GS Paper III

News Excerpt: 

The Department for Promotion of Industry and Internal Trade (DPIIT) has notified changes in the foreign direct investment norms (FDI) in the space sector.

Background:

• The Government of India has reviewed the extant Foreign Direct Investment (FDI) Policy on Space sector. Accordingly, the following amendments have been made under Para 5.2.12 of the Consolidated FDI Policy Circular of 2020, as amended from time to time (FDI Policy):

5.2.12 SPACE SECTOR

• 5.2.12.5 Definitions:
  • Satellites — Manufacturing & Operation: End-to-end manufacturing and supply of satellite and/or payload, establishing the satellite systems including control of in-orbit operations of the satellite & payloads.
  • Satellite Data Products: Reception, generation or dissemination of earth observation/remote sensing satellite data and data products including Application Interfaces (API).

• Ground Segment & User Segment:

• Ground Segment: Supply of satellite transmit/receive earth stations including earth observation data receive station, gateway, teleports, satellite Telemetry, Tracking and Command (TTC) station, Satellite Control Centre (SCC), etc.
• User Segment: Supply of user ground terminals for communicating with the satellite, which are not covered under the ground segment.
• Launch Vehicles and Associated Systems or Subsystems: A vehicle and its stages or components that is designed to operate in or place spacecraft with payloads or persons, in a suborbital trajectory, earth orbit or outer space.
• Creation of Spaceports for launching and receiving Spacecraft: A spaceport (also referred as launch site) can be regarded as the base from which spacecraft are launched, and consisting of facilities involving devices for transportation to, from and via outer space.
• Manufacturing of Components and Systems/Subsystems for Satellites ground segment and user segment: Comprises the manufacturing and supply of the electrical, electronic and mechanical components systems/ subsystems for satellites, ground segment and user segment.

Balance between the funding needs of India's space tech startups and the country's security:

• It's not arbitrary: 

• Member of Executive Committee of Management, Larsen & Toubro, explained that the FDI regime being graded in the three segments was not an arbitrary move. 
• For satellite components, the regime must be completely free so that we integrate Indian industry with the global supply chain and also open it for overseas players to come here and set up shop.
• In any case, while the components and subsystems are vital, they hardly decide the final purpose of the satellites. Thus, there is no need to restrict FDI due to strategic considerations.

• Controlling end-use is a key factor: 

• Holding Factor: While foreign entities can own 74 per cent, from consideration of undisputed control on ownership to the intellectual property, the Indian partner needs to have a veto right that comes with a 26 per cent holding should the purpose and end-use of the satellite or on-board sensors not be fully in alignment with national interests.
• Satellite demand is also a consideration: The more liberal norms for the manufacturing of satellites, components, systems, and sub-systems for satellites are also based on financial considerations. It will also be helpful for those foreign investors who want to work with Indian companies to manufacture satellites for third parties and countries.
• In fact, the demand for smallsats, satellites that weigh less than 500 kg, is particularly encouraging, given that experts believe that this is one segment where Indian start-ups will have a relatively lower bar for entry.

• Possible beneficiaries are waiting in the wings: 
• The liberalised norms are welcome news for Indian spacetech startups like, 
• Bengaluru-based Bellatrix Aerospace, which successfully tested its electric satellite engine and green fuel in space earlier this year.
• Digantara, which has been developing a space debris detector, closed its Series A1 funding round at $12 million in February. 
• Pixxel is set to come out with one of the largest satellite projects outside the Indian Space Research Organisation by launching the first six of its satellites by June, out of a constellation of 18 that the company is set to launch by next year. The Alphabet-owned company became part of a $36-million funding round for the Indian satellite-image startup. 
• This was one of the first major foreign investments in the Indian space sector after the government introduced its privatisation policy. 
• The company is one of the largest funded space startups in India, with a total funding of about $71 million.

• Launch vehicles are a different matter though:

• Building launch vehicles has implications that are strategic in nature. Thus, up to 49 per cent FDI will be allowed through the automatic route for launch vehicles and associated systems or subsystems. 
• The same limit will apply when it comes to the creation of spaceports for launching and receiving spacecraft. Government nod will be needed beyond this limit. 
• The liberalised entry slabs not only reinforce India as a favourable technology destination to invest in, but also, at the same time, protect our national interests, given that space is a strategic area, especially when it comes to launches and access to orbit.
• This segment is under MTCR (Missile Technology Control Regime) controls and no country will allow unrestricted control to any foreign firm to produce and launch vehicles capable of lifting payloads into space.

• A rising tide lifts all boats:

• The experts believe that despite the differentiation in FDI policy, all sectors of the space ecosystem will benefit. They point out that domestic sources of finance have often been risk averse, and the new FDI norms will bring in patient capital. This will benefit even the launch vehicle segment, which needs such investors the most.
• According to experts, in fact, this segment is unlikely to slow down. This is backed up by the fact that the space regulator, Indian Space Promotion and Authorisation Centre, has said that Indian launch vehicle makers Agnikul Cosmos and Skyroot Aerospace are expected to undertake seven launches between 2024 and early 2025. These missions will include the first commercial missions of these startups.

• But, even this graded FDI approach may not be enough:

• According to Invest India, the country's space sector was valued at $9.6 billion in 2020 and contributed 2-3 per cent of the global space economy. 
• The size of the sector is expected to reach $13 billion by 2025, and by 2030, India aims to capture a larger share of close to 10 per cent of the global space economy.
• There has also been an explosion in the number of Indian spacetech startups. 
• According to the DPIIT Start-Up India Portal, the number of space startups has gone up from just one in 2014 to 189 in 2023. 
• For 2023, market intelligence platform Tracxn said that till August, the Indian spacetech sector had received $62 million in funding, amounting to a 60 per cent increase compared to the same period in 2022.  

Conclusion

However, challenges remain for the private space sector, and private capital, domestic or foreign, will not be enough to fill the gap by itself. For India to emerge as a global (space) powerhouse, it must create and protect intellectual property value within the country. For this, we need continued sovereign backing. We are observing a slow year-on-year stagnancy in the space budget, which is an impediment to the meteoric rise of space startups.