FDI Policy Amendment: Space Sector to get Strong Influx of Capital

In a historic move, the Union Cabinet has approved an amendment in the Foreign Direct Investment (FDI) policy, liberalizing the entry routes for FDI in the space sector. Stakeholder consultations in this regard were earlier held by the Department of Space. Whether government approval is required for investing depends on the thresholds prescribed under the amended FDI policy.

Prior to the amendment, FDI was permitted[1] in the establishment and operation of satellites through the government route only, i.e., prior approval from the government was mandatory. This is according to the existing FDI policy and Schedule I of the Foreign Exchange Management (Non-debt Instruments) Rules, 2019.

India’s Decadal Vision

Currently valued at around $8.4 billion with a 2% share in the global market, the Indian space industry is expected to reach $44 billion, catering to 8% of the global demand, by 2033. A growth plan in order to achieve this milestone and develop the space economy was set out in the report dated October 10, 2023, released by the Indian National Space Promotion and Authorization Center (IN-SPACe). The nation’s manufacturing capabilities and capacity were sought to be enhanced through augmenting private sector capabilities in satellite and launch vehicles and redefining FDI norms to make it attractive.

Amended FDI Policy

The FDI policy has been eased pursuant to the Indian Space Policy, 2023, which demonstrated the government’s intention to promote private sector participation in the space economy. The press release dated February 21, 2024, issued by the Ministry of Commerce and Industry, highlights that more investment will enable non-government entities to utilize their skills and expertise in the areas of satellites and launch vehicles to “achieve sophistication of products, global scale of operations and enhanced share of global space economy”.

The liberalized entry routes specified under the amended FDI policy are depicted below:

Sr. No.

Activities

FDI Cap

Entry Route

1.       

Satellites-manufacturing and operation, satellite data products and ground segment and user segment

100%

Automatic route[2] up to 74%,

government route beyond 74%

2.       

Launch vehicles and associated systems or subsystems, creation of spaceports for launching and receiving spacecraft

100%

Automatic route up to 49%,

government route beyond 49%

3.       

Manufacturing of components and systems/ sub-systems for satellites, ground segment and user segment

100%

Automatic route up to 100%

Analysis

As can be seen from above, the amended FDI policy makes a reference to additional activities not covered under the existing policy which only refers to the establishment and operation of satellites. While limits set for investment in launch vehicles are more stringent in comparison to those applicable for investment in other activities, seemingly in light of their dual application in civilian and defence domains, it is unclear as to why 100% FDI has been expressly allowed for the manufacturing of components and systems for satellites. This is because the existing norms provide that FDI in activities not listed is permitted up to 100% through the automatic route.

Remarks

At its core, the amended FDI policy signals a shift towards increased foreign investment, fostering innovation and global collaboration. This move underscores the government’s commitment to leveraging private sector participation as a catalyst for driving growth and competitiveness in the space domain.

The primary benefit of the amendment is its potential to attract substantial capital into the Indian space sector. Foreign investors, in light of a conducive regulatory environment, are likely to inject much-needed funds into Indian space startups and companies. This influx of investment capital will accelerate the pace of research, development, and deployment of solutions in satellite manufacturing, launch services, and space exploration.

Moreover, the amendment facilitates technology transfer agreements between Indian entities and their foreign counterparts. Collaboration with foreign investors would catalyze indigenous innovation and capability building within the Indian space ecosystem. Such collaborations would enhance India’s space capabilities and in effect position India as a preferred partner for international space missions and projects. The amended FDI policy would also foster economic growth, empowering India to assert its leadership in the global space arena and bolstering national security.

References:

[1] Subject to the sectoral guidelines of the Department of Space or the Indian Space Research Organization (ISRO).

[2] As per the FDI policy and the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, ‘Automatic route’ means the entry route through which investment by a person resident outside India does not require the prior approval of the Reserve Bank of India (RBI) or the Central Government.

Image Credits:

Photo by SpaceX on Unsplash

The primary benefit of the amendment is its potential to attract substantial capital into the Indian space sector. Foreign investors, in light of a conducive regulatory environment, are likely to inject much-needed funds into Indian space startups and companies. This influx of investment capital will accelerate the pace of research, development, and deployment of solutions in satellite manufacturing, launch services, and space exploration. Moreover, the amendment facilitates technology transfer agreements between Indian entities and their foreign counterparts. Collaboration with foreign investors would catalyze indigenous innovation and capability building within the Indian space ecosystem. 

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