India may not get a Drone 2.0 PLI before FY26 as consultations around allocation, local sourcing throw up challenges

The ban on Chinese parts has raised the cost of making military drones locally by forcing manufacturers to source components elsewhere, government and industry experts said.

A second production-linked incentive scheme (PLI) for the drone ecosystem in the country may take some more time as consultations with stakeholders have led to a rethink around monetary allocations in a bid to make the gains more broad-based.

"The last PLI scheme was beneficial for players which were already producing and selling in large volumes. It benefited companies which already had large orders and were doing well, but not the startups. This is what we learnt as part of our consultations. There is a need to provide R&D (research & development), and incentives to indigenise components manufacturing," a senior government official told Moneycontrol.

This thinking comes amidst concerns around tepid utilisation of existing PLI schemes for certain sectors, such as specialty steel and textiles. The government has been looking to expand the success of its output-linked plan beyond electronics.

When was the scheme launched?

The first PLI scheme for drones was introduced in September 2021, with an outlay of Rs 120 crore for three financial years starting from 2021-22.

The Ministry of Civil Aviation (MoCA) is working on building consensus among key stakeholders on easing local sourcing norms for the second edition of the PLI scheme , which is expected to be in the range of Rs 1,000 crore to Rs 1,500 crore, the official said.

"Recommendations like upfront incentivisation, and easing indigenous manufacturing norms are currently under consultations," the official said.

Emails sent to the MoCA remained unanswered till the time of publishing this report.

Plan likely to be launched by the start of next financial year: Official

Another official said that the MoCA wants to prepare a new note for the scheme by February 2025, following which it will be sent to the cabinet for approval.

"The first scheme, launched in September 2021, ends at the end of 2024-25, but the quantum for the scheme has been utilised and the industry has called for a new scheme to be launched as soon as possible," this official said.

"Consultations for the next phase are already underway and a new plan will likely be launched by the start of the next financial year," he said.

A third government official said that while the central government was keen to extend the PLI scheme for drones in the current financial year, consultations have delayed the launch of the scheme so far.

'Civil aviation ministry not keen on launching scheme soon'

"Civil aviation has its own capacity, inclination, willingness. The first scheme was successful but it was a very small one, around Rs 120 crore. The ministry has to consult stakeholders and see if there is appetite for another one. But MoCA does not seem to be very keen on launching it soon," the official added.

Last month, Civil Aviation Secretary Vumlunmang Vualnam had said that government is looking at moving to the next PLI scheme for the drones sector. Vualnam, while acknowledging that some procedures under the first scheme were onerous on startups and the Ministry of Micro, Small and Medium Enterprises (MSMEs), the government will look at a more efficient PLI scheme for drones in terms of implementation, documentation and the processes that are adopted.

According to Vualnam, the drone sector has to be segregated into three segments -- those for civilian use, for security/ defence forces, and for the rogue or unregulated use. He had said that the PLI scheme for drones has been a great success with a budget outlay that was double the size of the drone industry at that time.

Industry body study reports

Industry body Federation of Indian Chambers of Commerce & Industry (Ficci), in a discussion paper earlier this year, had suggested that the government should bring counter-drone systems and components under the next phase of the scheme.

The outlay under the new scheme should be increased to Rs 1,000 crore to support startups and new entrants to develop drones with more indigenous components and sub-systems, the industry body had suggested.

Earlier this year, a study by Nexgen Exhibitions, too, suggested that the government needs to expand the PLI scheme and develop an ecosystem to realise the goal of making India a global drone hub.

Drone manufacturing industry to touch Rs 900 crore by 2025: Study

As per MoCA projections, the Indian drone manufacturing industry is expected to reach Rs 900 crore by 2025 from just Rs 60 crore in 2020-21, the study had said.

Experts are also of the view that the Indian drone industry's growth potential hinges on strong R&D to enhance local value-addition, and without high-quality indigenous products, startups will struggle to compete.

"PLI comes in when companies are producing in large scale and that might not be true for startups. So, indeed, the government needs to come up with some kind of initiatives for R&D, like it did for the space sector, the Rs 1,000-crore fund. Although it is not much for the kind of sector it is, it is a very big signal," Ashish Kumar, co-founder and general partner of Fundamentum, a venture capital firm backed by Infosys cofounder and Aadhaar architect Nandan Nilekani, told Moneycontrol.

He added that the government needs to support R&D to expand the gains of such a scheme to startups as well. This will help attract domestic and global VCs.