But as the nascent Indian industry looks to meet the military's needs, the defence and industry figures said India's security leaders were worried that intelligence-gathering could be compromised by Chinese-made parts in drones' communication functions, cameras, radio transmission and operating software.

India in recent months has barred domestic manufacturers of military drones from using components made in China over concerns about security vulnerabilities, according to four defence and industry officials and documents reviewed by Reuters.

The measure comes amid tensions between the nuclear-armed neighbours and as New Delhi pursues a military modernisation that envisages greater use of unmanned quadcopters, long-endurance systems and other autonomous platforms.

But as the nascent Indian industry looks to meet the military's needs, the defence and industry figures said India's security leaders were worried that intelligence-gathering could be compromised by Chinese-made parts in drones' communication functions, cameras, radio transmission and operating software.

Three of these people and some of the six other government and industry figures interviewed by Reuters spoke on the condition of anonymity as they were not authorised to talk to the media or because of the topic's sensitivity. India's defence ministry did not respond to Reuters questions.

India's approach, reported by Reuters for the first time, complements phased import restrictions on surveillance drones since 2020 and is being implemented through military tenders, documents show.

At two meetings in February and March to discuss drone tenders, Indian military officials told potential bidders that equipment or subcomponents from "countries sharing land borders with India will not be acceptable for security reasons", according to minutes reviewed by Reuters. The minutes did not identify the military officials. One tender document said such subsystems had "security loopholes" that compromised critical military data, and called for vendors to disclose components' origin. A senior defence official told Reuters the reference to neighbouring countries was a euphemism for China, adding that Indian industry had become dependent on the world's second-largest economy despite concern about cyberattacks.

Beijing has denied involvement in cyberattacks. China's commerce ministry, which last week announced export controls on some drones and drone-related equipment, did not respond to questions about India's measures.

The U.S. Congress in 2019 banned the Pentagon from buying or using drones and components made in China.

Manufacturing Hurdle

Prime Minister Narendra Modi has sought to build India's drone capability to thwart perceived threats, including from China, whose forces have clashed with Indian soldiers along their disputed border in recent years.

India has set aside 1.6 trillion rupees ($19.77 billion) for military modernisation in 2023-24, of which 75% is reserved for domestic industry. But the ban on Chinese parts has raised the cost of making military drones locally by forcing manufacturers to source components elsewhere, government and industry experts said.

Sameer Joshi, founder of Bengaluru-based NewSpace Research and Technologies, a supplier of small drones for India's military, said 70% of goods in the supply chain were made in China.

"So if I talk to, let's say, a Polish guy, he still has his components which are coming via China," he said.

Switching to a non-Chinese pipeline pushed up costs dramatically, Joshi said, adding that some manufacturers were still importing material from China but would "white-label it, and kind of keep the costs within that frame".

Technology Gaps

India relies on foreign manufacturers for both parts and entire systems as it lacks the know-how to make certain types of drones.

A government-funded program to produce an indigenous Medium Altitude Long Endurance unmanned system is delayed by at least half a decade, said Y. Dilip, director of the state-run Aeronautical Development Establishment (ADE).

The platform, called Tapas, has met most requirements but needs further work to fulfil the military's goal of a drone that can reach an operational altitude of 30,000 feet and remain airborne for 24 hours, Dilip said.

"Primarily we were constrained by the engines," he said, with neither those built domestically nor international models available to India up to the job.

Apart from Tapas, which is expected to begin military trials this month, ADE is working on a stealth unmanned platform and a High Altitude Long Endurance platform, but both are years away.

To fill these gaps, India announced in June that it would buy 31 MQ-9 drones from the U.S. for over $3 billion.

R.K. Narang, a drone expert at the government's Manohar Parrikar Institute for Defence Studies and Analyses, said "there has to be coherent national strategy to fill the technology gaps" to deliver commercially viable products.

Finance Minister Nirmala Sitharaman pledged in February that one-quarter of this year's the 232.6 billion rupees ($2.83 billion) budget for defence research and development would be for private industry.

Still, Narang said there was little investment in research and development by India's big private-sector companies. Joshi said venture capitalists eschewed military projects because of long lead times and the risk that orders may not eventuate.

The senior defence official said India would need to accept higher costs to boost domestic manufacturing.

"If today I buy equipment from China but I say I want to make it in India, the cost will go up 50%," he said. "We as a nation need to be ready to help the ecosystem build here."