This article explores the low penetration of air conditioners (ACs) in India compared to countries like China, the challenges posed by AC-related electricity demand on India's power grid, and the importance of improving AC energy efficiency standards. It also examines the growth potential of the AC market and the role of energy efficiency regulations in shaping sustainable growth.
India's air conditioner (AC) ownership is surprisingly low, with only about 8% of households owning an AC. This is in stark contrast to countries like China, where urban households own more than one AC on average, with penetration rates exceeding 150%. Understanding this disparity and its implications is crucial as India stands on the cusp of a significant growth curve in AC adoption.
India's AC penetration is comparable to where China was in the mid-1990s. Since then, China has experienced a staggering increase in AC ownership, with urban penetration rising from 5% to nearly 100% in just 15 years, adding over 200 million AC units. India currently sells about 10 to 11 million ACs annually, with projections suggesting this could double by the fiscal year 2030.
Amber Enterprises, a key player in the AC industry, is optimistic about this growth, expecting the industry to grow at 12 to 15% annually over the next 4 to 5 years, potentially reaching 20 to 25% growth once per capita income crosses 4,000 USD.
The rapid increase in AC ownership poses a significant challenge to India's power grid. Each AC unit draws electricity, and when millions operate simultaneously during peak heat hours, the grid experiences massive demand spikes.
In 2024, India's national peak electricity demand crossed 240 gigawatts, with room ACs alone contributing 40 to 50 gigawatts. For example, Delhi's peak demand nearly doubled from 2010 to 2024, reaching over 8,500 megawatts, primarily driven by cooling needs.
India is expected to add about 130 million new ACs between 2025 and 2035. A study from UC Berkeley estimates that if power efficiency standards improve slowly, room ACs could account for 180 gigawatts of peak demand by 2035—about one-third of the entire projected national grid capacity. This is comparable to the entire installed electricity generation capacity of Germany.
India could face a 26-gigawatt peak capacity shortfall as early as 2028, leading to power shortages. The AC market will continue to grow, but the critical question is whether these ACs will be efficient enough to prevent grid overload.
An AC's efficiency is measured by the Indian Seasonal Energy Efficiency Ratio (ISEER), which indicates how many units of cooling are produced per unit of electricity consumed over a season. A higher ISEER means better efficiency.
Currently, the least efficient AC legally sold in India has an ISEER of about 3.3, while the most efficient model available (a Daikin model) has an ISEER of 6.3. Both cool the room to the same temperature, but the more efficient model uses roughly half the power.
Consumers often choose ACs based on upfront price rather than efficiency, leading to a market dominated by mid-range efficiency models. The Bureau of Energy Efficiency (BEE) assigns star ratings from one to five based on ISEER values, helping consumers understand potential electricity savings.
MEPS sets the minimum efficiency level for ACs sold in India. Any AC below one-star efficiency (ISEER ~3.3) cannot be legally sold. Ideally, MEPS should increase over time to push manufacturers toward more efficient products.
However, India's MEPS has improved very slowly, by only 2 to 3% annually over the past decade. This slow progress means the market clusters around "good enough" efficiency rather than truly efficient models.
China dramatically overhauled its AC efficiency standards around 2019, setting MEPS so high that fixed-speed ACs could no longer be sold. This forced a rapid shift to inverter ACs, which are 30 to 50% more efficient than fixed-speed models.
Inverter ACs work like a dimmer switch, running compressors at variable speeds to maintain temperature efficiently, unlike fixed-speed ACs that cycle fully on or off, wasting energy.
China's aggressive MEPS revision led inverter ACs to dominate 98% of the market almost overnight. Prices did not increase; instead, economies of scale and improved manufacturing made efficient ACs more affordable.
In India, inverter ACs now make up about 75% of sales, up from nearly zero in 2015. The BEE revised star rating thresholds in January 2026, raising efficiency requirements for each star level. However, the one-star minimum has not significantly increased, limiting the impact.
A research paper by Nikit Abyanker proposes a bold staircase approach to MEPS:
This approach could triple the pace of efficiency improvement from 3% to 8% annually, saving 118 terawatt-hours of electricity per year by 2035 and avoiding approximately 7.5 trillion rupees in grid investments.
India's AC market is poised for rapid growth, but the sustainability of this growth depends heavily on improving energy efficiency standards. Raising the MEPS floor aggressively, as China did, could ensure that the AC boom does not overwhelm the power grid.
The challenge is not just about selling more ACs but selling smarter, more efficient ACs that cool homes without straining the electricity infrastructure. The coming decade will be critical in shaping India's cooling future and its impact on energy consumption.
While the primary focus has been on air conditioning, the episode also touched upon the booming beauty and personal care industry in India, highlighting three companies at different points in the value chain.
Galaxy Surfactants supplies essential chemicals like surfactants that enable cleaning products such as shampoos and detergents to work effectively. Despite reporting a 28% revenue surge recently, this was mainly due to higher input prices rather than volume growth.
The company faces challenges from fluctuating raw material costs, leading customers to reformulate products or delay purchases. However, specialty care products have helped offset some volume losses.
Honasa, the parent company of Mama Earth, focuses on everyday personal care products like skincare and haircare. It grew revenues by 16% year-on-year recently, with profits nearly doubling.
The company invests heavily in advertising and promotions, spending nearly one-third of its revenue to attract customers. However, it is improving efficiency by optimizing its sales channels, focusing on offline distribution to over 270,000 stores, and controlling inventory better.
Nykaa operates a vast retail and distribution platform for beauty and wellness products, both online and offline. It also sells its own branded products and partners with international brands.
Nykaa's sales grew 28% year-on-year, with operational revenues nearing 2,900 crore rupees. Profits surged 160% despite increased costs due to new labor codes.
The company improved its reach, attracting 34% more online visitors and increasing unique customers by 25%. It also increased average order values and is expanding sales of its own brands beyond its platform.
This comprehensive overview highlights the intertwined challenges and opportunities in India's cooling and beauty sectors, emphasizing the importance of efficiency, innovation, and strategic growth in shaping India's consumer markets and infrastructure.
