A new Centre-backed fund is being budgeted to foster a self-sustaining drone ecosystem for development, manufacturing, and adoption of Unmanned Aircraft Systems (UAS), including civilian anti-UAS systems.
The new scheme, also known as the New Drone Fund unofficially, would offer incentives to boost drone part localization to 30 per cent of total value, aiming to reduce reliance on imports, which currently exceed 50 per cent of components used, according to news reports.
The proposal assumes significance against the backdrop of the recent cancellation of three contracts by the Ministry of Defence for the acquisition of 400 drones intended for deployment along the border with China due to security concerns regarding the use of Chinese components and electronics in them. It had earlier advised Indian drone manufacturers against using Chinese parts.
This move also aligns with India’s broader vision of leading the charge in Industry Revolution 4.0 and achieving technological self-reliance under Aatmanirbhar Bharat initiative, capitalising on the rapidly growing global drone market.
India’s drone sector has witnessed exponential growth in recent years, driven by liberalised regulations, increased private-sector participation, and government incentives. The market, valued at USD 654 million in 2024, is expected to more than double to USD 1.43 billion by 2029, growing at 17 per cent annually.
India’s Growing Capabilities
India’s drone industry has flourished, with drone startups doubling over the last three years. By August 2024, India boasted 398 drone startups, outpacing China’s 298. And it is set to lead the global drone revolution, fuelled by a favourable regulatory framework, a fast-growing market, and a skilled engineering workforce.
Policy reforms, including the Drone Rules 2021 and its subsequent amendments, are allowing these startups to innovate and broaden their applications in government, civilian, and industrial sectors.
These apart, the DJI ban has spurred local innovation, paving the way for India to emerge as a global leader in drone technology while creating numerous opportunities for local manufacturers to produce various components needed for drones tailored for India.
There has also been an emphasis on indigenous software stacks, firmware and electronics, essential for protecting sensitive information from adversarial threats and ensuring the integrity of drone operations. Experts have also highlighted the need for stronger collaboration among academia, industry and research institutions to achieve the goals in drone technology.
By leveraging these strengths, the industry can redefine technological capabilities and contribute significantly to India’s economic growth and global standing. It is projected to add 1 per cent to 1.5 per cent to the nation’s GDP by 2030 when the market is expected to reach USD 13 billion in size and generate at least 5 lakh jobs by that time, according to Inc42’s Indian Drone Tech Startup Landscape & Market Opportunity Report 2024.
Fuelling India’s Drone Industry for Global Dominance
Drones, once solely utilised for defence purposes in India, have evolved significantly, performing diverse roles like delivering vaccines, medical supplies, and consumer goods including gadgets, food, and groceries. There has been an increase in demand for drones across sectors such as agriculture, defence, and logistics.
In 2024, the agriculture sector emerged as a significant beneficiary of drone technology.
India’s commitment to the growth of the drone industry is also reflected in Union Budget 2025-26, signalling a bright future for both domestic innovation and global competitiveness.
To propel the industry toward global prominence, Rs 57 crore has been allocated to the Production-Linked Incentive (PLI) scheme. The 7.5 per cent increase from last year’s Rs 33 crore is a testament to the government’s commitment to strengthen India’s domestic drone manufacturing capabilities.
The recent union Budget emphasised on drones’ transformative role in infrastructure and urban planning. Drones are increasingly employed for precise surveying, mapping, and monitoring of major projects like roads and buildings. It also outlined measures to enhance drone use in overseeing urban development and infrastructure maintenance.
The PLI scheme has been a pivotal initiative in encouraging businesses to manufacture drones within India. It was notified on September 30, 2021, to promote local industry, reduce import dependency and generate employment with an initial outlay of Rs 120 crore for three years.
The scheme is well drafted for drone business, enabling companies to develop their intellectual property while receiving at least an 8 per cent return on their investment, which fuels further innovation. This structure motivates each company to push harder.
Case for Larger Allocation
The Drone Rules 2021, the PIL scheme for drones, and the restriction on importing fully assembled drones for commercial use have collectively spurred domestic innovation and manufacturing. Furthermore, classifying 90 per cent of Indian airspace as a “green zone” has simplified drone operations by eliminating the need for prior security approvals.
The Centre is also taking steps with Initiatives like Drone Didi, which is designed to bolster the drone ecosystem and encourage greater participation from individuals across the sector.
However, challenges such as reliance on imported components, lack of a robust component ecosystem, and insufficient testing and skilling infrastructure remain barriers to achieving a self-sustaining ecosystem.
While Rs 57 crore allocated for the drone manufacturing sector is encouraging, industry stakeholders have been calling for a bigger budget of Rs 1,000 crore or even Rs 2,000 crore to scale up its manufacturing capacity and foster cutting-edge technological advancements to stay competitive internationally.
The proposed fund, which is likely to have a three-year duration with an outlay of around Rs. 1,000 crores, seems to be in sync with it.
The now-defunct PIL incentive, spanning three financial years, aimed to boost domestic drone manufacturing and decrease reliance on imports. The new drone fund will replace it, prioritising the development of drone components and anti-drone technologies. It also intends to drive innovation across the value chain, incentivise indigenous development, and attract investments into advanced manufacturing and cutting-edge technologies.
Local manufacturers will also be incentivised to develop and produce drone components domestically.
The proposal includes drone leasing along with the domestic development and sale of software used for managing UAS. In addition, it will broaden the range of the earlier PLI scheme by incorporating essential domains such as leasing, coding, and anti-drone technologies.
Besides, the fund will have special provisions to boost drone exports.
However, manufacturers have stressed the need for an upfront R&D fund, where the government invests in innovative intellectual property creation. This is all the more important since this industry faces challenges in accessing upfront capital. Incentivising upfront through milestone-based gradation till final delivery, ensuring that the cost is mitigated in case of a failure, will help create a pool of committed people willing to create technology, which can eventually be used by manufacturers.