Stricter Energy Rating Norms

Prices of air-conditioners and refrigerators will increase by between Rs 3,500 and Rs 5,500 as early as next week due to stricter energy rating norms that will push up production costs.

The Bureau of Energy Efficiency (BEE), the statutory energy conservation body under the power ministry, has tightened energy norms for air-conditioners by one level and those for refrigerators by two levels. This means, an existing five-star AC — which is the most energy-efficient now —will now become four star and a five-star refrigerator will become three star, and so on.

Durable makers say the new efficiency standards will lead to 9-15 per cent jump in prices of ACs and frost-free refrigerators due to technology enhancement. Single-door refrigerators will not be affected since energy rating is not yet mandatory for this category. “There is little scope for absorption of the enhanced manufacturing costs due to wafer-thin margins and hence we have to pass on the entire cost burden to consumers,” Kamal Nandi, sales and marketing head at Godrej Appliances, told ET. He added that commodity prices and currency rates are stable and the only reason for price increase is technology up gradation.

Once the new norms come into effect, a five-star 1.5-ton split AC will cost around Rs 40,000, up from Rs 35,000 now, and a five-star 240-litre frost-free refrigerator will cost around Rs 26,000 against Rs 20,500 now. Prices of entry-level models such as two-star 1.5-ton AC will rise to around Rs 29,000 from Rs 25,500, while the price of a similar-rated 240-litre frost-free refrigerator will go up to around Rs 18,000 from Rs 14,000.Officials of Godrej and Videocon fear that the price increase will impact demand, while executives of market leader LG and Voltas are confident that consumers will not mind spending a bit more on a better product.

“This price hike will not impact demand because today consumers want to upgrade to more energy efficient products and we are sure they would understand tech upgrade costs more,” said Rajiv Jain, sales head for home appliances at LG Electronics India, which will increase refrigerator prices by 9 per cent. Voltas marketing head Deba Ghoshal, too, said demand will not be hit severely because the price increase will be modest when compared to 18 per cent-20 per cent jump last fiscal. “But we still may have to devise schemes such as financing offers if the summer does not become hot,” he said.

Both AC and refrigerator categories have been going through a bad phase for the last few years due to poor consumer sentiments and recurrent price hikes. AC sales did grow 10 per cent in 2013, but it came after 10 per cent drop in sales in 2011 and 2012. Refrigerator sales have been flat this year. While AC prices last went up 8 per cent-10 per cent in August-September due to rupee devaluation against dollar, refrigerator prices went up by around 5 per cent last summer due to commodity inflation.

Denisha Sahadevan