The potential price benefits for consumers from recent GST reforms on air conditioners could be offset by a significant move from the Bureau of Energy Efficiency (BEE). The government body is set to introduce stricter star rating norms for ACs, a change that manufacturers warn could lead to a price increase of up to 10%.
Stricter Norms, Higher Costs
The Bureau of Energy Efficiency plans to implement revised energy performance standards for room air conditioners, effective from January 1, 2026. This revision involves tightening the existing star rating system, meaning an AC model that currently qualifies for a 3-star rating may be downgraded to a 2-star under the new benchmarks. To regain a higher rating, manufacturers will need to incorporate more advanced, and consequently more expensive, technology and components.
Industry experts and manufacturers have expressed concern that this technological upgrade will directly impact production costs. The estimated increase in manufacturing cost is projected to be between 8% and 10%. This surge is expected to be passed on to the end consumer, leading to a noticeable rise in the retail prices of air conditioners across the board.
Clashing with GST Reforms
This impending price hike comes at a time when the government had recently provided relief on air conditioners through the Goods and Services Tax (GST) regime. The GST Council had reduced the tax rate on air conditioners from the previous 28% slab to a lower 18% slab. This reform was aimed at making cooling appliances more affordable for the common household.
However, the 10% price increase anticipated due to the new BEE norms threatens to completely neutralize, or even surpass, the cost benefit derived from the 10-percentage-point GST rate cut. For consumers, this means the effective price they pay at the showroom in 2026 might be similar to, or higher than, current levels, despite the tax reduction.
Long-term Savings vs. Upfront Cost
While the upfront cost is set to rise, the Bureau of Energy Efficiency's primary objective is to promote long-term energy conservation and reduce electricity bills for consumers. The new, stricter standards are designed to ensure that air conditioners sold in the market are significantly more energy-efficient.
A more efficient 5-star AC under the new system will consume substantially less electricity compared to a current 5-star model. Over the appliance's lifetime, which can be 8-10 years, the savings on electricity bills could be considerable. The move aligns with India's broader climate goals and commitments to reduce overall energy consumption.
The key challenge for policymakers and the industry will be to communicate this trade-off effectively to buyers: a higher initial investment for a future payoff in the form of lower monthly power bills. The success of this transition will depend on consumer awareness and their willingness to pay more upfront for long-term savings.
The final guidelines and the exact revised benchmarks for the star rating system are still being formalized by the BEE. All stakeholders, including manufacturers and consumer groups, are closely watching the developments as the 2026 deadline approaches.
