Unlocking India’s Space Potential: Liberalised FDI Policy paves the way

The Union Cabinet, chaired by Prime Minister Mr. Narendra Modi, has approved an amendment to the Foreign Direct Investment (“FDI”) policy wherein hundred percent (100%) FDI is permitted into the space sector. This strategic decision aims to liberalise the space sector, allowing for greater FDI in prescribed sub-sectors and activities. The amendment reflects a broader strategy outlined in the Indian Space Policy 2023, which seeks to unlock India’s potential in space through enhanced private participation and technological advancement.

FDI refers to investment made by a foreign company or an individual in various business sectors in India, in the form of either establishing business operations or acquiring business assets in India, such as ownership or acquiring a controlling interest in the Indian entity. FDI plays a significant role in the global economy, contributing to economic growth, job creation, and technology transfer between countries.

The FDI can be undertaken through the following routes:

Government route: This pertains to situations where non-residents must obtain prior approval from the Government of India for their investments.

Automatic route: This pertains to investments where individuals residing outside India can invest without needing prior approval from the Reserve Bank of India or the Government of India.

The FDI policy amendment marks a pivotal shift in India’s approach to the space sector, dividing the satellite sub-sector into distinct activities with defined limits for foreign investment. Previously, investment into the space sector was only permitted through the government-approved route. FDI is now permitted under liberalised thresholds, facilitating the ease of doing business and encouraging greater investment inflows. This reform aligns with the overarching objectives of the Indian Space Policy 2023, aimed at augmenting space capabilities, fostering commercial presence, driving technological innovation, and strengthening international relations.

Under the amended FDI policy, hundred percent (100%) FDI is allowed in the space sector, offering attractive investment opportunities for potential investors. The liberalised entry routes provide clarity and flexibility, with varying thresholds for different activities.

The entry routes for various activities under the amended FDI policy are as follows:

(a) Up to seventy-four percent (74%) under automatic route: Satellite-manufacturing and operation, satellite data products and ground segment and user segment. Beyond the limit of seventy-four percent (74%) these activities are under government route.

(b) Up to forty-nine percent (49%) under automatic route: Launch vehicles and associated systems or sub-systems, creation of spaceports for launching and receiving spacecrafts. Beyond the limit of forty-nine percent (49%), these activities are under government route.

(c) Up to hundred percent (100%) under automatic route: Manufacturing of components and systems/sub-systems for satellites, ground segment and user segment. This increased private sector participation is expected to generate employment, facilitate technology absorption, and foster self-reliance, integrating Indian companies into global value chains.

The decision to amend the FDI policy in the space sector followed extensive consultation with internal stakeholders, including IN-SPACe, ISRO, NSIL, and industrial partners. The involvement of nongovernmental entities, which possess expertise in satellite and launch vehicle technology, facilitates the collaborative effort to leverage private sector capabilities for sectoral growth. With increased investment, these entities are poised to achieve greater sophistication, scale, and competitiveness in the global space economy

The amendment to the FDI policy in the space sector represents a significant milestone in India’s journey towards space exploration and innovation. By liberalising entry routes and providing clarity for FDI, the government aims to foster a conducive environment for investment, technology development, and job creation. The reforms are not only expected to bolster the domestic space industry but also position India as a key player in the global space arena and Indian companies are poised to seize new opportunities, driving the country’s growth and leadership in the space sector.

About the authors: Arindam Basu is a Partner, Bilal Lateefi is a Principal Associate and Stuti Agarwal is an Associate at Poovayya & Co.