The report notes that the industry volumes are likely to dip to 11 to 11.5 million units in the current fiscal year (FY26), from a record 12.5 to 13 million units in FY25
The Indian room air-conditioner (RAC) industry volumes are expected to dip by 10 to 15 per cent year-on-year (YoY) basis in the current financial year (FY26), as per a report by Icra. This is attributed to the demand constraint caused by the extended period of unseasonal rains seen during the peak demand season of April to July in north and central India.
The report noted that the industry volumes are likely to dip to 11 to 11.5 million units in FY26, from a record 12.5 to 13 million units in FY25. However, a partial recovery is expected in the second half of the current fiscal year (H2FY26), especially from southern and western regions, driven by forecasts of a warmer summer in 2026.
The reduction in the goods and services tax (GST) rate are projected to more than offset the price rise related to the implementation of the new star label guidelines in January 2026, boosting pre-buying in the next quarter.
Unseasonal and above-average rainfall reduced the number of heatwave days, resulting in a 15 to 20 per cent drop in sales volume in April-July 2025, particularly in north and central India, compared to a robust 40 to 50 per cent growth in the same period of the previous year. The inherent vulnerability to climate change and unpredictable weather patterns that the industry faces will thus play out this year,” highlighted Kinjal Shah, Senior Vice President and Co-group Head, Icra.
Icra emphasised that the industry’s long-term resilience remains underpinned by strong growth drivers such as rising temperatures, low household penetration, urbanisation, and growing replacement demand from the steady shift towards energy-efficient models. As a result, capacity is expected to increase by over 40 to 50 per cent in the next two years from 24 to 26 million units at present, with capital expenditure of Rs 4,500 to 5,000 crore planned in the next two to three years.
Centre’s production-linked incentive (PLI) scheme for components manufacturing for the consumer durable industry is set to boost indigenisation in the Indian RAC industry to 70 to 75 per cent by FY28 from the current 50 to 60 per cent, as per the report. Icra added that the RAC original equipment manufacturers (OEMs) are preparing for significant regulatory changes set to take effect in CY2026.
The introduction of the new star label, combined with the gradual implementation of the Quality Control Order (QCO), will likely reshape the market landscape, pricing dynamics, and manufacturing strategies for RACs in India.
The report pointed out that the QCO, which will increase the indigenisation of the manufacturing process, will be implemented in phases over 12 months for various product categories, including RACs, mandates compliance with Indian Standards and requires products to bear the Bureau of Indian Standards (BIS) quality mark. Shah noted that effective from January 2026, the new star label change is aimed at enhancing efficiency standards and expected to raise RAC prices by Rs 500 to 2,500 per unit, which would partly offset the benefit arising from the reduction in GST rates.
