Make – Don’t Assemble – ACs in India
What the government must do to succeed in fully indigenising production!
Of India’s Rs.220-billion annual air-conditioning (AC) market, Rs.150 billion worth of components are imported. That’s 68 per cent!
Essentially, “about 30 per cent of AC parts are directly imported, and of the 70 per cent that are made in India, about half necessitate imported components,” explains Gurmeet Singh, Chairman & Managing Director, Johnson Controls-Hitachi Air Conditioning India Ltd, and President, Refrigeration and AC Manufacturers Association (RAMA).
To curb these imports, mainly from China and Thailand, and ensure more value and jobs are created in India, the Central Government is finalising a phased manufacturing programme (PMP).
Chirag Baijal, Managing Director, Commercial HVAC, India Region, Carrier Corporation, hails this move as a step in the right direction – “Because the import content in an AC system is currently significant, localisation will protect original equipment manufacturers (OEMs) from costs like import duties and levies, and currency fluctuations.”
“Importing components increases the inventory you have to carry, warehousing cost, and many other costs associated with time lags in parts reaching production centres,” explains Vishal Kapur, Chair, ISHRAE’s Technical Committee, and Managing Director, Meho-HCP Air Systems.
End-to-end manufacturingTo derive both effectiveness and efficiency out of the PMP, Baijal emphasises that “the focus should be on setting up a complete parts ecosystem that can help the HVAC industry as a whole.”
So while compressors may be most talked about for being a high- ticket component – a compressor makes up over 60 per cent of the cost of an AC – and for mostly being imported (more than 75 per cent are), other parts and subparts must be covered too.
“Beyond compressors, the initiative should impact the production of printed circuit boards and other electronic parts, fittings and accessories,” opines Kapur.
It appears that the government is thinking extensively on the matter. Import duties on key AC parts are proposed to be hiked over the next five years. Duties on fully finished indoor and outdoor AC units are expected to be increased from 20 per cent to 30 per cent; duties on circuit board controllers, motors, cross-flow fans and evaporators, and metal and plastic parts from 10 per cent to 20 per cent, and duties on compressors from 12.5 per cent to 20 per cent (the last in the next four years).
These are components of all kinds of ACs; “window units, split units, variable refrigerant flow, chiller plants, etc,” observes Kapur.
However, it isn’t enough just to revise duties. “Investments could be made in the manufacturing of compressors, drives and other electronic parts, all subject to viability, as part of this programme,” says Baijal.
The key word is viability.
Scaling upA cycle of demand and supply is at play in the AC market. “Localisation would make ACs more affordable and this could lead to an uptick in demand,” Baijal points out. But localisation is heavily dependent on scale.
“Foreign suppliers work out of export-oriented units supplying to a wide section of industry players in different countries,” Baijal explains. “This gives them the scale to operate, which is important from the perspective of viability and unit economics.”
With an AC penetration of around 5-6 per cent (as per Kapur) and 10 per cent in cities (as per Baijal) as against 30 per cent globally, India today lacks scale.
How might that change?“A huge opportunity will emerge with a rise in disposable incomes in urban and rural centres,” says Baijal. Indeed, “air-conditioning is no longer a luxury but becoming a necessity as well as moving into smaller cities and towns,” observes Kapur.
Other demand drivers include ACs becoming more energy-efficient and the availability of better quality and less expensive power supply in the country. On the supply side, incentives would help drive growth.
“If the government intends to attract investment from global suppliers, it might need to look at attractive incentivisation schemes,” observes Baijal. “If the supplier base is to be developed in India, government support to MSME suppliers would be essential for them to be competitive.”
The positives are that “at the present time, the industry has the will to consolidate making in India and the government has a strong resolve to facilitate this process,” says Singh.
“Compressor-maker Highly (current annual capacity of 2 million compressors) and another company with plans to start making compressors have said that if the basic customs duty is increased as the industry has suggested, they would be interested in ramping up operations in a year.”
Another aspect is that about 80 per cent of the market, worth $2.6 billion, comprises room ACs, that is window or split type, says Singh. “A focused effort on room ACs would help indigenise 80 per cent of the market.”
Countdown to full localisationLocalisation is a gradual process because “it isn’t as though only the middle or end part will be indigenised; you need access to all the raw material that goes into the supply chain,” explains Kapur. “Over six months to a year or more, the level of localisation will gradually increase from the current levels of 40-60 per cent.”
When the industry first embarks on the PMP, Kapur believes we may see a cost escalation. Only in the long term when localisation increases to near 100 per cent – and the economies of scale kick in for all AC components – does Kapur estimate a 5-10 per cent reduction in pricing. Now that’s a cool thought!
Impact of COVID-19 on AC demand and supply“Demand for indoor air quality (IAQ) solutions has grown significantly and companies are coming up with enhanced solutions,” says Kishor Patil, Country Leader, Trane Technologies. “Customers are looking for cost-effective solutions with improved design and quality, irrespective of where they are sourced.” “As commercial spaces reopen after the lockdown, organisations need to be proactive and take stronger measures to ensure the safety of their workforce and their families,” explains Pradeep Bakshi, Managing Director & CEO, Voltas. “Technologically improvising existing central HVAC systems by introducing ultraviolet (UV) germicidal irradiation can help curb the spread of COVID-19 in offices, malls, etc. In line with this, Voltas offers UV-powered solutions for duct, air and surface disinfection to compliment the immediate and long-term need for safety.”
Why COVID-19 will not transmit more easily in a centrally air-conditioned commercial spaceThe Refrigeration and AC Manufacturers Association (RAMA) and the Indian Society of Heating, Refrigeration and Air-Conditioning Engineers (ISHRAE) have green-signalled industry guidelines issued in May 2020 for the optimum implementation of air-conditioning in residential and commercial spaces.
Contrary to the widespread perspective that AC equipment is a conduit for the Coronavirus, AC makers claim that running an AC in an ideal temperature (24° to 30°) and humidity (between 40° and 70°) band helps boost immunity and resist COVID-19.
The Central Public Works Department (CPWD), which maintains government offices, and the Military Engineering Service (MES) have been quick to accept the guidelines. Industry sources claim this is also why the Indian Railways restarted services with all AC coaches.
CW asked Vishal Kapur, Chair, ISHRAE’s Technical Committee, and Managing Director, Meho-HCP Air Systems, to explain why the industry is recommending air-conditioning as a means to stay healthy and why it isn’t true that the Coronavirus will transmit more easily in a centrally air-conditioned commercial space.
Gurmeet Singh, Chairman & Managing Director, Johnson Controls-Hitachi Air Conditioning India Ltd, and President, Refrigeration and AC Manufacturers Association (RAMA), and Senthil Thangam, Senior General Manager, Commercial Air-Conditioning Division, Blue Star, weighed in with useful insights.
Over to the experts:“The human respiratory tract is naturally designed to filter out potentially infectious or damaging particles,” explains Kapur. “From our nose to our respiratory tract, we have different ways of filtering out or capturing particles so they do not reach our lungs. When infection reaches our lungs, it means some part of our body has either stopped working or lacks the ideal surroundings. Air-conditioning plays a major role in maintaining ideal surroundings.” Continuing with an example, he says, “When you breathe in dry air, your throat starts to feel dry because the mucus in its lining dries. With that, its ability to capture particles is lessened, and potentially infectious particles are able to reach further into the lungs. This is why, in cold countries, when the humidity level dips in winters, health and wellness experts recommend humidifying the air to maintain an optimum humidity band. In contrast, most of India doesn’t have dry air but we would still gain from spending the most possible time in a space where the humidity is in the 40-70 per cent band. Research on viruses in general shows that the chances of any virus surviving and maintaining its infectability lessens beyond the humidity level of 50 per cent and a temperature beyond 24°C.
The virulence of a virus is most at 7-8°C.”Thangam explains that when the humidity drops below 40 per cent, the cough or sneeze droplets from the infected person carrying the virus contract owing to evaporation and desiccation. The tinier the particles, the longer they can remain airborne.
To monitor the indoor humidity level, Singh recommends placing a humidity reader in the room.
Coming to the chances of infection, short-range transmission is highest when people sit in confined spaces with static air, where the air and surfaces get contaminated. In confined spaces with no air-conditioning, Kapur points out that the air can be static even if the windows are open (unless it is a very windy day). In fact, air-conditioned spaces are safer because the air-cooling equipment mandatorily pumps in more air from outside. Setting the AC system to change the air inside the premises minimum once an hour going up to twice an hour or maybe even up to three times an hour increases indoor safety.
“Increasing the fresh air to two air changes or more may increase the heat load,” cautions Thangam.
“To optimise installed capacity, get the system design evaluated by experts such as Blue Star.”
“A key point is that viruses in general do not travel on their own; they latch on to a substrate – dust particles or saliva and droplets exhaled from a person’s mouth or nose respectively. In an air-conditioned space, this substrate gets captured by filters,” explains Kapur. “This is why ISHRAE also recommends filter upgradation and increasing the frequency of filter cleaning. In residential applications, we recommend keeping the window slightly open while running the AC. In offices, the ventilation system can remain operational beyond working hours to ensure proper and continuous flush-out of the space.”
Singh points out that some measures are easily doable at home; for instance, cleaning filters and ventilating the room after every eight to 10 hours when you switch off the room AC.
“For added safety, use an air purifier to control dust,” adds Thangam. “The key point is that all kinds of central AC systems can offer protection from the propagation of COVID-19 as they control temperature, humidity and offer mechanical ventilation-cum-filtration that draws adequate fresh air. Central AC systems, VRF systems, ducted split systems, packaged systems, and residential AC units are all safe to use.”
Last but not the least, Singh advises, “Do not restart HVAC plants after a long gap without having these serviced.”
At the end of the day, Kapur says that infection is an outcome of a substantial viral load. Someone would have to be very sick for the virus to travel through an AC system to reach other parts of the office and infect others. Typically, temperature screening at the entrance would help identify those who are so sick. Also, other protocols like masks, hygiene, social distancing and surface cleaning should be practised.
- Charu Bahri
To share your views on the market for HVAC in India, write in at feedback@ConstructionWorld.in
- Gurmeet Singh
- Johnson Controls-Hitachi Air Conditioning India Ltd
- Chirag Baijal
- original equipment manufacturers
- Vishal Kapur
- Meho-HCP Air Systems
- MSME suppliers
- Kishor Patil
- Trane Technologies
- Pradeep Bakshi,CPWD
- Military Engineering Service
- Charu Bahri