The Indian Drone Industry’s Shift Away From Manufacturing to Software

For much of the past decade, India’s drone ambitions have been framed around manufacturing. Government incentives, import restrictions and procurement programmes have focused on building domestic production capabilities and reducing dependence on foreign suppliers. Those efforts have helped create a rapidly expanding ecosystem of drone startups, defence contractors and technology companies serving both civilian and military markets. 

Indian drone companies raised $178 million in equity funding in 2025, a 45% jump over the same period in 2024, according to data from Tracxn, suggesting investor conviction is moving in step with the technology argument.

Yet, conversations with founders, investors and industry experts suggest that the next phase of growth may be defined by a different set of capabilities altogether.

While hardware remains essential, companies increasingly view navigation systems, autonomous decision-making, secure communications, encryption technologies and computing architectures as the technologies that will ultimately determine competitive advantage. The focus is gradually shifting from building drones to building the software that allows autonomous systems to navigate, communicate, coordinate and survive in contested environments.

Sai Pattabiram, Founder of Zuppa Geo Navigation Technologies, believes the industry is already undergoing that transition.

“The drone is essentially a flying computer,” he says. Once the human pilot is replaced by electronics and onboard intelligence, the aircraft becomes a computing platform whose effectiveness depends on the software controlling it. In his view, the autopilot and the underlying computing architecture are more strategically important than the airframe itself.

That perspective is increasingly finding support beyond startup founders.

Sadhika Agarwal, who leads investments at Equirus InnovateX Fund, says recent conflicts have demonstrated that “low-cost, software-defined drone systems could be decisive battlefield assets”. The growing importance of autonomy and software, she argues, has also exposed the risks associated with dependence on concentrated supplier bases and created opportunities for countries capable of building alternative technology stacks.

The Value is Moving Up the Stack

The first wave of India’s drone ecosystem was built around manufacturing capability. Companies focused on airframes, sensors, batteries and communications equipment while policymakers prioritised domestic production and localisation.

Today, many founders argue that the industry’s centre of gravity is moving higher up the technology stack. Yet, the component data tells a more sobering story: as of 2024, roughly 85% of drone components, autopilots, sensors and GPS units are still imported, and domestic suppliers primarily provide mechanical parts rather than electronics, according to industry data compiled by Nexdigm. The gap between where value currently sits and where the ecosystem aspires to be remains wide.

Bengaluru-based Zulu Defence offers one example of that shift. Founder Nagendran Kandasamy says the company differentiates itself through software architecture rather than hardware design. Instead of treating each drone as an independent product, the company develops systems that allow multiple assets to work together, share capabilities and function as a coordinated network.

One of its systems separates intelligence gathering from expendable platforms. Rather than placing expensive sensors and cameras on a drone intended for a one-time mission, those capabilities are mounted on a reusable platform that guides another asset towards its target. According to Kandasamy, the value lies in the software that enables different systems to communicate and coordinate effectively.

Warfare is Becoming a Software Problem

Recent conflicts have accelerated this shift. From Ukraine to West Asia, military planners have witnessed how autonomous systems, electronic warfare capabilities and software-driven operations can alter battlefield dynamics. In many cases, relatively inexpensive unmanned systems have challenged far costlier conventional assets.

Pattabiram argues that these developments have fundamentally changed where military advantage resides.

“If you take the West Asia war, for example, the whole game has changed to the radio spectrum, the electronic spectrum, the wireless spectrum,” he says. “It has changed to algorithm, software, and AI.”

His assessment suggests that military capability is increasingly shaped by factors that are often invisible to the public. Communications resilience, autonomous navigation, sensor fusion, artificial intelligence and radio-frequency dominance are becoming as important as aircraft, tanks or artillery.

The lesson has since been reinforced closer to home. Defence Secretary Rajesh Singh described Operation Sindoor as a “reality check” for the armed forces, saying the four-day conflict exposed specific capability gaps in electronic warfare, counter-UAV systems, and military-grade drones capable of operating in GPS-denied environments. 

Speaking on the sidelines of the Defence Tech Seminar STRIDE, organised by the Indian Army’s Southern Command in Pune on 12 September 2025, he said, “certain capability gaps were noticed [during Operation Sindoor]. These include electronic warfare, counter-unmanned systems, a stronger manufacturing base for military-grade drones that can survive in GPS-denied and contested environments, and various types of low-level radars.”

The admission is significant. It is the clearest government acknowledgement yet that the gap lies not in airframes but in the software and electronics stack that determines how those platforms perform under adversarial conditions.

The scale of that gap became visible during the conflict itself. Industry sources told Swarajya Magazine that the government’s overnight demand for drones during Sindoor was nearly ten times what the domestic industry could supply, a shortfall that a deeper local supply chain would have allowed to be addressed in days rather than requiring a scramble for foreign alternatives.

Cyber Security Emerges as the Next Battleground

As autonomous systems become more sophisticated, cybersecurity is becoming inseparable from operational performance.

Much of India’s public discussion around drones has focused on localisation, procurement and manufacturing. Founders building military systems, however, increasingly point to software security as an area that requires equal attention.

Pattabiram argues that vulnerabilities often emerge through software and communications systems rather than through the aircraft itself. Referring to incidents involving compromised drones, he says the industry needs to focus more on secure autopilots, trusted computing architectures and resilient communications frameworks.

“There needs to be movement beyond that,” he says while discussing the challenges posed by electronic warfare and cyber threats.

Zulu Defence has responded to similar concerns by embedding encryption and anti-jamming technologies into its products. Kandasamy says the company is using high levels of encryption and multiple layers of protection to prevent unauthorised access and reduce the risk of hostile interference.

The significance of these capabilities extends beyond individual drones. As autonomous systems become increasingly networked, a successful cyber intrusion can affect entire operational chains rather than a single platform. Protecting software, communications and control systems is therefore becoming as important as improving range, payload or endurance.

Building Sovereign Defence Technologies

The growing emphasis on software is also reshaping discussions around technological sovereignty.

In India’s artificial intelligence ecosystem, much of the public debate centres on building domestic alternatives to large language models. Pattabiram argues that greater strategic value may lie in specialised technologies, in which India can establish differentiated capabilities.

“I think we need to identify specific areas where we can truly deliver value,” he says, pointing to defence autonomy, navigation technologies and secure operating architectures as examples of areas where domestic innovation could create long-term strategic advantages.

The challenge, however, extends beyond technology development.

Shivanghi Sukumar, an AI expert and competition lawyer, notes that the structure of defence procurement will play a significant role in determining which innovations ultimately succeed. 

“The Indian government is effectively a monopsony in the defence drone market,” she says, arguing that procurement decisions can heavily influence which companies survive and scale. While operational requirements must remain stringent, she says procurement frameworks should also ensure that capable new entrants have a pathway to adoption.

Her observation highlights a broader reality facing the sector. Developing advanced software and autonomous capabilities is only one part of the challenge. Creating pathways for those technologies to be tested, deployed and scaled remains equally important. 

India’s drone industry was built on manufacturing ambitions, and those ambitions remain important. Yet, the conversations emerging from across the ecosystem suggest that the next stage of development will be defined less by airframes and assembly lines and more by software, autonomy, cyber resilience and secure computing systems.

The companies that shape the future of defence technology may not necessarily be those producing the most drones. They may instead be the organisations building the operating systems, navigation architectures and intelligence layers that determine how autonomous systems function once they enter the battlefield.