India has lofty goals in the realm of space exploration with objectives like sending individuals to space and constructing an indigenous space station within a decade. In recent years, the Indian government has recognised the role the private sector will play in achieving these ambitious targets. Keeping in line with this, the government is planning to allow 100% foreign direct investment (FDI) in the space sector. India will allow FDI between 49-100% in three areas — sub-system manufacturing, launch vehicle operations, and satellite operations and establishments.

A liberal FDI policy in the space sector is a welcome move because the sector is a capital-intensive one. In India, over the years, the space sector was led by the Indian Space Research Organisation (ISRO), but in 2020, it decided to open up the space industry to private players. Since then, we have seen various space-tech startups mushrooming in different parts of the country. As per the Economic Survey 2022, the number of startups in this space in 2021 was 41, compared to just 11 in 2019.

However, currently, India only accounts for only 2% of the USD 44 billion global space economy, trailing heavyweights such as the US and China. 

Boosting FDI is a good move

So far, industry players have responded positively to the development. They believe foreign funding will help Indian players get more competitive against global players such as Elon Musk’s SpaceX and Jeff Bezoz’s Blue Origin. “By attracting foreign investments through an automatic route or streamlined process, the government aims to supplement limited domestic funds and achieve the target of reaching USD13 billion by 2025 and capturing 10% of the global space economy by 2030,” Anil Prakash, director general at Satcom Industry Association (SIA) India, told AIM.

He believes a liberal FDI policy will not only spur growth in the space sector but also have positive effects on various other sectors, including telecommunications, energy, and transport. 

“What is more important now is there will be financial incentives to private players to be able to operate and they will be able to get finances not only from the country, but from international sources too. And hence, a liberal FDI policy will be most welcome,” Lt Gen AK Bhatt (Retd), director general, Indian Space Association told AIM.

Last year, Ajay Kumar Sood, principal scientific advisor, compared the growth spurt in the sector to the one experienced by the IT sector in the 1990s. He even believes India will have its own SpaceX in a few years. If Sood’s vision does come true, FDI will definitely play an important role in it. Additionally, 100% FDI opens up opportunities for job creation, skill development, and economic growth. It can attract new players, startups, and entrepreneurs to the space industry, creating a vibrant ecosystem and stimulating innovation.

Gen. Bhatt believes that once the FDI policy is in place, funds will also flow into the sector from domestic players. “Funds will definitely flow from Indian big companies once it becomes profitable. I’m very sure this money will come within the country also. He believes investments could also come in from Indian IT giants such as Infosys, Tech Mahindra, TCS etc. “I see that happening because a very important part of the space economy is the space applications and quite a bit of space applications are IT related. So, I see that happening in the future,” he added.

Big tech’s interest in India’s space sector

The new FDI policy could potentially pave the way for big tech firms to invest in Indian startups, presenting a promising opportunity for collaboration and growth. So far, we have seen Google, Microsoft, Amazon, and IBM investing in various spacetech companies, both private and public. 

In 2017, SpaceX announced a partnership with Google to launch the biggest space project ever, which was later revealed in 2021 to be providing Starlink ground stations at Google’s data centres. Similarly, Microsoft too, has been partnering with NASA for lots of projects. In 2020, Microsoft made a deal with SpaceX to connect their cloud computing network through Starlink satellite. 

Given their interest in space tech, allowing FDI could potentially lead to significant investments from big tech in Indian startups. In fact, Google recently made its first investment in the Indian space sector. The tech giant led a USD36 million Series B funding round for Bengaluru-based startup Pixxel.

Microsoft has also made its intentions known about collaborating with startups in India. The Redmond-based tech giant signed an MoU with ISRO to fuel the growth of space tech startups in India. This means startups in India will have access to Microsoft’s sophisticated tools, and resources to help them build and run their business. AWS too, last year, announced that it will work with Indian space tech startups as well as with ISRO.

Similarly, the policy could also open the doors for existing space tech giants like SpaceX, Blue Origin, and Virgin Galactic to work in unison with the Indian space sector and unleash a new frontier in space technology.

Addressing the concerns

However, there is a flip side. A liberal FDI policy could mean foreign companies owning space tech startups in India and technologies and IPs developed in India could be taken out of the country. Gen. Bhatt is of the opinion that in the space sector, technologies will be developed not in just one nation, but globally. It will be a cumulative effort. “Further, 100% FDI is already allowed in the telecom sector in India. It has not led to us losing any technology or IP,’ he added. But he does agree that there should be checks and balances in place in terms of regulations for this to not happen. 

Another concern is the possibility of foreign companies dominating the local market and squeezing out domestic competitors, which can have negative implications for the overall economy. Additionally, excessive reliance on foreign investment may lead to economic vulnerability, as the country becomes highly dependent on external factors. 

Hence, Prakash also believes it is crucial to maintain proper regulatory frameworks and policies to safeguard national security interests. “Stringent measures need to be in place to prevent any misuse of technology or sensitive information by foreign entities. The government must strike a balance between attracting foreign investments and protecting national interests,” he said.

Therefore, the implementation of appropriate regulations is crucial to mitigate the potential risks associated with a liberal FDI policy. Nonetheless, the recent developments are undoubtedly promising for the industry and could play a vital role in realising India’s ambitious goals in the space sector.