Introduction
Unmanned aerial vehicles also famously referred to as ‘drones’ took flight way back in the mid-19th Century, when they were exclusively used for military purposes. Their scope was predominantly limited to military operations till as recently as 2010. The technological advancements over the last 10 years or so have drastically transformed the drone industry from it being limited to military operations to it becoming a niche hobby, majorly on account of it being expensive for general public. Therefore, an influx of manufacturers accessed the demand in the market and started to produce and sell cheaper recreational drones which were easy to operate without the need for adequate training. This rising intrigue for drones was further flamed by Amazon’s announcement in 2015 to use drones for delivering products in under 30 minutes. This garnered a lot of attention among those who could use drones for commercial purposes, saving both time and cost for the businesses involved. Some popular uses of drones are 3D mapping, effectuating last-mile delivery for remote areas, aerial inspections for insurance companies etc.
The market demand for drones led to a revolution which though in its nascent stage, has attracted various market players. Many players have already entered this sector or are planning to enter to get the first movers’ advantage. In this article, we will discuss the developing regulatory regime in India in relation to drones and its potential impact on investment opportunities in this space.
Current regulatory regime in India
Unlike developed jurisdictions like USA, EU etc., the applicable Indian regulations on drones are yet to reach a level of sophistication. In India, drones are currently regulated by the Directorate General of Civil Aviation (DGCA). The Ministry of Civil Aviation had recently published the Draft Unmanned Aircraft System Rules, 2020 (Rules) on June 02, 2020 which sought objections and comments from public till July 03, 2020. The Rules make an effort to enforce dedicated and detailed regulations around drone usage. The present civil aviation requirements only talk about civil remotely piloted aircraft systems which even though broadly cover various types of drones, are neither comparatively detailed nor exhaustive. It is expected that the said Rules could come in force anytime now. Once enacted, the Rules will replace the present civil aviation requirements.
The Rules open up many avenues for use of drones that were either previously closed or lacked clarity. One of the important aspects for the commercial use of drones could be the introduction of the concept of ‘Beyond Visual Line-of Sight Operation’. This introduction is essential for delivering payloads or other basic commercial operations where a drone can fly beyond the visual line of sight of the operator. However, the Rules provide that delivery of payload using a drone will not be allowed until specified by DGCA. This could mean that it is well within DGCA’s powers to allow delivery of payloads at a later date. Another aspect to take note of in the Rules, which has been carried forward from the present civil aviation requirements is the ‘No-permission, No-takeoff Policy’. Under this policy, the operator is required to compulsorily take permission from the DGCA before each flight, whether for recreational or commercial purposes. This is probably a bit restrictive with respect to drones being used over private property and could have done with some relaxations. Further, the Rules also provide for license requirements for drone ports and for various other stakeholders in the drone ecosystem, compulsory insurance requirements for drones etc.
The Rules are mostly open ended, i.e. it has been left to the discretion of the DGCA to carefully devise specific rules to regulate various matters. One way to look at this would be to consider that the regulator would be able to recognize the innovative nature and ever-changing requirements of the drone industry and legislate accordingly. However, the experience in India has seldom been positive with respect to licensing controls or delegated legislation. But, one can only wait and observe how the industry and the regulations develop over time.
Developments in the drone industry in India
It is a fact that the global drone industry has seen tremendous growth when compared to the drone industry in India. According to the Inc42 DataLabs Report, India has more than 50 drone startups and some of them have received investments aggregating to US$ 16.56 Million during the period 2014 to 2018. Also, it is worth noting that government bodies have been leading the way in relation to usage of drones during COVID-19, i.e. from using drones to spraying disinfectants to surveilling lockdown violators. Government bodies have also been floating tenders and encouraging startups to help procure drones or offer end to end solutions in relation to various projects such as digitally mapping geographical areas, mapping freight corridors and highways etc.
Possible uses of drones in an Indian context could be infinite, from them being used for delivering medicines to remote locations, planting and monitoring crops, spraying crops with chemicals, effectuating food deliveries, security surveillance, payloads etc. With the Rules to be enacted soon, we could see a jump in relation to commercial usage of drones. This could further increase the demand and kickstart a race among the drone manufacturers in India to meet the demand. Increased demand will attract much-needed funds in the Indian market for research and development. Given the availability of cheap skilled labour, India could very well become a drone manufacturing hub for exports which could eventually cater to the domestic market by customizing the product as per the local needs.
Investment potential
At present, there are various startups such as Aarav Unmanned System, Detect Technologies, Skylark Drones etc. which are operating in the drone space in India, providing professional drone solutions to enterprises. These startups have also attracted investments from several venture capital and private equity firms like GrowX, 500 Startups, SAIF Partners, 3one4 capital etc.
As discussed above, it cannot be ignored that there is huge potential of India becoming a drone manufacturing hub in the years to come. There is scope for venture capital and private equity firms to invest in the development of the drone technology which can be used for diverse applications. But for existing investors the Rules may have come as a spoiler which could disrupt their earlier envisaged business plans. It may be prudent for them to engage with the regulator to obtain clarity on the Rules and probably assist the regulator over time with framing more industry friendly policies. For investors who are on the sidelines, it may be advisable to adopt a ‘wait and watch approach’ to study the developments in India and invest at a later date.
Conclusion
It would not be incorrect to say that an investment in the drone industry could be seen as a long-term strategy to stay relevant in the market. There is no doubt that drones are here to stay, and they will, sooner rather than later, become mainstream given that they are more efficient and cost effective when compared to the technologies being used around the world right now. It will be safe to assume that drones could grow in unexpected ways just like other technological advancements in the recent decades. But, while the developed world may adopt drone technology much faster, India may take a more cautious approach before eventually allowing a more liberal approach to use of drones.
Ajay Joseph | Partner, Veyrah Law; Anshul Pandey | Associate, Veyrah Law
Views expressed above are for information purposes only and should not be considered as a formal legal opinion or advice on any subject matter therein.