FDI blasts off into the space sector

The Indian space sector has become a beacon of excellence and technological development, propelling India to the forefront of the global space business. During the past decade, the sector has seen tremendous growth, including the successful lunar landing of Chandrayaan-3, its cost-effective satellite manufacturing and the successful Mars mission on the first attempt. It has also put numerous foreign satellites into orbit.

To further develop India’s potential, the government promulgated its Space Policy 2023, a comprehensive framework aimed at stimulating greater private sector involvement. The policy marked a strategic shift by opening up the national space infrastructure to the private sector, enabling access through a business-friendly mechanism and fostering independent entities within the space industry. It sought to bolster India’s competitiveness in the global space market, promote commercial presence, drive technology advancements and safeguard national interests in space. It also encouraged international partnerships, producing a welcoming environment for space applications.

As a result, the administration has approved amendments to the foreign direct investment (FDI) policy for the country’s space industry, easing regulations and introducing lower thresholds for sub-sectors and activities. The amended FDI policy brings benefits to the space sector, including 100% FDI and more open entry routes to attract investors to Indian space companies.

The satellite sub-sector has been divided into three, with individual FDI limits. The first is satellite manufacturing and operation, satellite data products and ground segment and users. FDI up to 74% is permissible under the automatic route, with investment beyond that requiring government approval. Next is the area of launch vehicles and associated infrastructure, including spaceports for launching and recovering spacecraft.

FDI up to 49% is allowed under the automatic route, with greater amounts again requiring government approval. Last is the manufacture of components and systems for satellites and the ground and user segments, where up to 100% FDI is permissible under the automatic route.

These reforms aim to liberalise FDI provisions by introducing a more open entry route and bringing clarity to FDI regulations relating to satellites, launch vehicles, associated systems, spaceports and the manufacturing of space-related components and systems.

Increased involvement of the private sector is set to bring employment opportunities, facilitate technology usage and encourage self-sufficiency within the space industry. This surge in private sector engagement is expected to allow Indian companies to penetrate global value chains, promoting domestic manufacturing and supporting the government’s Make in India and Atmanirbhar Bharat or the self-sufficient India initiatives.

By introducing these strategic amendments, India has taken a decisive step towards realising the objectives of the policy. These recent revisions to FDI regulations signal a new era of evolution in the space sector. They aim to attract satellite development FDI and the similar financing of space vehicles, launching facilities and essential ground infrastructure. By streamlining foreign investment regulation in these critical areas, the reforms seek to encourage private sector involvement and strengthen India’s self-reliance in space endeavours. This strategic realignment parallels the country’s goal of expanding its presence in the global launch market, projected to exceed USD45 billion in the next decade.

India can look forward to a surge in space technology startups and an increase in private equity and M&A activities in this sector in the coming years. This will all be driven by the liberalisation of FDI limits. It also follows the implementation of a well-structured space policy in the country. It is likely that many space technology startups will be established by both domestic and foreign investors eager to seize the extensive opportunities within the space technology and services domains. As larger industry players seek to capitalise on innovation and consolidate their market positions, the strategic acquisition of pioneering startups could become commonplace. This will further drive the evolution of the space technology landscape.

Rohit Jain is the managing partner and Keshav Singhania is head of the private client practice at Singhania & Co.