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India’s drone industry set up for investments after government announces new incentives

The incentives proposed by the government come days after it relaxed regulations for the domestic drone sector.

The Indian government on September 15 announced a Rs 120 crore production-linked incentive (PLI) scheme for the drone industry which it claimed will bring investments of over Rs 5,000 crore in three years. This Rs 120 crore outlay is part of the Rs 26,000 crore earmarked for the PLI scheme of the automobile sector.

The announcement of the PLI scheme comes weeks after the Indian government notified the Drone Rules 2021 which has been welcomed by the industry for being more liberal than its predecessor, the Unmanned Aerial System Rules 2021.

In its PLI document, the Ministry of Civil Aviation reasoned that it was bringing drones under the incentive scheme as there was a lack of early-stage funding and bank loans for drone startups. The ministry said that for the industry to succeed in the future, it will need access to fiscal and monetary support — like other countries.

A look into the announcements for the drone sector

  • The PLI scheme offers an incentive of 20% to the manufacturers of drones and developers of drone-related software on their value addition. (The value additional shall be calculated as the net sales minus the purchase cost of drone components used therein)
  • The minimum value addition norm has been fixed at 40% of net sales instead of 50% as in other PLI schemes.
  • The proposed tenure of the scheme is three years starting in FY 2021-22 and the incentive rate is kept constant at 20% for all three years, instead of a reduction each year.

List of proposed items under PLI

  • Drones: All categories, from nano to large
  • Components:
    • Airframe, propulsion systems(engine and electric), power systems, batteries and associated components, launch and recovery systems
    • Inertial Measurement Unit, Inertial Navigation System, flight control module, ground control station and associated components, etc.
    • Communications systems (radio frequency, transponders, satellite-based, etc.)
    • Cameras, sensors, spraying systems, related payload, etc.
    • ‘Detect and Avoid‘ system, emergency recovery system, trackers, etc. and other components critical for safety and security

Who is eligible?

  • The Indian government said that all drones and drone components shall be eligible.
  • Minimum 50% domestic value addition will be required
  • An approved applicant shall be eligible for benefits for 5 consecutive financial years
  • Incentives under the scheme shall be applicable, starting from FY 21-22 which shall be disbursed in the subsequent year; and so on

The PLI scheme for the automobile industry and drone industry is part of the overall announcement of PLI schemes for 13 sectors made earlier during the Union Budget 2021-22, with an outlay of ₹ 1.97 lakh crore, the Indian government said in a press release. With the announcement of PLI Schemes for 13 sectors, minimum additional production in India is expected to be around ₹ 37.5 lakh crore over 5 years, the PIB release added.

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Decision in line with relaxed policy

Speaking to MediaNama, Shreya Suri, partner at Indus Law, said, “This decision is in line with the more relaxed policy outlook of the Government towards the drone industry, evident from the liberalised Drone Rules, 2021 that were notified recently. With these financial incentives along with the lesser compliance burden through the revised rules, the Government appears to be moving in an overall positive direction to make the drones industry more accessible for various use-cases, bring new technology and investments into India for manufacturing of drones, and allow India to become an export centre for drones and drone-based technology globally.”

Things are starting to change for the Indian drone manufacturers who have so far relied on import and local assembly of drones. The recently announced PLI scheme seems to be a part of a larger scheme to transform the civilian-drone manufacturing industry in India and bring indigenously manufactured drones on the world map —  Rishi Anand, Partner, DSK Legal

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Update, September 18, 6.06 pm: Added quote by Rishi Anand, partner at DSK Legal

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Among other subjects, I cover the increasing usage of emerging technologies, especially for surveillance in India

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