It isn’t a bird. It isn’t a plane. And no, it isn’t Superman either. Neither is it an alien object. What, then, is this flying machine that has everyone from bloggers to founders to scientists excited? It is a drone. Weighing between 20 gm and 100 kg, drones are touted as the next frontier in technology—along with IoT devices, AI and ML—there is a use-case for drones in practically every sector.

And naturally, business is beginning to boom. From just a handful of drone companies till a decade ago, India is today believed to have up to 250 such firms across manufacturing and services. “The indigenous drone manufacturing ecosystem has changed tremendously in the past few years,” says Neel Mehta, Director and Co-founder of Bengaluru-based full-stack drone tech firm Asteria Aerospace, a subsidiary of Reliance’s Jio Platforms. “By creating an enabling regulatory framework and policy, the government is encouraging manufacturers to enhance capabilities.” The introduction of the liberalised Drone Rules, 2021, paved the way for innovation throughout the sector. “As drone imports have been banned, there has been a surplus demand for Make in India drones in the country, leading to tremendous scope for growth in the manufacturing sector,” says Prateek Srivastava, Founder & MD of DroneAcharya Aerial Innovations, a Pune-based provider of drone and GIS technology courses and solutions.

However, he warns that domestic manufacturers need to come up to the level of quality set by global pioneers in the field so that they can meet the requirements of customers who were buying imported drones earlier. But make no mistake, quality levels are not the only mountains to be climbed. There are many more challenges the nascent industry faces, but more on that later.

By creating an enabling regulatory framework and policy, the government is encouraging manufacturers to enhance capabilities and increase production

Neel Mehta
Director & Co-founder
Asteria Aerospace

The Trigger

Let us first go back a few years to track the growth in the sector. While the pandemic-induced lockdowns in 2020 caused a slowdown across several industrial segments, drones got a boost. India did announce a major policy in 2018, but a lot of work was needed in terms of creating infrastructure on the part of the government and meeting compliance and standards on the part of manufacturers. “The pandemic sort of made us realise that there was a need for drones to be made a part of our daily lives urgently,” says Ankit Mehta, Co-founder & CEO of Navi Mumbai-based ideaForge Technology, India’s largest drone maker. He adds that use cases such as policing, focussed spraying (of disinfectants) and the SVAMITVA scheme for mapping land parcels during that period helped unlock the potential of civilian drones.

Agrees Agnishwar Jayaprakash, Founder & CEO of Chennai-based drone maker Garuda Aerospace. “Starting with the liberalisation of the drone rules, the government has started perceiving the segment in a much more favourable light. Earlier, people thought drones could only be used in photographing weddings and events, but now they are being extensively utilised in several multi-billion-dollar segments. For instance, drones fit well on crop sprayers, are far more efficient, cover a wider area, and are capable of saving up to 70 per cent of [the cost of] pesticides and fertilisers for farmers,” he says.

Then there’s the defence sector. ideaForge’s Mehta, who became interested in drones after watching the 26/11 attacks in Mumbai, adds, “The geopolitical situation has led to drones becoming a must-have for the defence forces.” He has a point. Drones have been used with devastating effect to strike enemy targets by the US forces in Afghanistan and intrusions into Indian territory by Pakistan-based terror groups and drug traffickers.

Drones fit well on crop sprayers, are far more efficient, cover a wider area, and are capable of saving up to 70 per cent of [the cost of] pesticides and fertilisers for farmers

Agnishwar Jayaprakash
Founder & CEO
Garuda Aerospace

As a result, original equipment manufacturers have been getting type certificates for specific models from aviation regulator Directorate General of Civil Aviation (DGCA). To date, over 7,000 unique identification numbers (UINs) and 14 type certifications have been issued for drones by the DGCA. “While overall institutional demand is yet to coalesce into something substantial, drone manufacturers are seeing healthy demand from small, niche and private players, thus moving revenues upwards,” says Akshya Singhal, Consulting Partner for the Government and Public Sector at EY India.

The government’s production-linked incentive (PLI) scheme has also helped. The total financial outlay during three years of the scheme for drones and drone components is capped at Rs 120 crore, with the government having notified 23 PLI beneficiaries in the space so far, of which 12 are drone manufacturers. The combined annual sales turnover of the beneficiaries has increased 3.6 times, from Rs 88 crore in FY21 to Rs 319 crore in FY22.

The idea behind the scheme was to strengthen the local drone ecosystem by incentivising indigenous manufacturing. “The PLI scheme has given local manufacturers the boost and financial push required to increase their manufacturing capabilities,” says Asteria’s Mehta. Terming the scheme an unparalleled intervention, ideaForge’s Mehta adds, “[The scheme] tells you that you take your sales, subtract the purchases you have done from the rest of the world and the local market, and whatever value addition that you do as a business, 20 per cent of that gets returned to you. That’s a huge incentive in doing more development in-house.”

Scope for Improvement

While the PLI scheme has been a major boost for manufacturers seeking to scale up their value production across the segment, DroneAcharya’s Srivastava feels it has room for tweaking. “Such schemes are meant to fast-track the current production processes that include a huge supply chain of drone-based electronic hardware and other small parts… [but] the scheme needs to address more granular issues to create a massive outcome.” For instance, even as India has witnessed the emergence of several players manufacturing drones for a variety of applications, critical components such as electronic chips, batteries, motors and other components continue to be imported. “Considering the global supply chain constraints and geopolitical climate, we need to ensure that we have a robust component manufacturing ecosystem in India, which can make components for not only Indian drone manufacturers but global drone manufacturers as well,” says Asteria’s Mehta. He feels this can be solved over time by incentivising local component makers to scale their production through PLI schemes, leveraging capabilities in allied industries like electric vehicles and space, and creating drone manufacturing and testing clusters to encourage entrepreneurship and close partnerships.

The Covid-19 pandemic sort of made us realise that there was a need for drones to be made a part of our daily lives urgently

Ankit Mehta
Co-founder & CEO
IDEAFORGE

Another concern is that tenders for drones put out by the government or private entities do not take into account the current capabilities of Indian drone manufacturers while designing specifications. “There is a need for realism to be built into the design. Many tenders invariably give specifications of companies from land-border countries, defeating the purpose of impetus towards AatmaNirbhar Bharat,” explains EY’s Singhal. He recommends greater regulatory oversight to correctly evaluate local content in drone manufacturing.

Other concerns are about addressing some yawning gaps. For instance, stakeholders across the drone ecosystem would like more educational institutes to offer degree courses in drones. Similarly, industry watchers say, the sector has failed to self-regulate by coming up with a solution for trackers—miniaturised GPS, radio frequency, Bluetooth or buzzer devices placed on drones for easy detection. More importantly, like the number plate on a car or the IMEI number on a mobile handset, they help in identifying the owner of the flying machine. Their use may, therefore, need to be mandated by the government in the interest of national security. Experts say the defence ministry, home ministry, Defence Research and Development Organisation, and the Bureau of Police Research and Development also need to give out contracts to industry and academia to develop multiple counter-unmanned aircraft system solutions. Although some contracts have been awarded, their scale and variety may prove to be inadequate.

As the drone industry grows, so will the use and traffic of drones across the airspace. “There needs to be a check on the kind of rogue activities that have caused our industry to face a ban in the previous years. Therefore, a centralised UTM [Unmanned Aircraft System Traffic Management] capable of keeping all drone-based aerial activities in check is required for the whole country,” suggests DroneAcharya’s Srivastava.

Funding Facts

Coming to funding, things have started looking up. Indian drone start-ups raised $25.67 million in FY22, more than double the $11.2 million they received in FY21, according to data intelligence platform Tracxn. And in FY23, the industry had already raised $49.7 million till March 27. Manufacturers cite favourable government policies and the increasing adoption of drones across sectors as the primary reasons behind rising investor confidence. “Our IPO in December 2022 was oversubscribed by a record 262 times,” says DroneAcharya’s Srivastava. The company listed at Rs 102 on December 23, 2022 and closed at Rs 132 on March 24, 2023, up 144.4 per cent over its issue price of Rs 54.

Prateek Srivastava
Founder & MD
DroneAcharya Aerial Innovations

Garuda’s Jayaprakash says while investors have started showing interest, they were reticent about investing earlier as the drone segment was a highly regulated one. “The VC funding may be slowing down globally, but in India drone companies like ours are able to raise capital,” he says. Garuda recently raised $22 million in a Series A round, the highest for an Indian drone start-up to date. Earlier, Reliance Industries had acquired a 51.78 per cent stake in Asteria for Rs 23.12 crore in 2019. “Anybody who is doing differentiated work and not merely assembling imported parts will be sought out by investors in this developing innovation-driven ecosystem,” adds ideaForge’s Mehta.

Easy access to funding, though, still continues to elude many. “There are many other companies doing great work, but there is no visibility for them. Such companies eventually either shut down or get acquired. And that limits the segment’s growth potential,” says Jayaprakash. He feels that such start-ups can partly get around the challenge by being open to venture capital and angel investors. “Perhaps the government can create a separate Ministry of Start-ups to help them [in their initial years]. Similarly, there should be a start-up exchange just like we now have an SME Exchange on the BSE.”

Meanwhile, the players are optimistic about achieving the government’s aim to become a $20-billion industry by 2030. This bullishness is reflected in their actions. For instance, Qualcomm-backed ideaForge recently filed its prospectus with markets regulator Sebi for an IPO. The offering comprises a fresh issue of shares worth Rs 300 crore and an offer for sale of 4,869,712 equity shares. Will that be oversubscribed like the DroneAcharya IPO? The answer is whirring in the wind.