Star label changes, tax relief to chart course for AC prices
As India prepares for stricter energy efficiency norms in 2026, air conditioner prices are expected to rise. However, GST reductions may offset these increases. Market forecasts indicate potential short-term demand revival and a 10-15% decline in AC volumes for FY2026.
India’s air-conditioner market is entering a year of price resets and regulatory changes, as changing energy efficiency norms, tax rates, and weather patterns reshape demand ahead of the 2026 summer season.
Beginning 1 January, cooling appliances such as refrigerators and air-conditioners will face heightened energy performance standards set by the Bureau of Energy Efficiency (BEE). Stricter ratings require manufacturers to use more expensive components, thereby increasing final prices. However, the recent cut in goods and services tax (GST) on air-conditioners to 18% from 28% is expected to help.
“There will be a price increase of ACs due to the BEE rating changes that will come into effect from January 2026. The higher cost will be offset by the goods and services tax cut and price drop in September 2025, which will effectively ensure that the new prices will be the same as those of old AC prices in place in the pre-GST cut period," said Sanjay Chitkara, co-chief sales and marketing officer, LG Electronics India Ltd.
He added that commodity prices are expected to remain largely stable in the near to medium term, with any volatility manageable due to scale and localization.
Cost pressures, market outlook
Other manufacturers, however, flagged broader cost pressures.
Kamal Nandi, business head and executive vice-president at Godrej Enterprises Group’s appliances business, said the durables industry is being impacted by sustained currency depreciation, adverse commodity costs and the scheduled energy regime changeover.
“Cumulatively, this will lead to a significant cost increase in cooling categories, with ACs being most impacted," Nandi said, adding that price hikes of 5–7% for ACs and 3–5% for refrigerators are likely in the near term.
The GST cut in ACs reduced market price by an estimated 8%, brokerage firm Jefferies estimated. Analysts at Jefferies said industry participants expect a strong third quarter due to festive sales, GST-led demand revival, liquidation of older inventory ahead of the new BEE norms, and expectations of hotter weather in parts of western and southern India.
Rating agency ICRA has flagged a near-term moderation in volumes. In a September report, ICRA forecast a 10-15% year-on-year decline in Indian room air-conditioner (RAC) volumes to 11.0–11.5 million units in FY2026, from a record 12.5–13.0 million units in FY25.
According to Jayant Balan, senior business leader, Voltas Ltd, India’s cooling industry is entering a period of transition, driven by the recent GST cut and the BEE star rating revision effective January 2026."These policy shifts are accelerating demand, as trade partners and consumers move early to secure current pricing and mitigate the average expected increase of 7 to 8% on new inventory, noting that actual changes may differ based on specifications and product categories."
"While price sensitive first-time buyers continue to be a significant segment, there is strong traction for premium and 5-star rated inverter ACs among customers who seek performance, reliability, and long-term savings. Interest in smart features and energy efficient technologies is rising, driven by growing awareness of both cost and environmental responsibility," he added.
The decline follows an extended spell of unseasonal rainfall during the peak April-July demand period in north and central India, which reduced the number of heatwave days.
Regulatory transition
Effective from January 2026, the new Star label change aimed at enhancing efficiency standards and is expected to raise room air-conditioner prices by Rs. 500–2,500 per unit, which would partly offset the benefit arising from the reduction in GST rates, it said.
“However, it may lead to pre-buying in Q3 FY2026 and help the OEMs partly recover the sales lost during the 2025 summer," said Kinjal Shah, senior vice-president and co-group head, ICRA.
Air-conditioner 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, it said.
The QCO, which will increase the indigenization of the manufacturing process, will be implemented in phases over 12 months for various product categories, including room air conditioners, mandates compliance with Indian standards and requires products to bear the Bureau of Indian Standards (BIS) quality mark.
ICRA expects a partial recovery in the second half of FY2026, driven by southern and western markets and forecasts of a warmer summer in 2026. It also expects the GST reduction to more than offset price increases from the new star labelling norms.
Despite near-term volatility, the medium-term outlook for the sector remains constructive. ICRA estimates that manufacturing capacity will expand by 40–50% over the next two years from the current 24–26 million units, supported by planned capital expenditure of ₹4,500-5,000 crore.
topics
