestic manufacturing and R&D. The oversupply, coupled with soft seasonal demand, continues to suppress wholesale shipments, even as retail demand shows tentative improvement.
Impact of Upcoming Energy-Efficiency Norms
The industry is preparing for updated energy-efficiency regulations coming into effect in January 2026. These rules are expected to raise production costs by approximately 10%, leading manufacturers to consider modest price hikes of 5–7%. The anticipation of these changes has prompted dealers to adopt a wait-and-watch approach, further limiting new orders.
Manufacturing Expansion and Strategic Moves
Manufacturers are investing in new plants and expanding existing facilities to increase localization, reduce import dependence, and strengthen supply chains. These efforts are expected to support competitiveness and could help primary sales recover in the second half of FY26 as inventory levels normalize and seasonal demand picks up.
Long-Term Industry Outlook
In the longer term, the Indian AC industry is expected to undergo structural changes, including consolidation among brands, greater localization of manufacturing, and adaptation to evolving policy and competitive dynamics. With household AC penetration still relatively low compared with global peers, the market remains strong long-term growth potential, supported by rising incomes and increasing climate-related cooling needs.
Find out more in our latest edition South Asian's reports.
Source: Geetika Tandon, BRG Research
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