Liberalized FDI Policy in the Space Sector

India’s space ambitions got a boost with the landing of its spacecraft near the hitherto unexplored south pole of the Moon in August followed by the launching of solar mission, Aditya-L1 in September. The ongoing preparations for the proposed Gaganyaan Mission scheduled for 2025 are certain to give a further boost to its space program. 

Recently, addressing a gathering at the Vikram Sarabhai Space Centre, Prime Minister Narendra Modi announced a pair of ambitious programs: one, establishment of an Indian space station, known as ‘Bharatiya Antariksha Station’ by 2035, and two, a manned mission on our own rocket to the Moon by 2040. It, of course, underscores India’s unwavering commitment to space exploration but at the same time, calls for substantial and sustained investments. 

The overarching, composite and dynamic Indian Space Policy 2023 articulates to unlock India’s potential in the space sector through enhanced private participation. It also aims to augment space capabilities through technological advancement and thereby carve out a commercial presence for itself in the space sector. Indeed, it wants to build an ecosystem for the effective adoption of space applications among all stakeholders. It also aims to enhance its share in the global space economy from the current 2-3%, as against 40% of the US and 7% of the UK, to around 10% by 2030.   

Encouragingly, the space start-up landscape in the country has witnessed a dramatic transformation: there is a substantial surge in the number of space start-ups from a solitary entity in 2014 to 189 in 2023. These entities are actively developing their own satellites and progressing towards establishing their constellations for applications in agriculture, disaster management, environmental monitoring, etc. Private enterprises are forging collaborations and partnerships with international space organizations and companies to harness satellite-based communication solutions.

It is against this backdrop that the Union Cabinet chaired by the Prime Minister approved the amendment in the foreign direct investment (FDI) policy in the space sector, which is sure to augment the financial and technological capabilities of not only the start-ups but also several MSMEs that are already engaged in the space-related production and enable them to achieve sophistication of products, global scale of operations and also enhance their share in global space economy. 

The amended policy has divided the space sector into three different activities viz., launch vehicle manufacture and spaceports, satellite manufacture and the manufacture of components and sub-systems for satellites and ground station hardware, and defined the limits for foreign direct investment in each such sector through the automatic route.

The new policy has proposed a limit of 49% in the equity that a foreign entity can acquire through automatic route in the firms engaged in the manufacturing of rockets, associated systems or subsystems and creation of spaceports. Though the policy is silent on the logic behind such a cap, one can as well infer that it is the Missile Technology Control Regime—an informal political understanding among member countries meant for regulating the proliferation of missile-technology of which India is a member since 2016—that must have influenced the government to limit the FDI to 49% so that it could still exercise control over such technologies.

In a similar vein, it permitted 74% stake through automatic route in satellite making. This increased limit must have been prompted by two facts: one, India being a known low-cost producer of satellites, can capitalize on the prospects of quite a good number of satellites that are slated to be launched in the coming years, and two, at the same time, government can also keep a watch on the spyware, if any, that satellite manufacturing is associated with. 

Coming to the manufacture of components and sub-systems of satellites and ground station hardware, the policy permits 100% FDI through the direct route. It thus affords full control to a foreign investor over such manufacturing and the export of end products thereof.  

That aside, the ongoing ‘production-linked incentive’ scheme might have also influenced the government to open up the satellite manufacturing activity so as to lure foreign investors into satellite manufacturing, and thereby give fillip to the electronic industry as a whole in the country. Simultaneously, the government, projecting India as a credible alternative to China in making satellites, perhaps, aims to attract foreign investments. If successful, this move can free ISRO from operations and enable it to focus on research and development of technology. In short, it can emerge as an effective launching pad.  

**