The Union Cabinet has approved amendments to India’s space sector’s FDI policy, permitting up to 100% investment through liberalised entry routes. The amended policy, sanctioned in the past week, facilitates 100% FDI under the automatic route for manufacturing satellite components, systems, and subsystems. 

The policy changes align with India’s broader space goals, aiming to capture a more substantial share of the global space market, which currently stands at a modest 2%. 

Lt Gen AK Bhatt (Retd.), director-general of ISpA, said, “We are thankful to the government, and it is heartening to note the pace of its forward-looking reforms in the nascent space sector.”

However, this move, targeting increased private sector participation and self-reliance, defines foreign investment limits in the satellite sub-sector. Up to 74% investment is allowed under the automatic route for manufacturing and operating entire satellites, with amounts beyond this needing government approval.

Additionally, launch vehicles and associated systems, including the creation of spaceports, will now allow up to 49% FDI under the automatic route. 

Pawan Chandna, CEO of one of the leading private space companies in India, Skyroot Aerospace, welcomed the regulatory clarity, stating, “For Skyroot, being in the launch vehicle domain, 49% FDI in the automatic route and 100% FDI in the government route will help boost investments and open access to capital easier and at par with global standards.

Space Could Drive India’s GDP Growth

While gross and net FDI flows in India’s GDP dwindled to a 16-year low of a mere 1 and 0.6%, Indian space-tech startups witnessed a significant 62% surge in funding in 2023, reaching $62 million by August, a 60% YoY increase. 

The success of the Chandrayaan-3 Moon mission and ISRO’s collaboration with private partners has sparked interest among many. In June, Bengaluru-based Pixxel secured $36 million from investors, including Google. AgniKul Cosmos raised $26.7 million in a Series-B round in October. Satsure garnered $15 million in Series A funding in August. Satyukt Analytics received $1.2 million in seed funding in June, while PierSight secured $600,000 in pre-seed funding in September. 

Additionally, the global attention on India’s space endeavours has attracted companies like SpaceVIP to launch space-tourism-related services. Industry giants like Boeing and Airbus are also increasing their presence in the country, with Boeing recently inaugurating their R&D centre for aerospace in Bengaluru in the presence of PM Modi.

According to Tracxn, India ranks seventh globally in SpaceTech funding for the year, showcasing remarkable growth from $35 million in 2010-2019 to $112 million in 2022. The consistent expansion underscores the resilience of the Indian space-tech sector amid funding challenges and macroeconomic fluctuations.

Starting in June 2020, PM Modi’s announcement to open the space sector to private enterprises set the stage for a proliferation of innovative businesses. These enterprises, rooted in original research and local talent, attracted substantial investment, with space start-ups securing $120 million in new funding the previous year. 

This growth trend shows no signs of slowing down, with annual investment rates doubling or even tripling.

Dr Subba Rao Pavuluri, CMD of Ananth Technologies, emphasised the strategic importance of the space sector’s liberalisation, which allows ISRO to focus on research and development of mega upcoming projects like the manned Gaganyaan mission and next-gen launch vehicles—while the private sector takes on other services. 

He added, “Currently, India’s space industry contributes approximately $7 billion to the national GDP and employs over 100,000 skilled professionals across various disciplines.”

FDI Just a Piece of the Puzzle

While CEOs of prominent Indian space startups, including the likes of Skyroot’s Pawan Chandna, foresee enhanced regulatory clarity, attracting investments and easing access to capital, industry experts like Narayan Prasad, COO at Satsearch, an online global marketplace for space, hold contrary views.

Prasad emphasised that while FDI is a crucial aspect, it is just a small piece of the puzzle. He stated, “Because, in the end, investors are only interested once they see a flourishing market.” He highlighted the importance of demand, stating that the space industry sees demand when governments act as primary customers – a universal rule of thumb in the sector.

He opined that the more important thing to discuss besides demand is how to enable up-and-coming space startups to become self-reliant. “How do we expose demand to these companies to grow? It would be difficult for us to expect foreign investors to be interested when the burden is on our companies to go and find customers outside,” Prasad said. 

However, the industry veteran agreed that the move is very liberal even when compared to the likes of the US. “To compare what India has announced against other countries like the US or others, for example, it’s very liberal. 

“Even in the area of launch vehicles, I don’t think the US will even want a foreign entity to be a minority shareholder in their launch vehicle companies. So, compared to that, what the government has proposed is much more liberal,” he said.