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Is Sky The ‘Only’ Limit For Drone Startups In India?

Is Sky The ‘Only’ Limit For Drone Startups In India?

Drone startups account for a mere 2.26% of total deeptech startup funding in India

The total addressable market size for drones in the Indian construction sector stands at $4.14 Bn

Inc42 DataLabs’ “Drone Technology: India Opportunity Report 2019” decodes the opportunities and challenges for drone startups

Drones have grown from being quirky gizmos to a real utility from a recreational and commercial point of view. While most consumers know of use-cases such as drones with action cameras or drones for security, ‘Unmanned Aerial Vehicles’ are also being used for tasks such as deliveries, providing essential services in war-torn countries or in places hit by natural calamities.

Drones will soon also beam the internet from the sky and are being used for mapping and land survey too. And a lot of this is being done through the innovation of drone startups in the Western markets. India isn’t far behind other markets in terms of drone applications. Indian Railways is using drones for 3D mapping and surveillance of railway tracks, the Power Grid Corporation of India has deployed drones at the Ballia-Bhiwadi high-voltage direct current line and the Pune substation for surveillance and monitoring. But these projects are just the tip of the iceberg when it comes to the opportunity for drone startups in India.

While public institutions and companies have been able to use drones for official purposes for a while, there’s been deeper penetration of drones thanks to consumer brands such as China’s DJI or Parrot. Another boost for drone adoption by businesses and consumers came in the form of the national Drone Policy 2018. The policy allowed citizens and startups to begin drone operations under certain conditions. All of this has given drones a major push by consumers, startups, conglomerates and government agencies.

The Stockholm International Peace Research Institute reported that between  2010 to 2014, India was the second largest importer of drones responsible for 13.2% of the global demand. Despite the growing demand for drones in India, the market penetration of homegrown drone startups is still not noteworthy.

Among the 50 drone startups launched in India, only 12% or six are funded. The total funding raised by these startups is a mere $16.56 Mn (raised between 2014-2018), which makes up a mere 2.26% of the total $733 Mn invested in the deeptech sector during the same period. The low proportion of funded startups and the relatively small share of the funding amount signals mismatched market confidence showed by drone entrepreneurs and investors.

However, certain sectors are a major growth opportunity for drones over others, under the existing market conditions. Sectors such as agriculture, defence and construction offer a huge market for drone startups in India, as detailed in the Inc42 DataLabs “Drone Technology: India Opportunity Report 2019”.

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The $1 Bn Drone Opportunity In Agriculture

The Indian agriculture industry which till date contributes 44% to the total employment in India, has a total addressable market of $1 Bn for drones or drone-based applications. The primary application is towards operations such as crop surveillance, soil monitoring and fertilisation. Given that the number of small and marginal size farming units is much larger relative to large units, the drone opportunity is much higher for the former group.

The scale is clear when you consider that small and marginal size farmers account for 75% of the total drone market opportunity, whereas semi-medium, medium and large size farmers make up just 25% of the total $1 Bn opportunity projected till FY 2020.

But there are greater challenges for the larger market. In addition to being a tech adverse segment, the small and marginal size farmers are also very price-sensitive and could find the procurement cost of drones to be relatively higher than existing solutions. These would eventually be excluded from the addressable market in the short-term, though the proliferation of technology and the ensuing affordability wave in the drone sector could add them back in the longer term.

The exclusion of small and marginal size farmers from the picture will leave the total addressable market for the application of drones at $250 Mn by the financial year 2020. So addressing the needs of this segment is crucial at this time for drone startups.

Read the detailed analysis on drone applications in the agriculture segment the Inc42 DataLabs ”Drone Technology: India Opportunity Report 2019”.

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The $4.14 Bn Opportunity In Construction

Out of 98K registered construction companies in India (MCA records) with 4.5% being public, the construction industry is one of the biggest economic success stories of India. Within this industry, the total addressable market for drones is $4.14 Bn, out of which 70.25% ($2.90 Bn) is driven by the small pool of publicly-listed construction companies, with the rest of the 29.75% or $1.23 Bn being offered by private limited companies who might be potential drone customers.

The demand for drones in the construction business is primarily driven by applications such as pre-construction mapping, surveillance and monitoring of ongoing projects and for topographical surveys. With initiatives such as Smart Cities and Make in India, as well as mega construction projects in Tier 2 and 3 cities, the construction industry is also expected to attract major investments, including high volume FDI as 100% FDI is allowed through the direct route in this industry.

Drone Regulations 2.0 Expected To Fill Up The Policy Gap In India

Besides the Drone Policy of 2018, the government is looking to address one major issue which is hindering the optimal applications around drones. For instance, it limits the usage of drones beyond the visual line of sight, which basically means that a person is only allowed to use a drone as long as it is visible to them.

This issue makes it impossible for companies operating in logistics, ecommerce and hyperlocal space, which as per Inc42 DataLabs data poses a market opportunity worth $161 Mn by FY 2020.

Despite the demand for futuristic technologies in India, the deeptech sub-sectors such as drones, artificial intelligence, machine learning and Internet of Things (IoT) have failed to make a deep impact in the domestic market in terms of applications, innovation or even companies that are poised to become unicorns. This can be primarily attributed to the lack of investment inflow in startups operating in these sub-sectors.

The lack of funding makes it harder for these startups to compete with their foreign counterparts who have already reached Indian shores and are launching products in the Indian market thanks to their bigger capital.

Another significant reason for this is that the brand value of established foreign players is relatively higher than the Indian startups,  which provide the forer with an added advantage during decision making to tailor their products for a better market or consumer fit.

One fine example in this context is the preference given to the international drone makers like DJI and Parrot by Indian customers when they decide to purchase a drone while Indian companies such as Idea Forge, Quidich or Indrones are not all that popular among users. Even the Indian military is widely using foreign defence partners including the United States and Israel for procuring UAVs for defence. 

In our recently released report under the title “Drone Technology: India Opportunity Report 2019”, we have presented a detailed analysis on the companies, investors and startups working in the drone sector  The report also provides a comparison of regulations and VC funding in drone startups in USA, China, Israel, the UK and other global markets, along with an overview of the major challenges in the Indian market.

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Author

Sandeep Singh

Inc42 Staff

Sandeep is a research analyst at Inc42 DataLabs. As a market researcher, he has a keen interest in blockchain and public policy.

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https://inc42.com/datalab/lagging-drone-policy-in-india-leaves-commercial-drone-usage-in-limbo/
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