India Revises its FDI Policy for the Space Sector, Relaxes Some Provisions

India now permits up to 100 percent foreign direct investment (FDI) in space sectors like satellite manufacturing and operation, satellite data products, and ground segment and user segment. The decision to further facilitate FDI in the space sector, with certain terms attached, has been hailed by experts and will attract prominent international players, support homegrown startups, and stimulate high-tech research and development in the country.

In March 2024, India declared its plans to relax newly introduced foreign direct investment (FDI) regulations in the space industry, permitting 100 percent foreign investment for component manufacturing. In the following month, certain amendments were introduced to make the sector more lucrative for potential investors. 

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A gazette notification, effective from April 16, 2024, amended India’s FDI policy for the space sector. It clarifies the liberalized entry route and allows FDI in sub-segments of satellites, launch vehicles, and related systems or subsystems, as well as in spaceport construction for the launching and receiving of spacecraft and the manufacturing of space-related systems and components.

The gazette notification states, “These rules may be called the Foreign Exchange Management (Non-debt Instruments) (Third Amendment) Rules, 2024.” The foreign exchange management (non-debt instruments) was first introduced in 2019. The third amendment of the rule was introduced in April to provide a more open entry route for FDI in satellites, launch vehicles. and other space components

Implications of expanding FDI limits in India’s space sector

Boosting FDI in the space sector is expected to accelerate India’s progress in this area, particularly in terms of infrastructure development.

This move releases a whole spectrum of fresh business prospects. It enables component manufacturers to leverage private investments to improve space capabilities. Additionally, it facilitates access to cutting-edge technologies to accelerate and develop next-generation space products and freely collaborate with global players.

In 2020, India’s central government established the IN-SPACe and permitted commercial companies to enter the space sector. A media report titled “Indian Spacetech Startup Landscape and Market Opportunity, 2023” claims that between 2014 and 2023, over 150 spacetech startups raised more than US$285 million in capital—a testament to the sector’s burgeoning potential.

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The Indian government also has much to gain by lessening the space manufacturing sector’s dependency on public financing. Opening the doors to private sector engagement is expected to foster innovation while encouraging efficiency in capital deployment. 

Moreover, in terms of talent growth and prospects, India’s rapidly growing space industry is generating demand for high-tech jobs for engineers, scientists, and other skilled professionals. Any initiatives by government organizations and academic institutions to feed this talent pipeline will accelerate R&D, cross-sector applications, and advance India’s space ambitions. 

Creating the pathway for future projects

Industry experts anticipate that the private sector involvement in the production of subsystems related to launch vehicles, satellites, and ground stations will find direct revenue from future missions by the Indian Space Research Organization (ISRO) and other space programs around the world.

India currently has about 200 aerospace companies registered with the Department of Promotion of Industry and Domestic Trade (DPIIT), with many demonstrating commendable expertise in the field. 

Regulatory ambiguity still a challenge

India’s space industry still has unique challenges to address, such as technological complexity and long gestation periods. Industry observers point out that major investments are needed to strengthen the space ecosystem and create more Indian startups.

However, regulatory ambiguity surrounding satellite-based communication services has been cited by experts as a key concern. This stems from the overlap between FDI rules in the space and telecommunications sectors as well as gaps in existing legislation.

Updating relevant legislation and clarifying FDI rules in overlapping sectors will be necessary to ease the process for foreign stakeholders keen on participating in India’s space projects. Uniformity and predictability, in terms of the scope and application of rules, are essential to make the investment environment more appealing for the private sector.

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