The Government released a Production Linked Incentive (PLI) scheme for manufacturers of drones in India. This scheme seeks to promote the growth of the drone manufacturing sector in India, in conjunction with the Drone Rules 2021. It provides incentives which will see the growth of more indigenous drone and drone component manufacturers, promote foreign investment in the sector and generate employment. This blogpost outlines the specifics of the scheme and the impact it might have on the sector.
Invigorating indigenous manufacturing for drones
Introduction
Make Drones in India: The Government notified a Production Linked Incentive (PLI) scheme for Indian drone manufacturers on 30 September 2021.[1] The scheme seeks to promote a competitive and self-sustaining drone manufacturing industry in India under the Atmanirbhar Bharat Abhiyan. The scheme comes shortly after the announcement of the Drone Rules 2021 which encourages drone operations in India by improving ease-of-doing business and simplifying compliance for the drone industry.
Eligibility
Manufacturers of drones as well as drone components are eligible to apply for the scheme.[2] Developers of software for drones are also eligible under the scheme.[3] The scheme covers a number of products including hardware such as the airframe, propulsion system, batteries and power systems, communications systems, cameras and sensors, drone safety components, and navigation equipment such as internal navigation systems, flight control modules and ground stations.[4] However, the scheme also specifies that manufacturers shall have to establish that the components for which PLI is being claimed are being used solely in the manufacturing of a drone.[5] There is no clarity on who will be the correct body to establish this. Feedback given by industry bodies to the Ministry of Civil Aviation (MoCA) recommends self-certification by manufacturers.[6] The Quality Council of India (QCI) could also be a viable body for certification, considering the role it will play in the Drone Rules 2021.[7] The scheme specifies certain minimum annual turnover requirements to claim the incentives with a lower minimum turnover specified for Micro, Small and Medium Enterprises and startups, encouraging the entry of new component and drone manufacturing companies into the industry.[8] The incentive scheme is valid for 3 years, till financial year 2023-24.[9]
Specifics of the scheme
The eligible companies can get 20% of their value addition as an incentive from the government.[10] The value addition is calculated as the value of sales by the company (inclusive of GST) minus the value of purchases (inclusive of GST) by the company.[11] However, the company will only be eligible for this incentive if the value addition is at least 40% of the value of sales.[12] Thus, if a company has done INR 100 Crore worth of sales, they should not have purchases higher than INR 60 Crores to be eligible. If the purchases are INR 60 Crores, they would have added INR 40 Crores worth of value and thus would be eligible for INR 8 Crores as incentive from the government.
The government has projected sales of INR 200 Crores from the Indian drone industry in the financial year 2021-22.[13] They predict that this amount will grow by a 100% in 2022-23, amounting to INR 400 Crores, and further by 125% in 2023-24, amounting to INR 900 Crores. Of this figure, the government expects a total of INR 600 Crores of value added across the three years. Thus, the government expects to pay out a total of INR 120 Crores in incentives across 3 financial years and has capped its outlay at this figure.[14] The scheme will be administered by the Project Management Agency (PMA) to be created by the MoCA.[15] The PMA is expected to create and maintain an online portal for processing applications for the scheme. The specific guidelines for implementation of this scheme are expected to be notified separately.
The future of the drone industry
The scheme will serve as significant encouragement for investment in the drone sector and for the creation of new Indian startups catering to the industry. The Union Minister for Civil Aviation, Jyotiraditya Scindia, hopes to make India a global drone hub by 2030 with an expected turnover of INR 15,000 Crores by 2026.[16] The PLI scheme, in combination with the Drone Rules 2021 is expected to galvanise the Indian drone industry to achieve these objectives.
The liberalised Drone Rules and the PLI scheme is already having a positive effect on the drone industry. Indian drone manufacturers claim that their sales have grown 3-5 times in the last year and that they plan to add a number of employees to their teams.[17] Foreign drone component manufacturers are also contemplating setting up in India to avail the benefits of the PLI scheme.[18] This will create a self-sufficient drone manufacturing ecosystem in India, with manufacturers of drones no longer requiring the import of foreign components.[19]
The PLI scheme is an effective way of augmenting indigenous manufacturing of drones and drone components. It incentivises foreign manufacturers to set up operations in India as well and creates employment opportunities in the sector. Alongside the Drone Rules 2021, the scheme is likely to enable growth for the drone industry.
Find our summary of the Drone Rules 2021 here: https://www.ikigailaw.com/the-drone-rules-2021-summary-and-key-takeaways/
This piece has been authored by Rahul Krishna, a consultant working with Ikigai Business Consulting, with inputs from Aman Taneja, Senior Associate at Ikigai Law and Anirudh Rastogi, (anirudh@ikigailaw.com), Managing Partner at Ikigai Law.
More about Ikigai Law: At Ikigai Law, we have been pioneers in advising blockchain and cryptocurrency businesses in India. We advised on the structuring of some of India’s first cryptocurrency exchanges and initial coin offerings. The firm represented leading exchanges in their petition before the Supreme Court successfully challenging the India central bank’s ban on banking for crypto-businesses.
Image credits: Freepik
[1] https://egazette.nic.in/WriteReadData/2021/230076.pdf
[2] Production Linked Incentive (PLI) scheme for drones and drone components in India, para 3.1-2
[3] Production Linked Incentive (PLI) scheme for drones and drone components in India, para 5.4
[4] Production Linked Incentive (PLI) scheme for drones and drone components in India, para 3.2
[5] Production Linked Incentive (PLI) scheme for drones and drone components in India, para 3.7
[6] https://community.nasscom.in/communities/policy-advocacy/representation-moca-pli-scheme-drones-and-drone-components
[7] Drone Rules 2021, para 7.
[8] Production Linked Incentive (PLI) scheme for drones and drone components in India, para 3.4
[9] Production Linked Incentive (PLI) scheme for drones and drone components in India, para 4.3
[10] Production Linked Incentive (PLI) scheme for drones and drone components in India, para 5.5
[11] Production Linked Incentive (PLI) scheme for drones and drone components in India, para 5.3
[12] Production Linked Incentive (PLI) scheme for drones and drone components in India, para 5.7
[13] Production Linked Incentive (PLI) scheme for drones and drone components in India, para 6.1
[14] Production Linked Incentive (PLI) scheme for drones and drone components in India, para 6.2
[15] Production Linked Incentive (PLI) scheme for drones and drone components in India, para 7
[16] https://www.thehindu.com/news/national/indian-drone-industry-will-have-a-turnover-of-up-to-15000-crore-by-2026-jyotiraditya-scindia/article36494392.ece
[17] https://economictimes.indiatimes.com/tech/startups/drone-companies-step-up-offerings-hiring-after-pli-scheme/articleshow/86720678.cms?from=mdr
[18] https://economictimes.indiatimes.com/tech/startups/drone-companies-step-up-offerings-hiring-after-pli-scheme/articleshow/86720678.cms?from=mdr
[19] https://www.business-standard.com/article/economy-policy/union-cabinet-clears-pli-scheme-to-make-india-a-drone-hub-by-2030-121091501712_1.html
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