MC EXCLUSIVE Budget 2026 likely to give Drone Shakti a boost through incentive based manufacturing scheme

(Representative image)

The Budget 2026 is likely to announce a manufacturing-focused incentive scheme under the Drone Shakti initiative to accelerating indigenous production of unmanned aerial vehicles through a two-tier subsidy framework, government sources said.

“The idea is to give drone manufacturing the kind of long-term fiscal backing that allows companies to invest with certainty, rather than relying only on output-based incentives,” one of the sources told Moneycontrol.

The scheme will mark one of the government’s largest multi-year fiscal commitments to the drone sector, emphasising its intent to position India as a global manufacturing hub for civilian drones.

The proposed scheme, expected to run for five years and aligned with the Sixteenth Finance Commission period, may involve a fiscal commitment of around Rs 10,000 crore, with the finance ministry having cleared the proposal in principle and likely to approve expenditure for the full duration upfront, sources said.

Unlike the production-linked incentive (PLI) scheme for drones and drone components, which is linked to value addition and output, the new proposal combines investment-linked incentives with manufacturing support to help build scale in the industry.

Under the proposed framework, the first layer of incentives will offer a 10–15 percent subsidy on capital expenditure for setting up drone manufacturing units and related infrastructure, sources said. The support will be subject to conditions such as a minimum turnover thresholds and time-bound completion of investments.

“The idea is to support capacity creation upfront. Companies will be required to complete capital investment within a certain period of joining the scheme, so that manufacturing capacity comes on stream quickly,” the source said.

The second layer will provide a 10–15 percent subsidy linked to manufacturing output, aimed at making domestically produced drones more cost-competitive against imports. It intends to bridge the pricing gap that Indian manufacturers face, as several critical components continue to be sourced from abroad.

“The manufacturing-linked incentive is meant to help Indian firms compete on price. Without some form of output support, locally made drones struggle to match imported alternatives,” the source said.

The scheme is also expected to include a graded incentive structure for companies that join at a later stage. Early entrants may receive the full benefit. “The incentive will be tapered for late entrants, but they will not be put at a disadvantage. The scheme coverage is likely to remain for the full five-year period,” the source said.

To address India’s dependence on imported drone components, the scheme will mandate domestic content requirements of around 50–60 percent as a key eligibility criterion.

Companies relying heavily on imported components will not be able to avail all the benefits.

“There was detailed discussion on domestic content. Local sourcing will be mandatory to ensure genuine manufacturing, not just assembly,” the source said.

While import of fully built drones is restricted, Indian manufacturers continue to depend on imported components such as sensors, avionics and propulsion systems, limiting value addition within the country.

Officials said the proposed scheme will run separately from the existing drone PLI, which was launched with a smaller outlay and a focus on value addition rather than upfront investment support.

“This is not a replacement for PLI. It is a complementary scheme that recognises the need for capital support and scale in a sunrise sector,” the government source said.

The Drone Shakti initiative was announced in the Budget 2022–23, as part of the government’s broader push to develop the drone ecosystem. The initiative focused primarily on promoting drone adoption and services rather than direct manufacturing subsidies.

Under Drone Shakti, the government sought to encourage the use of drones across sectors such as agriculture, land records, infrastructure, logistics and mapping, while supporting drone start-ups and skill development. A key thrust was the promotion of Drone-as-a-Service (DrAAS) models, enabling farmers, small businesses and government departments to access drone services without owning the equipment.

However, Drone Shakti does not provide direct fiscal incentives for setting up manufacturing facilities.