PLI Push And Rising Demand Take AC Makers Deeper Into South India

India’s air-conditioner industry is currently changing its geographical base, with manufacturers increasingly shifting production and investment to South India. Andhra Pradesh and Tamil Nadu are emerging as important states for the industry due to the combination of government incentives under the Production Linked Incentive (PLI) scheme, growing regional demand and logistical advantages.

The change is a break from the traditional concentration of AC manufacturing in North India. Several major brands have set up or expanded facilities around Sri City in Andhra Pradesh and across Tamil Nadu, creating an emerging manufacturing corridor that is closer to some of the country’s fastest-growing cooling markets.

Key Highlights:

• Sri City is emerging as a major hub for AC manufacturing with 10 manufacturers and 34 component suppliers investing in the city.

• Next year, Sri City’s combined AC production capacity is likely to be around eight million units.

• Being close to the southern markets and the Chennai port can help reduce logistics costs by about ₹1,200 per AC.

South India emerges as a new AC manufacturing hub

Over the last five years, companies like Daikin, Blue Star, LG, Carrier and Havells Lloyd have set up factories in Sri City. Voltas and Mitsubishi Electric have established AC manufacturing facilities in neighbouring Tamil Nadu, while Samsung already has a plant at Sriperumbudur.

All these investments together are creating a major AC manufacturing belt in the Sriperumbudur-Chennai-Sri City corridor. Sri City has lured 10 air conditioner manufacturers and 34 component suppliers, with a combined production capacity of eight million units expected to be reached next year. Sri City’s management believes this could account for around 60% of India’s AC production by 2027.

PLI incentives strengthen the case for expansion

Another factor that is encouraging manufacturers to ramp up domestic production and component ecosystems is government support through the PLI scheme. The shift also allows AC makers to localise better, while giving companies access to capacity closer to key consumer markets.

The manufacturing expansion is part of a larger shift in the industry’s footprint. North India is still an important production base, but new plants in the South are becoming more and more important as manufacturers look to be more efficient and get to customers more quickly.

Logistics advantages make South India attractive

The new manufacturing belt shows a major locational advantage. Sri City is about 65 km away from Chennai port, which is important for AC makers as a lot of the components used in manufacturing are imported.

This also brings down transportation costs since ACs are produced near the southern markets. Production in and around Chennai or Sri City can save about ₹1,200 per unit, according to industry estimates cited by The Economic Times. Southern customers can also see the time from order to delivery cut from around 12 days to near three days.

Longer cooling season supports regional demand

Demand patterns are another big reason manufacturers are moving south. In many parts of South India, a longer cooling season than in the northern markets creates a wider window for AC sales and usage.

The region is strategically important for manufacturers planning the next phase of their growth, due to the combination of warmer weather, expanding urban centres, and rising consumer demand. There has also been good demand for air conditioners and other consumer durables in the industry in recent times.

AC industry enters a new phase of expansion

The Sri City-Tamil Nadu manufacturing corridor is a part of a larger realignment of India’s AC industry. More frequently, companies balance incentives, parts availability, port access, production efficiency and regional demand against one another when deciding where to invest.

With more manufacturing capacity and supplier networks coming up in South India, the region would have a bigger share of the pie in India’s cooling economy. For AC makers, the strategy is no longer simply to produce more units, but to produce them closer to where demand is growing fastest.