India has prohibited the import of drones, effectively shutting down a growing market for the world's largest drone manufacturer China's SZ DJI Technology Co. and encouraging a nascent domestic sector to scale up production.

According to reports from last year, this particular Chinese drone company was among those eight firms which were added to an investment blacklist by the United States.

As reported recently, according to an order issued by India's Directorate General of Foreign Trade, the import of some drone components will be permitted without prior approval. The government also reportedly said that drones used for research and development, defence, and security would be exempt from the prohibition.

As the pandemic and global trade tensions increase the need to diversify supply chains and avoid risk, India becomes one of the numerous countries around the world looking for alternatives to China for products and components. Meanwhile, the relationship between India and China became sour due to the border dispute.

Earlier, India loosened rules on the use of drones, making it easier to obtain licences and allowing bigger payloads, potentially allowing the machines to be used as autonomous flying taxis. Under Prime Minister Narendra Modi's $20 billion strategy to entice the world's biggest brands to build their products in the country and export them around the world, India will offer $16 million (over Rs 120 crore) in incentives to drone makers.

After the Covid-19 hit India, oil refiner Bharat Petroleum Corp. began flying drones over vast swaths of land to monitor worker conduct and guarantee they were adhering to social-distancing guidelines. Additionally, SpiceJet Ltd. announced in March 2020 that it would employ drones to carry medical and necessary supplies, as well as e-commerce merchandise.

As the idea of drone technology begins to gain more popularity in the country, RattanIndia Enterprises Ltd., a local drone manufacturer, said that India's move will aid in the country's transformation into a drone manufacturing hub. According to the corporation, the new regulations will improve supply chain operations, inventory management and fund management efficiency.

DJI

Last year in December, the United States Treasury Department announced that it has imposed investment restrictions on several companies, including DJI, due to their actions in enabling human rights violations against China's Uyghur Muslims in Xinjiang and other ethnic and religious minorities.

As reported earlier, in 2020 DJI was added to United States Commerce Department’s Entity List, which means they can't acquire or import American items or technology without special authorisation. In this case, the top Chinese drone maker stated that it had "done nothing to justify being placed on the entity list" and added that it was considering steps to ensure that its customers, partners and suppliers are treated fairly.

However, in February this year, the Washington Post reported that DJI hid its Chinese government funding while stating that Beijing had not invested in the company.

After reviewing company reports and articles posted on the sites of state-owned and -controlled investors, as well as analysis by a video surveillance research group IPVM, it was found that in recent years, four Beijing-owned or governed investment entities have made investments in DJI, which is a leading supplier of drones to the American law enforcement.

The Pentagon previously warned that the Chinese drones pose a national security threat, citing “an increased awareness of cyber vulnerabilities” in the aircraft.

According to IPVM, which first exposed some of the financing links between DJI and Chinese state investment funds, the company is not publicly traded and its full list of investors is not available due to its Hong Kong ownership structure, highlighting the broader challenges that investors and governments face in uncovering links between private Chinese tech firms and Beijing.