GST cut gives drones a lift, but supply chains remain a chokepoint

The move also resolves GST ambiguities between camera and non-camera drone models and aligns with the Make-in-India manufacturing goals. The GST Council put all drones under a flat 5% GST slab, removing earlier confusion where camera models faced 28% and non-camera ones 18%.

Industry executives hailed the rationalisation as a turning point but also flagged supply chain concerns that continue to mar growth.

A lifeline

“It will accelerate adoption of UAV technology in mission-critical applications like border surveillance, mapping, inspection, disaster management, and agriculture,” said Ankit Mehta, co-founder & CEO, ideaForge, a Mumbai-based listed drone company.

The revised GST framework strengthens the foundation for scalable domestic manufacturing, said Julius Amrit, COO & director, NewSpace Research & Technologies. “It enables the defence industry to invest deeply in NGMT (next-generation missions and technologies)… AI-driven autonomy, and R&D-intensive capabilities,” said Amrit.

The policy support comes at a time when drone makers are under financial strain.

ideaForge, which boosted production of surveillance and tactical systems post Operation Sindoor in May, saw weak growth in the following months. Revenue for the June quarter (Q1 FY26) plunged around 85% year-on-year to ₹12.78 crore from ₹86.4 crore a year ago, despite a ₹137-crore emergency procurement order from the Indian Army.

Zen Technologies, a maker of anti-drone tech and UAVs, also reported a 38% year-on-year decline in revenues of ₹158.22 crore in Q1FY26. Its net profit slipped to ₹47.75 crore from ₹76.8 crore in the same quarter last year.

Investors are treading cautiously amid the slow growth in the industry. “Despite our focus on manufacturing, we usually stay away from drone companies. Their revenues swing wildly since the government is their main customer—and often a delayed paymaster,” said an investor, requesting anonymity.

Others are optimistic and believe policy risk has come down because of the tax cut. “For deep-tech founders and investors, the key takeaway is clear: policy risk has come down. These reforms reflect a deliberate, structural act by the government on innovation and scale-up industries—laying the foundation for India’s next wave of technology-led growth,” said Vishesh Rajaram, managing partner at Speciale Invest, a venture capital firm.

NewSpace Research and Technologies Pvt. Ltd (NRT) is in talks to raise a ₹450-crore Series B round, led by Cornerstone Ventures, by the end of this year, Mint reported earlier, as it posted revenues of ₹96.25 lakh in FY24, down sharply from ₹103.02 crore in the previous year.

Funding in the sector reached $108 million in 2024 and has crossed $39 million so far in 2025, according to Tracxn.

India currently has about 515 drone-related firms, of which 263 focus on components. India’s drone and component manufacturing potential could reach $4.2 billion by 2025, rising to about $23 billion by 2030, according to a EY-FICCI report.

Entry-level commercial drones used for photography or basic surveying cost around ₹60,000–2,00,000, while mid-range agriculture and mapping platforms typically sell in the ₹3–10 lakh range. Heavy-lift or specialised tactical UAVs for defence can run into many lakhs or even crores, depending on payload and sensors, industry estimates suggest.

Lowering output GST to 5% cuts the tax baked into final prices and can improve margins. However, limiting input tax credit (ITC) set-offs may strain cash flows for manufacturers.

Satyabrata Satapathy, co-founder & CEO, BonV Aero, said lower GST eases the tax burden on components, bringing down the final cost of making drones. “GST coming down to 5% will help because, in the end, you are reducing the overall input-to-output cost,” he said.

Supply chain is the choke point

For all the cheer, imported critical components remain a bottleneck. Industry executives said supply bottlenecks—especially in rare-earth magnets, motors, chips and sensors—could blunt those gains, squeezing margins and delaying deliveries.

“It is essential to have the DC motor in drones; we cannot go away with that. However, innovative companies are working on coreless motors to reduce rare-earth dependence. It’s still early, and each option has trade-offs, but more government support for component manufacturing is critical,” said Satapathy.

Startups are also scouting alternatives. “We are actively exploring alternative materials that can replace Chinese-sourced rare earth magnets. Many motor makers from other industries as well who are now developing for drones as well, spurred by the GST cuts and the uptick after Operation Sindoor,” said Sai Pattabiram, founder and MD of Zuppa, a drone-tech startup backed by Garuda Aerospace and MapmyIndia.

A $234 million incentive plan is also in the works to spur domestic drone production for civil and defence use, Reuters reported. Alongside this, schemes like the (production-linked incentive) PLI programme, the defence ministry’s iDEX, and the Technology Development Fund (TDF) are encouraging companies to step up R&D and expand manufacturing capacity.

Globally, supply chain resilience is a priority. The US, Europe, Japan, and Australia are investing heavily in rare-earth production and recycling to curb dependence on China. Australia’s Lynas Rare Earths has expanded output, while the US has classified rare earths as critical minerals and funded domestic mining and refining projects. Recycling e-waste to recover rare earths and R&D into magnet alternatives are also gaining traction.