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Representation to MoCA: PLI scheme for drones and drone components

  1. Backdrop

Shortly after reforming the Drone Rules, 2021 (Rules), the Ministry of Civil Aviation (MoCA) approved the Production-Linked Incentive (PLI) scheme for drones and drone components. The PLI scheme has been approved in the backdrop of the MoCA recognizing the importance of drones in all sectors of the economy, employment, and economic growth. Through PLI scheme, the MoCA has allocated INR 120 crores spread over three financial years starting from FY 2021-2022, for drones and drone components. To provide a boost to drone and drone component manufacturing, the Government has made an exception for the drone industry and has kept the PLI rate constant at 20% for three years.

  1. Key takeaways from the PLI Scheme

We summarize the key features of the PLI scheme below:

  1. Eligibility norms: All manufacturers of drones in India are eligible for the scheme. The government has kept eligibility norms in terms of annual turnover, thereby, categorizing the eligible drone and drone component manufacturers into:
  1. Indian MSME and Start-ups: Eligibility norm for start-ups and MSMEs in terms of annual sales turnover has been kept at INR 2 crore for drones, and INR 50 lakhs for drone components.
  2. Indian Non-MSME companies: Eligibility norm for non-MSME companies in terms of annual turnover has been kept at INR 4 crore for drones and INR 1 crore for drone components.
  1. Incentive cap: The incentive for manufacturers of drones and drone components has been capped at 20% of the value addition made by them. This shall be calculated as:

Value Addition = Annual Sales Revenue from drones & drone components (net of GST) – purchase cost of drone & drone components (net of GST)

  1. Project Management Agency: The PLI scheme would be implemented through a Project Management Agency (PMA). The PMA would be appointed by the MoCA. The PMA shall be responsible for appraisal of applications and verification of eligibility, examination of claims eligible for disbursement of PLI etc. It would broadly provide implementations and managerial support to MoCA.

 

  1. NASSCOM’s representation to MoCA

In this context, NASSCOM wrote to MoCA highlighting certain concerns with the PLI Scheme. Key takeaways from our concerns are:

  1. Product Linked Incentive scheme
  1. Eligibility for new investors: The PLI scheme does not provide clarity on the distinction between manufacturers and new investors while the eligibility criteria for both remains the same.

The lack of distinction between the manufacturers and new investors may lead to interpretational challenges on operationalisation of the PLI Scheme. We recommended the MoCA to either not to carve out this exception for new investors or to provide adequate guidance on the eligibility norms for new investors and the need for their inclusion in the PLI scheme.  

  1. Eligibility for developers of software for drones and drone components: It is commendable that developers of software for drones and drone components are eligible for the PLI scheme (Clause 5.4). Clause 3.2 specifies that the “manufactures of the following drone components shall be eligible, subject to compliance with other requirements herein:
  1. Airframe, propulsion systems (engine and electric), power systems, batteries and associated components, launch and recovery systems;
  2. Inertial measurement unit, inertial navigation system, flight control module, ground control station and associated components;
  3. Communication systems (radio frequency, transponders, satellite-based etc.);
  4. Cameras, sensors, spraying systems and related payload etc.;
  5. ‘Detect and avoid’ system, emergency recovery system, trackers etc., and other components critical for safety and security.”

Per our reading of the PLI scheme, it is not clear from Clause 3.2 how the eligibility norms, which currently are designed to apply on manufacturers of drones and drone components, will apply on developers of software for drones and drone components. For example, drone mapping software, drone photogrammetry solution, and drone fleet management software amongst others form part of software for drones.

Therefore, we recommended that the eligibility norms for developers of software for drones and drone components be specified in the PLI scheme itself. This will provide clarity to developers of software for drones and drone components and widen the ambit of the scheme.

  1. Manufacture of drone components: Clause 3.7 of the Scheme requires component manufacturers to establish that the “drone components for which PLI is claimed is used solely in the manufacturing of a drone.”  The provision, however, does not provide any guidance for component manufacturers to establish this.

We recommended a self-certification mechanism for drone component manufacturers to establish that the PLI is used solely in manufacturing of drones.

  1. Operationalisation of Project Management Agency and release of guidelines: The PLI scheme would be implemented through a Project Management Agency (PMA) appointed by the MoCA. Clause 11 of the PLI scheme provides for detailed guidelines for effective implementation of the scheme.

We recommended that the guidelines be notified within 30 days from the notification of the PLI Scheme and PMA be appointed in a timely manner for effective operationalisation of the Scheme.

  1. General challenges
  1. Lack of talent/ skill development: In our industry consultation, the lack of talent in the drone ecosystem was emphasised by all participants. While the impetus has been on the development of the industry, there is a dearth of qualified drone pilots and Unmanned Aerial Vehicle (UAV) engineers. The Drone Rules, 2021 address this challenge to an extent by regulating remote pilot training organisations (Chapter VII, Drone Rules, 2021).

We recommended that the focus should be on attracting talent in this segment by offering cost-effective diploma or certification courses on pilot training at Remote Pilot Training Organisations.

  1. Awareness of Drone Rules, 2021 to law enforcement, local authorities, and police: The lack of adequate information on liberalised Drone Rules, 2021 leads to challenges on ground for drone pilots and companies. In our consultation, it was suggested that local authorities, law enforcement and police must be made aware of the provisions of the Drone Rules, 2021.

We recommended that regular training sessions be organised by the MoCA in collaboration with states to ensure that the public authorities, law enforcement and police are aware of the Drone Rules, 2021.

We are closely tracking the developments in the drone ecosystem in India. For more information and policy suggestions, write to apurva@nasscom.in.

 

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