India has always been a very price sensitive market. The consumers here are opting fewer energy-efficient household appliances. The demand for higher-energy-efficient air-conditioners or refrigerators has fallen recently as the price of these appliances rose.
There have been changes in some government regulations that pushed up the prices of these higher-rated white goods such as ACs and Refrigerators by 20 to 30 percent.
According to the sales data from a reputed industry body, CEAMA (Consumer Electronics and Appliances Manufacturers Association), the sales of energy-efficient four and five-star ACs have dropped more than half in the last 15 months compared to the period before 2018 January.
The consumer durable goods’ sales of four and five-star models started to fall down after 2015 when the revision was made. Later on, continuous tightening of norms in 2017 forced SMCGs manufacturers to stop the five-star segment totally since last year due to no order or demand.
“The rating has done a lot to customers to help out in the conservation of energy. However, as the energy norms are continuously tightened, they increased manufacturing costs and prices too, whereby sales of higher-energy-efficient products are not realized to their full capacity,” stated Godrej Appliances business head and CEAMA president Kamal Nandi.
Nilesh Gupta, director of Vijay Sales said the price difference between both 3-star and 5-star AC models has almost doubled from Rs.4000-5000 to Rs.8000-10,000, which is driving the shift. “Generally in refrigerators, budget-conscious consumers prefer 3-star refrigerators since they don’t see a lot of difference in energy consumption,” he added.
According to industry data, right now 81% of AC sales are for 3-star energy efficiency rated models, compared with the previous 58% two years ago.
Sales of this mid-range category have been increasing at 18 percent. Proportionally, the 5-star model’s contribution to entire sales has crashed from 20 percent to 12 percent in the same time period, with sales dropping by 24 percent.
On the other hand, refrigerators, specifically 4-star models were 45 percent of sales and 5-star model was 23 percent in 2016, which came down to 22 percent and nil, respectively, the previous year.
3-star refrigerators sales increased 46 percent while 2-star models, which didn’t exist two years ago, now rose up 26 percent. The Bureau of Energy Efficiency (BEE), which sets rating norms for Indian household appliances, setting up to continue tightening energy norms to set a universal benchmark as appliances such as ACs are power guzzlers, stated BEE director Abhay Bakre.
“Even if consumers are purchasing 3-star rated models, it is not bad since, in 2017, these were the highest rated 5-star. The rating change is done through a logical, consultative and scientific process that will benefit consumers and also create a healthy competition to develop better products”, added Bakre.
“Right now, the industry is discussing the matter with the government officials to link energy rating changes to a certain percentage sales of the highest slab for each group”, Nandi added.
“However, rating norms for ACs and refrigerators are scheduled to change next year, 5-star model norms may be delayed to 2021 if the government officials believe the market is still not ready”, stated Bakre.
AC manufacturer Blue Star’s MD Mr. B Thiagarajan stated, “Energy norms in our country for appliances are strict compared to Europe, Middle-East, US, Thailand and China. The revenue of appliances driven by mostly middle class where low price is a concern”.
This implies that consumer durable manufacturers may not have an affordable cost-effective product to deliver with these same specifications and the newer versions, also may take time to build. Manufacturers and government officials need to solve this issue as soon as possible so that both can easily achieve their targets in due course.