FDI in Space: India Opens its Space Arena to Foreign Investment

Overview

The Indian Government recently announced its intention to open the Indian space sector to FDI. This article analyses the implications of allowing FDI in space and gives an overview of the Indian space regime.

 

Introduction

India is one of the few nations in the world to dominate the space arena. For a developing nation, India has achieved a great feat in exploring outer space. Despite being a space faring nation, India accounts for only 2% of the global space economy. India’s achievements in the space sector fall short behind countries like US and China which hold a greater contribution in the $447 billion dollar global space economy. The reason for India holding only a small share in the global space economy stems from the Indian space sector being primarily Government controlled.

 

Indian space program was started in the 1960s and has revolutionised the space domain through its national space agency ISRO (Indian Space Research Organisation) which functions under the aegis of Indian Department of Space. For more than 5 (five) decades under Department of Space administration, ISRO has functioned as both an operator and regulator of space activities. This consolidation of complete control over Indian space sector in the hands of statutory bodies has impeded participation from private players. Cognizant about the importance of collaboration with private foreign players, the Indian Government recently announced its intention to open the Indian space sector to foreign direct investment.

 

Overview of Indian Space Sector

As mentioned above, the Indian space sector has been predominantly Government operated. Under the umbrella of Department of Space and ISRO, private players never got the opportunity to fully participate and spearhead space activities. While ISRO has had a long-standing relationship with numerous private players, their role has always been limited to being a vendor, subcontractor, or supplier for ISRO and this constraint on private collaboration has severely inhibited the growth of the Indian space domain.

 

In the year 2020, the Indian space sector welcomed its first set of major reforms to boost private sector participation. As part of these reforms a new body, namely, IN-SPACe (Indian National Space Promotion and Authorisation Centre) was created to regulate and promote private sector participation in space activities.

 

IN-SPACe is contemplated to be the main interface for collaboration between Government and private actors. The private players have responded well to these new government initiatives of providing a level playing field in a once closed off sector. As of 2022, about 75 (seventy-five) startups have registered on the government portal with novel ideas to take the Indian space sector to newer heights. IN-SPACe will enable private players to be more than a vendor and provide them with the option to build and launch space objects, set up base at Department of Space premises, utilise ISRO facilities and infrastructure and develop new space infrastructure for ISRO.

 

Despite the government’s encouragement towards private participation, the issue remains that there has been a lack of foreign investment to augment the Indian space economy. Foreign investors have been on fence about investing in Government monopolised Indian space sector. The conflict of interest with ISRO as a competitor had perpetuated apprehension in minds of foreign investors who could not see a way ahead to reap the benefits of the Indian space program initiatives.

 

FDI in Space

Presently, FDI in space is allowed under government route only for satellite establishment and operations. Further, FDI in space is approved by the Government on a case-by-case basis and often this approval takes years. However, witnessing the change in approach of the Indian Government towards private players involvement, foreign companies have expressed interest in investing in this space.  Soon after opening the Indian space sector to private actors, the next step has been to seek foreign direct investment. ISRO officials have called for introduction of a new FDI policy to engage with foreign firms and make the Indian space sector accessible to both domestic and foreign players.

 

In February 2022, the Indian Minister of Space informed the Indian Parliament about the government’s intention to allow FDI in space. While currently FDI is limited to satellite making operations, we can expect the new FDI policy to attract investment in other space activities as well. As per ISRO officials this new FDI approach would enable foreign companies to set up base in India and utilise ISRO facilities for undertaking a diverse range of space activities. While we are yet to see the exact sectoral guidelines that the Government will impose on FDI but as per ISRO Chairman the sectors that were previously closed off to FDI will be opened up to forge mutually beneficial relationship between Government and private players.

 

To ensure effective collaboration between Indian and foreign players, IN-SPACe would be the agency in charge for facilitating foreign investment in space sector and will provide a one-stop interface for foreign players to enter Indian space market. For a foreign investor, investing in Indian space domain presents numerous benefits:

  • Cost-effective: The operating costs of setting up base and launching space vehicles in India is comparatively much less compared to its counterparts like NASA. Nothing illustrates the economical nature of Indian space endeavours better than the words of the Indian Prime Minister Narendra Modi on the Indian mission to Mars costing less than the whole budget of the Hollywood movie Gravity.
  • Exceptional success rate: ISRO is the 6th (sixth) largest space agency in the world and holds an exceptional success rate. India has made a name for itself by successful launch of about 342 (three hundred and forty-two) foreign satellites from over 34 (thirty-four) countries.
  • Innovative equipment: ISRO holds the cutting edge equipments and is also in process to launching SSLV (small satellite launch vehicle) in partnership with private companies. This will provide a greater avenue for foreign players to form partnerships with the Indian space sector.
  • Liberalised space sector: Over the years, ISRO has forged strong relationships with numerous industrial ventures that will be beneficial to foreign players who wish to set up base in India.

Draft Space Activities Bill

As India tries to meet the rising commercial needs of its Indian space program it must balance this against its international obligations to ensure safe and peaceful use of outer space. Regulation of space activities comes under the ambit of international law and to solidify the obligation of sovereign States the UN Committee on Peaceful Use of Outer Space (UNCOPUOS) obligates the State parties to execute domestic space legislations to govern space activities.

 

Pursuant to this, India is in the process of passing a Space Activities Bill that will provide a conducive environment for private participation and lay down a strong regulatory framework for managing space activities. It is proposed the Space Activities Bill will provide guidelines for attracting FDI and regulating private sector participation. The 2017 draft of the Bill provides for a licence mechanism for undertaking commercial space activities. As per the Bill, the Indian Government on an application made by an entity stipulating the proposed commercial space activity will be issued a licence. Based on this, domestic and foreign private players can apply for a licence and undertake commercial space activities on ISRO’s playground.

 

Conclusion

In conclusion, with India having one of the best space programs in the world, the move to allow FDI in space will make India a bigger player in the global space economy. FDI in space will allow foreign players with a window to venture into the India space domain, this will contribute to Indian national and foreign reserves, promote technology transfer and research innovations. Further, the introduction of Indian Space Activities Bill will give greater clarity to private players on how to be an integral part of the space sector.

 

Lastly, at the 72nd International Astronautical Congress held in 2021, the ISRO Chairman emphasised on the government’s intention to create a favourable environment for foreign investment and suggested foreign participants to start investing in India. Therefore, the time is now ripe for foreign enterprises to penetrate and establish a presence in the Indian space market.


† Partner, Khaitan & Co.

†† Counsel, Khaitan & Co.

††† Associate, Khaitan & Co.

 

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