By Shefali Malhotra and Shubho Roy
National Institute of Public Finance and Policy, New Delhi, India
Image Attribute: Ahmedabad based Z-Axis Unmanned Machines's Octocopter Drone "Yantra" displayed at Ahmedabad Management Association's Campus / Source: Rahul Guhathakurta
The two vital raw materials that went into the Indian software miracle was access to computer hardware and access to data communications. The first became possible when customs tariffs were removed, and the second became possible by opening up to private and foreign telecom companies. When thinking about another new industry, drones, it's useful to imagine: What would have happened to the Indian software industry if the coercive power of the State was deployed to ban computer usage by civilians? Registering to fly a drone in Nigeria costs $4,000 and $5 in the US. So far, India has banned all civilian use of drones, i.e. the cost of registration to fly a drone in India is much higher than that in Nigeria.
Drones have a variety of civil/commercial applications. In areas like crop insurance, soil mapping, disaster, conservation, traffic management, crowd management, photography and filming, drones may be a game changer. All these applications are hobbled by the ban.
The DGCA has come up with draft regulations which is designed to allow civilians to use drones. These draft regulations are not accompanied by an analysis of the costs of complying with the regulations. Moreover, these regulations do not seem to consider the needs of a nascent industry. Consequently, drone applications will remain extremely expensive in India. Capabilities in technology flow from a vibrant user community which demands increased sophistication; as long as India does not avidly use drones, we will not become designers and makers of drones. India's expertise in software and technology gives India an edge in this important emerging area. However, if the regulatory regime is hostile to the development of technology; India will soon fall behind.
One example of an application of drones: Crop Insurance
Insurance depends on verifying two facts. Did the insured event actually occur? And how much was the damage (monetary terms) to the insured? Today, when a Haryanvi farmers' crop gets ruined by hail, there are two problems for the insurance company and the farmer. First, did the hail storm actually take place? India does not have accurate village/taluka level weather data. Second, how much of the crop was actually damaged by the hail storm and not removed by the farmer to inflate the insurance claim? Answering these questions in rural Haryana is not easy.
While these facts could be ascertained by sending persons called "claim verifiers/processors" to farms, it is very costly to send individuals to each insured farm on repeated visits to verify claims. As farm sizes are small, the transaction costs of settling insurance claims become very high. This in turn makes insurance commercially unviable for insurers or the premium is too high for farmers to pay.
Drones can change this industry for the better and make crop insurance much cheaper for the insurance company and the farmer. Here is the arrangement that can be used.
When the farmer makes the initial purchase of insurance, an agent of the insurance company would map the latitude-longitude of borders of the farm. The insurance company can charter high altitude drones to collect accurate weather data. Lower flying drones can take high resolution pictures of the farm right after an insured event (hail storm) takes places. These photographs can allow an insurance company to establish if the hail storm actually damaged the crops and also the extent of damage.
Drones will be substantially faster, cheaper and probably more accurate than human verifiers. Drones can also cover much larger areas in much lesser time than individual human claim verifiers. The high quality aerial images can be processed by computers to determine whether the damage was by hail (rather than being a false claim where the crop had been harvested) and even the extent of damage. The insurance company can process the information and transmit the insurance payout directly to the farmers account. No human intervention. In future disputes about insurance claims, these high quality images can form the best evidence to determine the truth.
This is not just a hypothetical illustration. It is coming about in India.
Some other application areas
Farmers in other countries are already using drones to identify soil conditions, health of crops, watering needs, etc. Some of these drones cost less than Rs.5000 [link].
Image Attribute: Farmer in China spraying crops using a drone / Source: Ajay Shah's Blog
India has one of the lowest police to citizens ratio. Drones can increase the effectiveness of the few policemen. Common policing work like crowd management, traffic, security in large events can be helped by drones. In such areas drones are force multipliers where the Indian state can provide basic public goods like security to more citizens at lower costs. The Andhra Pradesh police has begun moving in this direction.
Any proposal to regulate must be backed by a full articulation of the underlying market failure. In the case of drones, there are two dimensions. One element of the market failure is the possibility of negative externalities in the form of harm to innocent bystanders. The other element is the possibility that drones are new weapons for committing old (IPC) crimes
Drones are aircraft without pilots and passengers. Therefore, regulations governing certification of safety for pilots and passengers are not applicable for drones. However, just like an aircraft, drones can fly over properties and persons without their consent. Badly made or badly flown drones crashing into people or property is a concern. This justifies basic safety/quality standards for drones, and some level of competence for the drone operator.
Drones can now enable a class of crimes which were previously hard to organise. Drones have fundamentally changed the nature of privacy in ones home. High walls and thick screens are no protection against snooping by a drone which could be operated by a media company, government agency or a personal enemy. Drones can also be used to carry out attacks by dispersing chemicals or mounting weapons. Drones can be used to spy on military establishments or carry out attacks on industrial/nuclear installations. While the easy answer for a lazy government is to ban drones, this is a very intrusive intervention. A better trade-off in security would be to create checks and balances which permit society to gain from applications of drone technology while avoiding the problems. A natural point of departure is the registration system for cars.
India should develop the regulatory framework for drones now. Other countries are already doing this. Delaying the process will impede innovation in drones and derail development of the drone market. India will fall behind in the global drone market. One day, when India wakes up to civilian applications, we will then be a mere importer of drone technology as this knowledge will not have spread deeply in the country.
Approach to regulation
There are three approaches to regulating drones:
1. Banning them: Prohibit the civilian use of drones. This is where we are today.
2. Regulating them: Regulate civilian use of drones to minimize the harm to others and prevent the potential misuse of drones.
3. Regulating and encouraging them: Positive interventions by the government to facilitate innovation.
This approach requires drone operators to comply with safety and security standards. At the same time, the cost of compliance should be borne in mind so as to not make investment in the drone industry un-viable. Other jurisdictions are balancing these two competing interests through a multi-pronged approach.
Risk based regulation
The riskier the drone operation, the greater propensity it has to cause harm to others. It follows that risky drone operations must have higher standards of compliance with safety and security requirements. For example, the US law creates a distinction between drone operations conducted for research or recreational purpose (in demarcated areas) and drone operations conducted for non-recreational/commercial purpose; which may fly over strangers who did not consent to drone over-flight. In the former case, the drone operator does not require US Federal Aviation Authority (FAA) approval, but must operate safely and in accordance with law. In the latter case, the drone operator requires specific authorization from the FAA. The EU and UK categorize drone operations depending on the level of risk. For example, a drone operating over the open sea is less risky than a drone operating over spectators in a stadium. In the former case, a drone operation may not require any approval but may have operational limitations, such as, the drone operator should maintain visual line of sight with the drone and the drone operation should not be conducted above 400 feet. In the latter case, the drone operation may require multiple approvals, such as, design and production approval, air worthiness approval, operational approval and proof of pilot competency.
Certain areas, like nuclear installations and ammo-dumps, are sensitive. Drone accidents in such areas may cause widespread devastation. There are other sensitive areas where any breach of the security protocol may cause a national security threat, like the border of a country. Hence, there is a need for airspace restrictions to minimise the perceived harm in sensitive areas. For example, the US FAA prescribes fly and no-fly zones based on airspace-centric security requirements. These airspace restrictions are used to protect special security events, sensitive operations, high-risk areas, etc. As an example, Raisina Hill may be classified as a restricted airspace area.
Drones as weapons
Drones may be used for criminal activity, such as a terrorist attack. Developing some standards of compliance will help minimise the risk of such criminal use. For example, drone operators in the US are mandated to display the registration number of the drone, on the drone. This enables easy identification of the drone operator in the event of a criminal activity. Singapore criminalises carriage of prohibited items, like a weapon, on a drone and discharging anything, whether gaseous, liquid or solid, from a flying drone.
Alongside these enforcement perspectives, there is a need for positive interventions by the government to facilitate drone innovation. This approach recognizes that the drone industry is in a nascent stage. The quality and pace of innovation in drones will not only depend on the players involved, but also the regulatory framework within which the innovation is taking place. These interventions may not be in the form of fiscal incentives (the most commonly used in India) but more in the nature of creating an enabling environment for the private sector to innovate and operate.
This may require a change in laws that discourage the suppliers and users of the drone industry. For example, drones actively interact with other users of airspace and should operate without causing harm to these users. To ensure this, the US FAA carries out safety studies to support safe integration of drones in the national airspace system. It may also require some institutional changes to facilitate the development of the drone industry. For example, the US FAA allocates research and test sites within the US to allow drone testing and enable development of drone technology in a safe environment.
The UK Civil Aviation Authority (CAA) supports the research and development process in the drone industry by facilitating full and open consultation with the developers of drone technology so that the CAA can provide guidance on the applicable rules and regulations. The US FAA coordinates with other Federal Agencies and the international community to designate permanent areas in the Arctic where small drones can operate 24 hours for research and commercial purposes. The US FAA has recently entered into a partnership with the drone industry to explore next steps in drone operations beyond the scope of the applicable law.
The DGCA draft guidelines is a step in the right direction. However, the guidelines leave much to be desired. India needs to move on to formulating a regulatory framework which regulates and encourages the drone industry. It has some natural advantage (expertise in software technology and IT) which may allow it to be a key player in the global drone market. However, if India squanders away the lead by not creating a conducive environment for drones, it will end up lagging behind other nations.
Minimizing the regulatory burden
There is a need to regulate the drone industry to minimize the risk of harm that it may cause to third parties. On the other hand the cost of compliance should not be higher than the profits/benefits. High regulatory cost will discourage players (especially small firms) from entering the market and will nip the industry in the bud. The draft regulations (in some places) have very high costs of compliance, without any attendant benefit to the society. This is a result of the vague language used in the draft regulations. An example of vague language increasing the cost of the compliance is the requirement of permission for low drone flights. Regulation 5.3 of the draft regulation states:
An example of vague language increasing the cost of the compliance is the requirement of permission for low drone flights. Regulation 5.3 of the draft regulation states:
the operator shall obtain permission from local administration, the concerned ADC.
The guidelines are silent on what is 'local administration'. Is it the district magistrate, local police station, local court? No one knows. It is also not clear whether you need permission from "local authorities" and "the concerned ADC" or "the concerned ADC" is the "local authority". The abbreviated term ADC is not expanded or explained anywhere in the guidelines.
Such vagueness drives up the cost of technology adoption by small firms. These firms would have to run from pillar to post to get the above "permission". Since these local authorities will also not know whether they are the right "local authorities", and lack a guidance document based on which they can to analyse applications, they will probably take inordinately long or refuse.
The draft guidelines is peppered with other technical terms, like "Temporary Segregated Areas (TSA)" and "Temporary Reserved Areas (TRA)", which are also referred to but not defined. There is also no cross-reference in the guidelines allowing a reader to find what they mean and which areas they apply to. They may be the terms of art for airlines, but such opacity hampers the large technology community who must tinker with drones.
Making regulations user-friendly
Till now, the airspace was used by a niche population, pilots. Hence, if airspace regulations were not easily available and were technical, it was not a problem. With the coming of drones, airspace will become accessible to a large section of the population from a 16 year old kid to hobbyists, researchers, companies large and small, government, etc. Airspace regulations must now become comprehensible and reader-friendly. For example, it is crucial for a drone operator to know areas where a drone can be used and areas where it cannot. The draft guidelines state that drone operations cannot be carried out in notified prohibited area, restricted area, danger area, TSA and TRA.
However, the draft guidelines do not provide much guidance on what constitutes these areas or even where one can find these areas. Although, the regulations refer to the Aeronautical Information Publication (AIP) regarding details of these terms, the AIP is not readily accessible to the general public. In contrast, the US FAA has developed an app (B4UFLY) illustrating the fly and no-fly areas for ready reference of drone operators. Using this app, a 12 year old child can understand where to fly a drone.
Image Attribute: Screen showing no fly zones in the US / Source: Ajay Shah's Blog
Induction of drone technology into India is, at present, very costly. When authorities, processes and systems are unclear in a law, the potential cost of getting a drone permission can literally be infinite. There is no way to know which authority to apply and the authority itself does not know whether he/she has the power to grant an application. We need clearer regulations, and we need a regulatory framework to support the industry.
About the Authors:
Shefali Malhotra is a researcher at the National Institute for Public Finance and Policy, India.
Shubho Roy is a researcher at the National Institute for Public Finance and Policy, India.
They thank Sumant Prashant, Bhargavi Zaveri and Pratik Datta for discussions.
 Subtitle B, Title III of the US FAA Modernisation and Reform Act, 2012.
 EASA Proposal to Create Common Rules for Operating Drones in Europe (September 2015).
 CAA CAP 722: Unmanned Aircraft System Operations in UK Airspace: Guidance (March 2015).
 Singapore Unmanned Aircraft (Public Safety and Security) Act 2015 (No. 16 of 2015).
 Johan Hauknes and Lennart Nordgren, Economic rationale of government involvement in innovation and the supply of innovation-related services, STEP Report Series R-08 (1999).
This article was originally published at Ajay Shah's Blog on June 23, 2016.
All Rights Reserved by the Original Publisher.