drone manufacturing in india

author Shreyika Walia , Ishita Goel

calender May 31, 2024

Building India's Aerial Future: Investment Opportunities in Drone Manufacturing

Unmanned aerial vehicles (“UAVs”), also known as drones, are aircraft that do not require a human pilot and function by receiving remote commands or rely on autonomous software. In recent years, drones have transformed from mere toys to essential equipment in various sectors of modern society. From agricultural fields to logistics and even entertainment, drones are fast revolutionizing traditional uses. In India, drones are mostly utilized in the defense and commercial sectors, including mapping and surveying, security and surveillance, aerial photography and videography, navigation and telecom services, to name a few.

India's Drone Industry

India offers a vast and diverse market for new enterprises in the drone services industry. Its varied topography and expansive surface area makes it an ideal location for testing and developing new drone applications.

As per the projections of the Ministry of Civil Aviation, it is observed and reported that the drone manufacturing industry in India is expected to reach Rs 900 crores by 2025 from just Rs 60 crores in 2020-21. Furthermore, an astounding compound annual growth rate (CAGR) of 22.15% is projected for the Indian drone market from 2024 to 2030.

In this rapidly evolving industry, where private companies are constantly growing and innovating, now is an opportune moment to consider establishing a drone manufacturing business in India. With strong government support and a favourable regulatory environment, entrepreneurs have the opportunity to develop their expertise in this dynamic sector, contributing to the nation's drone industry and economic development.

Government Programs and Regulatory Environment

Government Programs for Drone Manufacturing

With the aim of making India a drone hub by 2030 and a $30 billion industry, the Government of India has taken several steps to promote India’s growing drone industry by initiating various supportive programs and creating a regulatory environment to ensure safety. These measures include formulating the liberalized Drone Rules, 2021 (“Drone Rules”), establishment of drone schools, the Product Linked Incentive (“PLI”) scheme launched in 2021 to boost manufacturing in the drone industry and initiatives to provide financial grants for future development and innovation boosts like the Drone Shakti initiative.

Through the PLI scheme, the Government offers an incentive of INR 120 crores to Indian manufacturers of drones and drone components, based on the valuation and the incremental sales of the manufacturers in India. As a financial incentive provided by the Government, eligibility criteria for MSMEs and startups have been set at nominal levels to benefit the early-stage startups to ensure that businesses that are at their nascent stage can easily access such Government incentives and support programs.

In the 2022 budget, the Finance Minister of India expressed the government’s intention to introduce the drone-as-a-service model in India, especially in relation to the agriculture sector (Kisan Drones). It will include the use of drones to digitize land records, accurately monitor and assess the health of the crops, spraying of insecticides, pesticides, and nutrients etc.

The government programs for development through Digital India and implementing Smart Cities also involve the use of drones for improving the management and service provision skills for urban areas. In addition, the government has designated specific drone lanes that allow testing and commercial drone applications, which eliminate operational obstacles for drone users. These initiatives demonstrate a clear commitment of the Indian government to fostering a supportive ecosystem for drone technology in the country.

Regulatory Framework for Drone Manufacturing

India’s Drone Rules are aimed at maintaining safety and facilitating innovation. The Directorate General of Civil Aviation (“DGCA”) has released detailed regulations for operation of drones in India. These regulations classify drones according to their weight and the type of permissions needed for each class. Business entities are required to have a Unique Identification Number (UIN) and an Unmanned Aircraft Operators Permit (UAOP) for their drones depending on their application and dimensions. As provided in the regulations, all drones are required to be registered with the DGCA. Registrations can be done on the "Digital Sky platform" operated by the DGCA which provides a single-window online platform for drone registrations and approvals related to drone operations.

In addition, the Digital Sky platform for managing drone flights has been developed to facilitate approvals and simplify drone flight management. This platform streamlines registration, tracking, and compliance and therefore makes it easier for businesses to fly drones in compliance with the applicable legislations. The Government revises these regulations periodically in line with changing technologies and industries’ requirements to strike a balance between growth and protection of the people’s interests.

Additionally, the companies must ensure compliance with the Drone Rules, which cover drone classification, operation, and licensing requirements. If the drones manufactured are intended for defense applications, then a clearance from the Ministry of Defence (MoD) is required to be obtained. Adherence to standards set by the Bureau of Indian Standards (BIS) is also necessary for manufacturing drones and components. Furthermore, compliance with the Directorate General of Foreign Trade (“DGFT”) policies for importing parts and exporting finished products is also crucial.

India is enacting policies and establishing regulations that allows the drone industry to flourish. These measures encourage domestic investors and position India as a global leader in the drone market. The Government is creating an ecosystem that supports the technological advancement of the drone industry, enabling investment from both local and international stakeholders.

Regulatory Compliances for Drone Manufacturing Companies

There are different regulatory compliances that must be followed to start a drone manufacturing company in India, some of which include:

  1. Licensing
  2. Obtaining the correct licenses is imperative for running a drone manufacturing business in India. Such permits require manufacturing approvals from the DGCA, and the drone companies have to follow the Civil Aviation Requirements (CAR) for Remotely Piloted Aircraft Systems (RPAS). Additionally, in order to gain operational permissions, registration on Digital Sky platform is required to be obtained.

  3. Labour and Employment Law Compliances
  4. Fair treatment of employees and smooth-running of business necessitates compliance with labour laws in India. Compliance with basic labour laws includes guaranteeing secure and healthy working places, adhering to prescribed hours of work as well as offering sufficient welfare amenities. It is also important to offer social security benefits such as provident fund contributions and health insurance to employees. Furthermore, proper records should be maintained for all activities and benefits related to employees so as to facilitate compliance audits.

  5. Environmental Clearances
  6. In manufacturing activities, following environmental regulations is important because of the potential environmental consequences. Depending on their operations levels, drone companies might need to conduct an Environmental Impact Assessment (EIA) and secure clearance from the Ministry of Environment, Forest and Climate Change. Setting up and operating a drone manufacturing facility requires compliance with Air and Water (Prevention and Control of Pollution) Acts including taking consents from respective State Pollution Control Boards for this purpose. Moreover, during the production processes, drone companies must follow rules and regulations pertaining to management of hazardous waste that would facilitate effective disposal of all hazardous waste produced in the course of manufacturing.

  7. Import-Export Regulations
  8. For sourcing raw materials as well as exporting finished products it is necessary to adhere to import-export regulations. For any import or export activity all drone manufacturers are required to register themselves with DGFT for Importer Exporter Code (IEC) and ensure compliance with customs regulations for drone-related equipment.

  9. Taxation
  10. Compliance with taxation laws is critical for the financial health and legality of your business. Registering for Goods and Services Tax (GST) and ensuring timely filing of returns and payment of taxes is necessary. Additionally, compliance with the Income Tax Act, 1961, including the filing of returns and payment of income tax is essential.

  11. Intellectual Property Rights
  12. It is essential for drone manufacturers to ensure protection of their innovations and brand by registering their respective patents and trademarks with respect to their drone technology and designs created.

To ensure complete compliance and a successful introduction into the Indian drone manufacturing industry, seeking qualified legal advice and assistance is advised.

Government and Private Sector Synergies

In this evolving landscape of India’s drone industry, public-private partnerships offer a way to combine government support with private sector efficiency and innovation. Synergies between the government and the private sector emerge as a key strategy which leverages government support with the benefits arising from the private sector expertise and innovation which consequently supports large-scale projects. Such partnerships usually reduce the financial burden of the parties involved while mitigating risks that may be associated with such large-scale projects, making them more feasible and attractive to investors. Moreover, these partnerships accelerate the development of necessary infrastructure, such as drone corridors and testing facilities, which are essential for technological advancement and expansion of industry.

Additionally, with the Indian Government offering a range of funding opportunities and grants, the drone sector has received incentives for innovation and development. The financial support provided to startups, minimize initial financial constraints enabling such businesses to pursue their innovative ideas. Such subsidies incentivize businesses to invest in R&D which drives technological innovation within the sector.

By leveraging these strategic partnerships and collaborations, investors can significantly enhance their chances of success in the burgeoning Indian drone market. Whether through local collaborations, international partnerships, or synergizing with government initiatives, there are numerous avenues to explore and capitalize on the opportunities within this dynamic sector.

Investment Potential in India’s Drone Manufacturing Industry

Emerging Market Segments

The commercialization of drones is rapidly gaining momentum and providing a considerable number of potential investment options. In agriculture, drones play a pivotal role in crop monitoring, field maintenance and pesticide application. Further, in construction and mining, drones have been observed to revolutionize surveying by providing real-time and accurate data increasing cost efficiency. Moreover, drones have increasingly been utilized for surveillance purposes in infrastructure, security, wildlife, and urban areas, fostering monitoring capabilities.

The consumer drone sectors represent another significant aspect for growth in the drone industry. With the increase in the usage of drones, there has been an increase in the demand for drones for activities such as racing, tourism, entertainment, and sports. Furthermore, drones built with high quality cameras are increasingly useful for capturing photos and videos from aerial views.

As the most pivotal asset for governments and defense agencies, drones have particularly been in demand for bolstering national security as the drones aim to provide surveillance and have the capability of providing quick responses to emerging threats. In addition, drones are considered to be indispensable tools to manage disasters as they are utilized in search and rescue operations, delivery of essential supplies and assessments of affected areas.

Cost Efficiency: Decreasing Costs of Drone Technology

The decreasing cost of drone technology is making it more accessible and affordable for various industries. Advances in manufacturing techniques and economies of scale have reduced the cost of producing drones. Further, enhanced battery life and energy-efficient designs are reducing the operational costs of drones, making them a cost-effective solution for businesses, and ongoing innovations are driving down the prices of essential components like sensors, cameras, and AI systems, making high-tech drones more affordable.

Market Challenges

Despite the growth potential, the drone industry in India faces several challenges that could impact new entrants and existing players. Central among these challenges are the lack of comprehensive infrastructure and complex legal and regulatory hurdles that are essential for businesses to navigate, especially for new companies unfamiliar with the legal requirements. Further as an additional layer of complexity, developing advanced technologies and ensuring they meet safety and performance standards can be resource intensive. Additionally, Indian companies face stiff competition from well-established global drone manufacturers with more extensive resources and market experience consequently intensifying the competitive landscape.

By understanding these key market drivers and the competitive landscape, investors can better navigate the opportunities and challenges within India's burgeoning drone sector. The combination of supportive policies, decreasing costs, and rising demand makes this an exciting market, but staying aware of the competitive dynamics and potential barriers is crucial for success.

Summary of Investment Potential

The Indian drone industry is set to witness a major shift shortly due to supportive government policies, reduced costs of technology, and increased application in different industries. The investment landscape for drones is expected to change in the coming years, with the NITI Aayog projecting a USD 15 billion market for UAVs in India. Major markets like the commercial sector, consumer products, and government and military sectors are growing significantly. Technological advancements, especially in the field of AI, batteries, and lifting power, are driving the industry forward. Additionally, advancements in infrastructure, such as drone corridors and specialized R&D hubs, are providing conducive conditions for growth. These factors make India’s drone manufacturing industry an attractive investment destination.

Conclusion

The drone industry in India is witnessing a remarkable growth, as it is consolidating its legal and regulatory architecture for innovation and business support. Efforts by the Indian Government, such as the liberalized Drone Rules and the PLI scheme, have provided a clear path and supportive systems for drone manufacturing companies. The simplified registration procedure using Digital Sky platform, coupled with the explicit directives from the DGCA ensure the drone companies to operate under a well-defined regulatory environment. For smooth operation, drone companies must comply with the prescribed statutory regulations, including licensing requirements, adherence to environmental standards, and conformity to labor laws.

Investors and entrepreneurs have a significant opportunity to leverage these benefits to establish and grow their drone manufacturing companies in India. With applications ranging from agriculture to defense, and advancements in artificial intelligence and infrastructure, the drone industry in India promises great potential for technological progress and economic development.

Ahlawat & Associates (“A&A”) is a law firm dedicated to assisting investors in the Indian market. We have competent lawyers who provide legal and business consultancy to make your business a success. If you are facing issues such as how to comply with regulations, how to establish a drone manufacturing unit, or how to enter into business collaborations, we are always there to help you.

Now is the best time to start investing in the Indian drone industry if you are interested in a young and vibrant market. Contact A&A for legal advice and services. Our team is capable of assisting you in taking advantage of the emergent market potential of India’s drone manufacturing industry and facilitating profitable market entry.

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