PLI scheme to be a shot in the arm for drone manufacturers

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The Union Cabinet has approved a production-linked incentive (PLI) scheme for drones and drone components which seeks to provide incentives for manufacturers. The proposed tenure of the PLI scheme is three years starting in FY 2021-22. The incentives will be as high as 20 percent of the value addition made. The government has also agreed to keep the PLI rate constant at 20 percent for three years. In PLI schemes for other sectors, the PLI rate reduces every year. The PLI scheme for drones will be extended or redrafted after studying its impact in consultation with the industry, the government said in a statement.

The government’s decision has been welcomed by players from the industry who are seeing it as a positive step.

“PLI will encourage indigenisation and the Drone Policy will galvanise usage of drones. Now the costs can only come down with scale-up. The industry needs to attain a size of about Rs 5000 crore to have some serious cost reductions,” said Chirag Sharma, Chief Executive Officer and Founder, Drone Destination Private Limited.

Ankit Kumar, Founder, Alternative Global India EV & Drone, a management consulting firm, felt that the PLI scheme for drones and drone components “will be a game changer.”

“It is very positive to see policymakers pay elaborate attention to the market situation, and level of development and competition, while drafting these policies,” said Paras Jain, Founder and Chief Executive Officer, Indo Wings.

The government also has agreed to widen the coverage of the incentive scheme to include developers of drone-related IT products.

The government’s statement added that the value addition will be calculated as the annual sales revenue from drones and drone components (net of GST) minus the purchase cost (net of GST) of drone and drone components.

In a move which is meant to enhance the number of beneficiaries, the government has agreed to fix the minimum value addition norms at 40 percent of net sales for drones and drone components instead of 50 percent.

The PLI scheme covers a wide variety of drone components including airframes, propulsion systems (engine and electric), power systems, batteries and associated components, launch and recovery systems, Inertial Measurement Units, Inertial Navigation Systems, flight control modules and ground control stations and associated components. In addition, communications systems (radio frequency, transponders, satellite-based etc.), cameras, sensors, spraying systems and related payload apart from  'Detect and Avoid’ systems, emergency recovery systems, trackers among others and other components critical for safety and security are also a part of the PLI scheme.

In an attempt to boost MSMEs and start-ups for the manufacture of drones and their parts, the annual sales turnover have been fixed at a nominal level of Rs 2 crore (for drones) and Rs 50 lakh (for drone components). This will allow widening the number of beneficiaries. The eligibility norm for non-MSME companies in terms of annual sales turnover has been kept at Rs 4 crore (for drones) and Rs 1 crore (for drone components).

"The PLI scheme will put Rs 120 crore in the hands of domestic manufacturers over the next three years. This along with the liberalised Drone Rules, 2021, released on August 25 this year will put India on the path of becoming a global drone hub by 2030," Amber Dubey, Joint Secretary, Ministry of Civil Aviation told MoneyControl.

“The incentive when calculated together with components and IT support will have a cascading benefit effect on the end product,” said Sharma of Drone Destination. He added that the government’s estimates for the Rs 1500-crore drone industry’s revenues over 3 years works out to about 8 per cent incentive “which is pretty encouraging.”

“More than the incentive it is the importance and urgency that the government is demonstrating to indigenise this industry as soon as possible,” said Sharma.

Industry players are also optimistic that the new Drones Rules and PLI will help in the generation of jobs leading to long term benefits.  Swapnik Jakkampudi, Co-Founder, Skye Air Mobility said, “At a time when many industries, from hospitality & tourism to retail shopping have come to a standstill and job losses on a rise, the drone  sector is one  sector that has been consistently picking up and creating jobs.”

“The annual sales turnover of the drone manufacturing industry may grow from Rs 60 crore in FY 20-21 to over Rs 900 crore in FY 2023-24. The drone industry is expected to generate over 10,000 direct jobs over the next three years. The drone services (operations, logistics, data processing, traffic etc) is far bigger in scale. It is expected to grow to over Rs 30,000 crore in the next three years. The drone industry is expected to generate over five lakh jobs in three years,” said Kumar of Global Alternative EV & Drone.

Industry players also feel that with these new policies the prices of drones are set to come down over the next three years.

“At a very simple level, it might seem that this will only reduce the prices of drones by up to 20 percent but the impact will be much deeper. The government expects Rs 5000 crore of investment to pour into the sector in the coming year, which would be encouraged by the incentives. A significant portion of this would go to R&D given the current stage of the industry which would pave the way for numerous cost-cutting developments that could greatly reduce the final price of the drones in a 3-5 year time horizon,” said Jain.

The government's move was welcomed by the Drone Federation of India. An incentive of 20 percent to the manufacturers of drones and developers of drone-related software signifies that the government shall leave no stone unturned to support the drone industry, it said.

Smit Shah, Director, Drone Federation of India, told Moneycontrol that the thresholds for companies to be eligible for the government's PLI scheme for drones are also encouraging as it will promote research and development of drones in India. Shah said the government can take a few more steps towards the development of intellectual property to further boost the drones industry.

A senior analyst from Goldman Sachs observed there is a lot of scope for the American and Indian defence industries for co-production and co-development drones in India.