India drone focus: Market cheers policy regime while takeover fears stalk start-ups


The agriculture drone sector in India is emerging from a
protracted policy vacuum, with recent regulatory momentum affording
the industry rapid expansion into segments such as agrochemical
spraying and seeding activities. Among other industries, the
agriculture sector has benefited the most from a largely
favourable, albeit still evolving legal framework involving the use
of drones, and the resultant expansion in market access.

Crop Science Market Reporting has been closely tracking the
policy movements in this sphere and has analysed several factors
influencing the domestic agriculture drone industry. The findings
are based on interactions with stakeholders, visits to drone
research and development centres, and participation in field
demonstrations.

Government estimates place the value of the drone manufacturing
industry in India for 2020-21 at Rs 600 million ($7.6 million at
the current rate). The estimates anticipate the value surging to Rs
9,000 million in 2023-24 ($114.1 million).

Manufacturing push

Policy deliberations in the aftermath of the Covid-19 pandemic
have focused on safeguarding industrial supply chains from
unforeseen disruptions, with the government pursuing a drive to
align manufacturers with its plans for insulating supplies from
foreign headwinds. The administration has taken a bullish stance on
specialty manufacturing, and the nascent agriculture drone industry
is being aided by a regime of subsidies and financial
incentives.

Since the approval of the government’s production linked
incentive (PLI) scheme late last year, the drone industry has been
riding the favourable tide to implement enhanced localisation. The
system ensures that the sector receives a preferential 20%
incentive, determined on the basis of value addition, that is to be
calculated on annual sales revenue from drones and allied
components by setting aside the purchase cost of such products. It
covers a broad range of drone essentials and has piqued the
interest of players, with a number of entities undertaking
specialised operations such as forging of carbon fibre-based
airframes in-house.

While the PLI scheme covers critical drone parts such as
airframes, engines, batteries, navigation and communication
systems, cameras, sensors and sprayers, the trend of domestic
production has expanded to advanced hardware and software as well.
Industry observers anticipate the development presenting businesses
with considerable cost advantage when compared with employing the
services of contract manufacturers situated abroad.

Although significant fund infusions have been carried out to
incorporate technologies such as artificial intelligence (AI) and
machine learning into drones, many manufacturers are upbeat about
recouping their investments within a few years by leveraging
economies of scale, especially as more farmers come onboard to use
the new technology. Furthermore, efforts are under way to localise
the production of minute components, including semiconductors and
microchips, so as to sequester the industry from issues such as the
ongoing global shortage of semiconductors.

The end-to-end approach involves building most parts of a drone
in-house or through national suppliers, while only highly
specialised components such as graphic modules and imaging sensors,
among a few others, are sourced from foreign players.

On the computing side of things, open-source operating systems
such as Android and Linux have found favour with developers, who
have been coming up with smartphone applications and drone
controllers in Indian languages to make the most of an untapped
market.

Institutional funding

While the civilian use of drones in
India is regulated under a strict set of guidelines, the idea of
using the technology in agriculture had gained traction over the
past couple of years with the domestic agrochemical industry urging
the government to design a policy. Now that an initial regulatory
regime is in place, many of the businesses testing the waters are
established Indian players that already service sectors such as
mining, surveillance and law enforcement, and defence.

While establishing greenfield drone facilities that involve the
acquisition of land and procuring even basic equipment to start
shop are extremely capital intensive, the national budget published
in February laid down funding arrangements for start-ups and rural
enterprises to boost the sector. The funding will include blended
capital raised under a co-investment model through the country’s
National Bank for Agriculture and Rural Development (NABARD), which
is an apex regulatory body for overall regulation of regional rural
banks and apex cooperative banks in India.

To drive adoption of the new technology, guidelines under the
government’s “sub-mission on agricultural mechanisation” have been
amended to provide up to 100%
of the cost of agricultural drones, or Rs 1 million ($12,680),
whichever is less, as a grant to relevant state-run authorities.
Farmer producer organisations (FPOs), on the other hand, are to
receive up to 75% of the cost of drones as grants, while a
“contingency expenditure” of Rs 6,000 ($76) per ha is to be handed
to implementing agencies that wish to hire drones, instead of
making outright purchases. The Ministry of Agriculture and Farmers’
Welfare anticipates the move enabling such entities to undertake
“large-scale” on-field demonstrations of the technology.

Furthermore, existing custom hiring centres under FPOs and rural
entrepreneurs are eligible to receive 40% of the basic cost of
drones and its attachments, or Rs 400,000 ($5,072), whichever is
lower, to purchase drones for providing agricultural services. The
Ministry highlights that subsidised procurement will enhance the
affordability of the technology, besides “significantly”
encouraging domestic production of drones.

The average cost of an agricultural drone in India varies from
Rs 800,000 ($10,144) to Rs 1 million ($12,680), although prices
could reach as high as Rs 1.5 million ($19,020) with added
functionalities and options.

Takeover fears

The Indian market has long been in the crosshairs of global
agrochemical giants vying to expand their digital agriculture
offerings, and with the market opening up, several new businesses
are wary of unequal competition from established rivals. Many
start-ups feel that such players enjoy the advantage of having
fully developed digital platforms that can be offered as trials to
woo clients already using their agrochemical offerings, adding that
they leverage economies of scale, the likes of which would take
years for smaller players to develop.

The marginal businesses also fear that global firms could engage
in predatory pricing and eliminate competition by offering services
at rates that the smaller players would find hard to match.

While the notification of the drone rules raked in significant
investments in the space and some new players are flush with cash,
an ongoing funding winter across the Indian start-up ecosystem has
complicated matters. Many anticipate the funding freeze extending
to the drone sector, driven by weak macroeconomic fundamentals in
several markets, and exacerbated by Russia’s ongoing invasion of
Ukraine. Consequently, cash burn could emerge as a serious issue
for the start-ups as they wait for the storm to blow over.

Industry watchers anticipate these concerns spurring
consolidation in the space, observing that it has already been set
afoot with many global firms approaching Indian businesses for
controlling stakes or outright acquisitions. With new funding hard
to come by, reports suggest that some of the smaller players have
been compelled to bite the bullet. As a case in point, Indian
diversified business conglomerate Adani Group’s (Ahmedabad)
subsidiary, Adani Defence Systems and Technologies, acquired a 50% stake in
Bengaluru-based drone business General Aeronautics in a cash deal a
little over a month after the Ministry issued an interim two-year approval for
drone-based spraying of almost all pesticides registered in the
country.

Where things stand

India released a standard operating procedure (SOP) involving the use of
drones for the application of pesticides in agriculture, forestry
and non-cropped areas in December 2021. This was followed by an
approval to spray 479 formulations containing single active
ingredient as well as combination products in April this year.

The rules require operators to abide by existing regulations,
including obtaining a unique identification number (UIN) from the
Indian aviation watchdog, the Director General of Civil Aviation
(DGCA), besides ensuring that the drone hardware and firmware are
compliant with the latter’s Digital Sky platform. An
unmanned aircraft operator permit (UAOP) is to be obtained in case
the operator intends to deploy the drones commercially. Precautions
to be implemented include the calibration of the spray system to
ensure optimum nozzle output, marking of proposed treatment areas,
setting up of buffer zones between drone treatment and non-target
crops, and confirming the presence of water sources in the vicinity
of treated areas, among others.

The SOP notes that the drones must include features such as
“return to home” (RTH) on empty tank and be able to resume the
mission from the point where RTH was engaged. Furthermore, it
mandates that drone operators electronically submit spray
monitoring data to India’s Central Insecticide Board &
Registration Committee (CIB&RC) within seven days of
undertaking spraying operations.

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Posted 18 July 2022 by Akashpratim Mukhopadhyay, Senior Journalist, Crop Science Market Reporting, S&P Global Commodity Insights





This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.

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