Why is it in the News?

Recently, the government of India has approved the amendment in the Foreign Direct Investment (FDI) policy for the space sector.

Context:

• India’s space industry, though nascent compared to global leaders such as the US, Russia, and China, has made significant strides in cutting-edge technologies, as evidenced by successful missions like Chandrayaan-3, Aditya-L1, and XpoSat.
• These achievements have not only demonstrated India’s economic prowess in space technology but have also positioned the Country favourably on the global map.
  • However, the sector faces challenges, particularly in funding.
• Despite the sector’s expansion from 10 to 150 startups within three years, the absence of a substantial domestic investor pool interested in space ventures, which are inherently slow to yield returns, has hindered growth.
• The only other way out was to look at Foreign Direct Investment (FDI) policy.
• According to experts, “India stands at a critical juncture in its space journey.
• With strategic investments in infrastructure and manufacturing, alongside fostering innovation and education, India can achieve its goal of a US$44 billion space economy by 2033, enhancing its position as a global leader in space technology and services.

What is the Current Status of India’s Space Sector?

• India's expertise in the space sector is globally acknowledged, with achievements ranging from cost-effective satellite construction to launching foreign satellites.
• Aligned with its commitment to the Geneva Conference on Disarmament (1979), India advocates for the peaceful and civilian utilization of outer space, opposing any militarization efforts.
• The Indian Space Economy is valued at approximately $8.4 billion, constituting around 2-3% of the global space economy.
• ISRO stands as the 6th largest space agency globally, boasting an impressive success rate.
  • India also ranks 5th worldwide in the number of private space companies, with over 400 such entities.
• Budgetary Allocation: The Department of Space has witnessed a nominal 4% increase in its allocation in the Interim Union Budget for 2024-25, rising from ?12,545 crore to ?13,043 crore.
• Future Projections: Implementation of the Indian Space Policy 2023 could propel the Indian space economy to reach $44 billion by 2033.
• Growth in Space Start-Ups: The number of Space Start-Ups has surged from just 1 in 2014 to 189 in 2023, as reported by the DPIIT Start-Up India Portal.
  • Investment in Indian Space Start-Ups has concurrently risen to $124.7 million in 2023.

Key Changes in FDI Policy:

• With the privatization of space launches, India aims for a significant five-fold increase in its share of the global launch market.
• The recent changes in the FDI policy reflect a more welcoming approach to foreign investment.
• Specifically, the satellite sector which used to have strict rules has now been split into different parts each with its own limits on how much foreign investment is allowed.
• Launch Vehicles and Associated Systems/Subsystems: Foreign investment up to 49% is permitted under the automatic route with government approval mandated for anything beyond this threshold.
  • This includes activities related to the establishment of spaceports for spacecraft launches and receptions.
• Satellite Manufacturing and Operation: The automatic route allows for up to 74% FDI covering satellite manufacturing, operation, satellite data products and both the Ground Segment and User Segment.
  • Approval from the government is required for FDI exceeding 74% in these activities.
• Manufacturing of Components and Systems/Subsystems: Foreign investors are now allowed to invest up to 100% in manufacturing components and systems for satellites, ground segments and user segments through the automatic route.
• The decision to liberalize FDI norms in the space sector stems from a strategic vision outlined in the Indian Space Policy 2023.
• By fostering a more investor-friendly environment the government aims to tap into the potential of non-government entities (NGEs) encouraging them to invest in Indian companies within the space domain.
• This move is expected to drive technological advancements, scale up operations globally and boost India's position in the global space economy.

Recent Advancements in the India’s Space Sector:

• Indian Space Policy 2023: This policy delineates the roles and responsibilities of entities like ISRO, NewSpace India Limited (NSIL), and private sector players with the aim of bolstering involvement from research, academia, startups, and industry.
• Strategic Proposals by SIA: The Space Industry Association – India (SIA-India) has recommended in its Pre-Budget Memorandum for FY 2024-25 a substantial increase in India's space budget.
• Defence Space Agency (DSA): India inaugurated its Defence Space Agency (DSA) alongside the Defence Space Research Organisation (DSRO), tasked with developing space-based weapons to counter adversaries.
• Defence Space Mission Launch: The Indian Prime Minister unveiled the Defence Space Mission during the Defence Expo 2022 in Gandhinagar.
• Expansion of Satellite Manufacturing: India's satellite manufacturing sector is forecasted to grow to USD 3.2 billion by 2025, up from USD 2.1 billion in 2020.
• SAMVAD Program: ISRO introduced the SAMVAD Student Outreach Program at its Bengaluru facility, aimed at fostering space research among young minds.
• The objective is to bolster India's expanding space program, encourage private sector participation, drive technological innovation, and position the nation as a prominent player in the global space landscape.

Importance of Foreign Direct Investment (FDI) in the Space Sector:

• Advancement in Space Missions: India's achievements in space missions have positioned it as a reliable provider of cost-effective space solutions globally, with FDI expected to further enhance technological capabilities and expand operations.
• Boost to Manufacturing: Encourages the establishment of manufacturing facilities within India, aligning with the government's 'Make In India' initiative and bolstering domestic manufacturing capabilities.
• Private Sector Engagement: FDI facilitates greater private sector involvement in India's space endeavours, transitioning from ISRO-driven initiatives to leveraging space technology for commercial applications and fostering industry participation.
• Integration into Global Value Chains: Expected to integrate Indian companies into global value chains, enabling them to contribute significantly to the global space economy.
• Technology Uptake and Global Collaboration: FDI promotes the absorption of advanced technology and facilitates global integration, enabling companies to enhance product sophistication, scale operations globally, and increase their share in the global space economy.
• Enhanced Business Environment: FDI policy reforms improve the Ease of Doing Business in India, attracting greater FDI inflows and fostering investment, income, and employment growth.
• Stimulus for Research and Innovation: FDI in the space sector stimulates technology transfer, fosters research collaborations, and encourages innovation, driving advancements in space technology and applications.

What are the Challenges?

• Limited Investor Engagement: Investors show limited interest in the later stages of space tech development, likely due to perceived high risks and long-term investment horizons.
• Talent Shortage: The space tech sector faces a shortage of skilled professionals, highlighting the need for expanded talent development initiatives.
• Policy Ambiguity: Ambiguous policies in the space sector create uncertainty, necessitating clear and consistent regulatory frameworks to attract foreign investment.
• Streamlining FDI Procedures: Simplification of foreign direct investment processes is essential to remove barriers and encourage investor participation in the space industry.
• High Capital Requirements: Space technology ventures demand substantial capital investments, posing challenges for startups and smaller enterprises in accessing necessary funds.
• Competition Concerns with ISRO: Foreign investors express reservations due to competition concerns with ISRO, highlighting the importance of addressing perceived conflicts of interest to instil investor confidence.

Conclusion

The amendment in the FDI policy on the space sector heralds a new era of growth and opportunity for India’s space industry. By opening doors to foreign investment, India aims to leverage private sector participation to enhance its space capabilities, drive innovation, and foster economic development. The policy reform underscores India’s commitment to becoming a global leader in space exploration and technology.