AC maker Blue Star expects sales bump from PM Modi's planned GST cuts

India's Blue Star expects its room air conditioner sales to beat the company's previous forecast this financial year, thanks to new government plans to slash consumption taxes, a top executive said.

In the nation's biggest tax overhaul since 2017, Prime Minister Narendra Modi this month announced plans to cut taxes on the purchase of everyday goods and appliances from October, a move aimed at boosting consumption in the world's most populous nation as trade tensions with the U.S. grow.

Blue Star, which had forecast growth of 10% to 15% in room AC sales volumes for the year to March, now expects an increase of up to 20% in India's price-sensitive market, Managing Director B. Thiagarajan told Reuters on Friday.

The eventual tax rate on ACs is not clear but it is now at the maximum 28%, so the planned cut should help dealers and manufacturers, who have struggled this year due to a cooler summer.

"From 28% for ... air conditioner to (potentially) 18% is something which nobody would have dreamt of," Thiagarajan said by phone. "Now this is an extraordinary step, and it will boost demand especially in a year where summer season has failed."

Blue Star's unitary products business, which sells room ACs and commercial refrigeration systems, made up nearly half its revenue of 119.77 billion rupees ($1.37 billion) last year, when it commanded a market share of close to 14% in room ACs.

But there is going to be short-term pain for Blue Star and the $4 billion sector that also includes Tata Group's Voltas and Japan's Daikin, as consumers postpone AC purchases until the tax cuts take effect.

Industry watchers say electronics retailers could experience slow sales in the run-up to the Hindu festival of Deepavali in October, by which time Modi said the cuts would take effect.