The recent approval by the Union Cabinet of India to allow up to 100 per cent foreign direct investment (FDI) in its space sector marks a pivotal shift towards liberalizing a domain that has long been under stringent regulatory control. This strategic decision is set to lower entry barriers for foreign players, fostering a more inclusive environment for international investments, technology transfers, and collaborative research in space technology.
Critical Amendments in FDI Policy
The updated FDI policy in the space sector permits 100 per cent foreign investment through the automatic route in various sub-sectors and activities. This is a significant leap from the previous stance, where FDI in satellite establishments and operations was permitted only with government approval. That policy has been reformed as per the terms of the Indian Space Policy 2023, which promotes a liberalised threshold across different facets of the space sector, including:
Manufacturing of Components and Systems: 100 per cent FDI is allowed via the automatic route for manufacturing components, systems, or sub-systems related to satellites, ground segments, and user segments.
Satellite Manufacturing and Operation:FDI up to 74 per cent is permitted under the automatic route, but anything exceeding this limit requires government approval.
Launch Vehicles and Spaceports: Up to 49 per cent FDI is allowed under the automatic route while requiring government approval beyond this threshold.
India’s Space Economy and Global Perspective
Globally, the space sector is witnessing increased privatisation and international collaboration. Countries like the US, through entities such as NASA, have long encouraged private investments in space exploration and satellite deployment. Similarly, the European Union and China have been making strides in liberalising their space sectors to foster innovation and reduce dependence on government funding. India’s policy change aligns with these global trends, positioning it as a competitive player on the international stage.
The amendments in the FDI policy are anticipated to catalyse the growth of India’s space economy, which, as of 2023, stands at an estimated value of $8.4 billion, which is approximately 2-3 per cent of the global space industry. With an ambitious target to reach $44 billion by 2033, the Indian space sector is on a trajectory to claim a significant stake in the global space economy. This expansion is supported by a notable increase in space start-ups from merely one in 2014 to 189 in 2023 and a surge in investments to $124.7 million in 2023.
Liberalizing FDI in the space sector is not just an economic move but a strategic one, positioning India on par with global privatisation trends and international collaboration in countries like the US, the European Union, and China.
Private Sector Participation and Regulatory Body: IN-SPACe
Establishing the Indian National Space Promotion and Authorization Centre (IN-SPACe) as an autonomous nodal agency underscores India’s commitment to facilitating private sector engagement in space activities. IN-SPACe acts as a bridge between ISRO and the commercial sector, with a mandate to encourage, authorise, and supervise private sector space undertakings. To date, IN-SPACe has signed 45 Memorandums of Understanding (MOUs) with non-governmental entities, paving the way for an inclusive growth model in the space sector.
Market Outlook and Way Forward
The Indian Space Policy 2023 and the liberalized FDI policy have set the foundation for a dynamic and inclusive space sector. This framework aims to boost space capabilities, stimulate commercial presence, and leverage space technology for development. India is poised to enhance its technological prowess and economic footprint in the global space industry by encouraging greater private-sector involvement and facilitating international partnerships.
The strategic shift towards a more open FDI regime in the space sector heralds a new era of growth, innovation, and collaboration. With the right balance of regulatory oversight and market freedom, India’s space economy will soar, contributing significantly to the global space community and reinforcing its position as a leading space-faring nation.
India’s decision to liberalize FDI in the space sector is a forward-looking move that promises to unlock new growth avenues, drive technological advancement, and position India as a significant player in the global space economy. As the country gears up to welcome foreign investments, the focus on creating a supportive ecosystem will be paramount in achieving the full potential of this policy change. The journey ahead is both challenging and promising, with the potential to catalyze a new space exploration and innovation era in India.
Sidharrth Shankar is a partner at JSA, Advocates & Solicitors. The views expressed are personal.