The Union Cabinet's groundbreaking decision on February 21, 2024 [https://pib.gov.in/PressReleasePage.aspx?PRID=2007876] to amend India's Foreign Direct Investment ("FDI") policy for the space sector marks a turning point which sets to reshape India's space aspirations. This change in the FDI policy promises a new era of liberalization for India. However, this amendment to the FDI policy is still pending enforcement as a law, and a formal notification is awaited from the authorities.
Under the current FDI policy of India [Page 45 of the Consolidated FDI Policy 2020, accessible at https://dpiit.gov.in/sites/default/files/FDIPolicyCircular2020-29October2020_0.pdf], space sector activities are grouped under "satellites - establishment and operation" , allowing up to 100% FDI. However, this requires government approval and adherence to guidelines from the Department of Space. In short, companies willing to make FDI in satellite related activities needed government approval.
This amendment to the FDI Policy introduces a refined framework thereby addressing the challenges faced in the past. Notably, the specific sub-categories within the space sector now boast distinct foreign investment thresholds, bringing in more clarity to activities ranging from satellite manufacturing to launch vehicle creation.
The entry routes for the various activities under the amended FDI policy are as follows:
Upto 74% under automatic route: Satellite manufacturing and operation, satellite data products and ground segment and user segment. Beyond 74% these activities will require government approval.
Upto 49% under automatic route: Launch vehicles and associated systems or subsystems, creation of spaceports for launching and receiving spacecraft. Beyond 49% these activities will require government approval.
Upto 100% under Automatic route: Manufacturing of components and systems/ sub-systems for satellites, ground segment and user segment.
These reforms also rectify the ambiguities in the previous policy that led to varied interpretations and potential impacts on companies relying on the assumptions about the activities which were unlisted in the previous policy.
As space activities evolve, the policy will need further clarity on unaddressed sub-categories like space mining, space exploration, space tourism, etc. emphasizing the necessity of precise definitions and precise guidelines going forward.
However, the status of existing FDI remains uncertain. The resolution of this question hinges on the upcoming FEMA notification, which is expected to provide greater clarity on the regulatory framework.
Despite the challenges, the Indian government's commitment to foster a conducive environment for domestic and international investment in the space sector reflects India's growing prominence in the space sector with anticipated FDI set to launch India into a leading position in the dynamic landscape of space exploration and technology.
Originally published 05 April 2024
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