India’s drone industry grows rapidly but faces critical rare-earth magnet dependency – Crypto News

A key vulnerability lies in the reliance on rare earth magnets—essential for high-performance drone motors, which India currently lacks the capacity to produce at scale, industry executives said. With China tightening export controls on these magnets, especially for defence applications, industry executives warn this could become a bottleneck in India’s goal of building a fully self-reliant drone manufacturing ecosystem.

The motors used in drones are made from rare-earth magnets, typically smaller brushless DC motors. “There are ongoing efforts to identify alternative options—both in terms of materials and designs—and to determine what can be used in place of Chinese-sourced rare earth magnets,” said Sai Pattabiram, founder and MD of Zuppa, a drone-tech startup. Garuda Aerospace invested in the company this year, and it is also backed by MapmyIndia.

“The drone industry hasn’t been drastically impacted yet, but the repercussions are likely to surface soon. That said, solutions will be pursued,” he added. Zuppa says that 80% of their drones are indigenously developed.

Government support

Currently, India is home to 515 drone-related companies, with 263 focused specifically on component manufacturing. In terms of funding, drone startups secured $108 million in 2024 and have already raised $39 million in 2025, according to Tracxn data. India is also set to roll out a $234 million incentive scheme aimed at boosting domestic production of drones for both civil and defence use, according to aReutersreport. Moreover, the production-linked incentive (PLI) scheme, along with initiatives like the defence ministry’s iDEX and Technology Development Fund (TDF), has created a fertile ground for companies to invest in R&D and ramp up manufacturing.

Drone companies interviewed by Mint echoed the sentiment that these schemes are not merely financial boosts, but strategic signals that India is committed to building a globally competitive drone ecosystem.

Yet, India’s reliance on foreign suppliers—particularly for magnets—has emerged as a serious issue.

“In India, most motors used in drones are permanent magnet motors, which rely on rare earth magnets. Unfortunately, there are currently no alternative suppliers for these magnets,” said Srihari Mulgund, partner and New-Age Mobility leader, EY-Parthenon.

“There is currently no domestic source for drone-grade magnets in India. We need to start figuring this out, especially given the current situation,” he said. With defence applications flagged by foreign suppliers, access to these critical parts becomes even harder. “If the end use is defence-related, then suppliers—especially from China—won’t ship the parts. That’s a serious roadblock. You’re essentially stuck if the supplier flags your application as defence,” Mulgund added.

In June, China issued six-month export licenses for select rare-earth materials following trade talks with the US, but continued to block exports of magnets intended for defence use, maintaining restrictions on military-grade components. “Even automotive companies are struggling to secure these magnets—so how can drone companies expect to fare better?” Mulgund said.

Rare-earth alternatives

Currently, there is no viable recycling mechanism, and substituting with ferrite magnets or soft magnetic composites is not feasible, he added. These alternatives do not offer the same performance characteristics—such as magnetic strength, weight efficiency, or thermal stability—required for high-end drone applications.

Moreover, manufacturers don’t stock large inventories. “Demand is relatively low, as drones aren’t high-volume products; much of the production is order-driven. Companies typically receive an order first and then procure parts, operating largely on a just-in-time basis,” Mulgund said.

Substitutes like ferrite magnets and soft magnetic composites exist but offer significantly lower magnetic strength, making them unsuitable for drones that require compact, high-efficiency components, according to Mulgund.

Yet investor appetite is evolving. As localisation deepens and strategic relevance grows, long-term capital is beginning to flow in.

Recently, Raphe mPhibr raised $100 million, the largest fundraising effort in India’s drone sector to date. However, CEO Vivek Mishra clarified that the funding isn’t for a single product but will go toward expanding both R&D and manufacturing capacities—it is not tied to a specific product like drones.

The startup started in 2017 with a modest 2,000-square-foot research space. Later, it scaled up to a 100,000 sq ft integrated research and manufacturing facility, which has now expanded to a 650,000 sq ft facility.

The company serves over 10 Indian government clients, including the Army, Navy, Air Force, and armed police forces. Mishra said that the company has sold over 400 drones in the past 12 months alone.

On the rare earth magnet front, Mishra said the company has been actively working with authorities and advocating for indigenous manufacturing. “Things have been moving, but they’ve picked up pace over the last couple of months. We are now setting up local manufacturing for these magnets as well. For a few months, there might be certain problems—but it’s solvable,” he toldMint.

Defence capabilities

“There’s growing investment in drone manufacturing in India, but there’s no magic bullet—you can’t just pump in money and expect startups to suddenly make everything indigenous,” said Pushkar Singh, co-founder of investment firm Tremis Capital. “The government is now focusing on manufacturing simpler, less complex components locally, as making high-precision components requires machining expertise we currently lack.”

Less complex components—such as frames, casings, or basic assemblies—are easier and quicker to manufacture compared to high-precision components, which demand advanced machining skills, tighter tolerances, and specialised equipment India is still developing.

He added that while Indian startups are unlikely to make missiles or tanks, drones represent a strategic sweet spot, especially with rising demand in modern warfare. “Modern warfare is shifting towards drones. The government wants to reduce dependency and boost exports. Many smaller countries can’t afford fighter jets or missiles, but they can afford drones. That creates massive export potential for Indian startups.”

Mumbai-based IdeaForge says it has already built a fully proprietary autopilot stack—meaning all flight control software and systems have been developed in-house, without using any third-party or open-source code. “We have written the software for our autopilot from the ground up. The PCB (printed circuit board), which connects and powers key electronic components, is also our own design—and we ensure that microcontrollers (chips that control drone functions), don’t come from geographies of concern (countries that may pose security or trade risks),” said Ankit Mehta, co-founder of IdeaForge. He added that, depending on the product, their drones are around 70% indigenously built.

On rare earths, Mehta said, “It’s not a bottleneck yet—the volume drones need is small. But the supply chain is about to get tested.” While software development timelines can be compressed, “hardware quality takes 1.5–2.0 years to build,” he added.

US, Europe, Japan, Australia, and India have already begun allocating significant resources to rebuild rare-earth supply chains and reduce their dependence on China. Australia’s Lynas Rare Earths has ramped up production, while the US has designated rare earths as critical minerals and is channelling funding into domestic mining and refining. Globally, countries are also investing in recycling technologies to recover rare earths from electronic waste and advancing R&D to develop magnet alternatives and reduce overall rare-earth usage in high-tech applications.