Analysing Recent Amendments To FDI Policy For The Space Sector

The latest amendment to the FDI Policy has opened up the space sector in India to foreign investment, injecting life into in an often-ignored industry.

On 21st February, the Union cabinet chaired by Prime Minister Narendra Modi approved an amendment to the Foreign Direct Investment (“FDI”) Policy, that significantly liberalized regulations governing FDI into the space sector.

Legislative Background

The new amendment to the FDI Policy is the latest in a line of regulatory reforms beginning in 2015, that have radically increased the number of sectors into which foreign investment is permitted.

Last years’ Indian Space Policy 2023 had identified as one of its objectives the need to create a stable and predictable regulatory framework to provide a level playing field to non-government entities.

Towards this end it further identified the need to permit non-governmental entities to undertake ‘end-to-end activities’ in the space sector through establishment and operation of space objects, ground-based assets and related services, such as communication, remote sensing, navigation, etc.

Some of the examples of the types of activities in which it recommended spurring increased participation by non-governmental entities included:

• Offering national and international space-based communication services, through self-owned or procured or leased Geo-Stationary Orbit (“GSO”) / Non Geo-Stationary Orbit (“NGSO”) communication satellites;
• Establishing and operating ground facilities space objects operations, such as Telemetry, Tracking and Command (“TT&C”) Earth Stations and Satellite Control Centres (“SCCs”);
• Using Indian orbital Resources and/or Non-Indian Orbital Resources to establish space objects for communication services over India and outside India;
• Establishing and operating remote sensing satellite systems within and outside India through self-owned or procured or leased satellites;
• Disseminating satellite-based remote sensing data, as well as applications based on such data, in India and/or outside;
• Developing and commercializing technologies and applications for enhancing and augmenting the satellite navigation, communication and remote-sensing developed and provided by the Government of India;
• Manufacturing and operating space transportation systems, including launch vehicles, shuttles, etc., as well as designing and developing reusable, recoverable and reconfigurable technologies, and systems for space transportation;
• Establishing and operating launch infrastructure; and
• Developing space situational awareness capabilities for enhancing observation, modelling and analysis.

Why were these reforms needed?

For almost the entire history of human space exploration, it has been conducted by national governments. Private contractors were used to build individual parts and other supporting activities but the actual design and launching of space vehicles has always been the exclusive domain of governmental entities.

If a private company wanted to launch a satellite into space or use an existing satellite, the only parties to negotiate with were governmental entities.

As a result, the space industry was overrun with the inefficiencies and bureaucracies that are to be expected from state-run enterprises.

However, in the 21st century, we have witnessed a radical growth in private sector participation in the space industry. Entities like SpaceX and Virgin Orbit have come up and now offer launch services for a variety of payloads at affordable prices that would have been inconceivable even a few decades ago.

The private sector has always been far more comfortable with innovating and experimenting than the public sector and that has already made itself apparent with some of the innovations that we have seen in the last few years. SpaceX, for example has created almost entirely reusable rockets, minimizing waste and reducing per-flight expense. Virgin Orbit has created an innovative system in which small satellites can be launched from a Boeing 747 aircraft instead of a conventional rocket. Blue Origin is aiming for incremental innovation in all aspects of space launch to significantly reduce the cost overhead.

Outer space is the gold rush of our generation, the economic opportunities that exist for companies are almost unimaginable. Aerospace America notes the global ‘space economy’ is projected to reach $1 Trillion (INR 80 Lakh Crores) by 2040¹. The world-renowned astrophysicist Neil deGrasse Tyson believes that space ventures will spawn the world’s first trillionaire². The potential for growth in the space industry is unlike anything the world has ever seen before.

For decades, India has been playing catch-up in the space sector. However, recent breakthroughs such as the ‘Mangalyaan’ Mars Orbiter Mission and ‘Chandrayaan’ lunar exploration missions have significantly closed the gap between India and the rest of the world. The upcoming ‘Gaganyaan’ human spaceflight programme will close this gap even further. The appetite and passion for space exploration in India is higher than ever before.

Private players have already shaken up the staid and stagnant space industry internationally and there is now a need to give them the opportunity to do the same in India.

The Government of India had already identified this need in 2020 and introduced reforms in the space domain that enhanced participation of non-governmental entities in carrying out end-to-end activities in the space domain. However, such activities had been mostly restricted to domestic entities due to restrictive FDI sectoral caps. There was a need to bring in international players with more experience in commercial space activities.

Analysis

The 2024 amendment to the FDI Policy has allowed up to 100% FDI into the space sector. Entry routes have been liberalized to attract potential investors to invest in Indian companies.

The new sectoral caps introduced are as below:

1. Upto 74% under Automatic route: Satellites-Manufacturing & Operation, Satellite Data Products and Ground Segment & User Segment. Beyond 74% these activities are under government route.

2. Upto 49% under Automatic route: Launch Vehicles and associated systems or subsystems, Creation of Spaceports for launching and receiving Spacecraft. Beyond 49% these activities are under government route.

3. Upto 100% under Automatic route: Manufacturing of components and systems/ sub-systems for satellites, ground segment and user segment.

The Press Information Bureau of India has stated that it expects this increased private sector participation to help generate employment, enable modern technology absorption, make the sector self-reliant and integrate Indian companies into global value chains. They also noted that it will allow foreign companies to set up their manufacturing facilities within the country, encouraging the Government’s ‘Make in India’ and ‘Atmanirbhar Bharat’ initiatives.

Before the latest amendment, all FDI into satellite-related activities had to be done through the government route, irrespective of percentage of investment. On the other hand, the construction of launch vehicles and creation of spaceports had until now, been prohibited from any FDI.

Thus, the new sectoral caps represent a radical liberalization of space policy and are expected to bring in a large amount of foreign investment into the space sector. ISRO has already entered into a partnership with SpaceX to launch the communication satellite GSAT-20, which is likely to be only the first collaboration between foreign space companies and India.

Conclusion

The new amendments liberalizing the FDI Policy for the space sector are a very significant first step to opening up a long-stagnant sector of the Indian economy. They are expected to massively spur private sector participation in the space industry.

Indian companies looking to launch satellites and other payloads into orbit will soon have access to a variety of options and a competitive market. A competitive market will spur innovation and bring down prices. This will open up completely new opportunities and avenues of growth for Indian companies and the Indian economy as a whole.

However, we stress that the liberalization of the FDI policy is only a first step (albeit a very significant one). More must be done. An important next step will be Indian states offering specific incentives to attract space companies to establish a presence in their respective states. Memorandums of Understanding may also be signed between state governments with certain large and important players. The potential economic advantages are enormous for states that are able to successfully market themselves as ‘the premier destination’ for space-related investment.

We will be watching the regulatory and business developments in this field with great interest over the coming years.

Disclaimer – The views expressed in this article are the personal views of the authors and are purely informative in nature.