The Government of India (“GOI”), in a bid to promote private sector activity and include young entrepreneurs in upcoming technological changes, specifically in the space sector, had, in 2020, introduced various reforms, such as: (a) enabling and promoting non-governmental entities (“NGEs”) to carry out independent space activities; (b) opening up ISRO infrastructure and space facilities for use by the private industry; and (c) demand-driven approach for utilization of space assets such as satellites and launch capacity. 

Under the Foreign Direct Investment Policy of 2020 (“2020 FDI Policy”), the prevailing position was that 100% foreign direct investment (“FDI”) was allowed for the establishment and operations of Satellites (subject to sectoral guidelines of the Department of Space/ISRO) through the government route. 

In 2023, the Indian Space Policy (“ISP”) was formulated as an overarching, composite and dynamic framework to implement the aforementioned space sector reforms to bring about regulatory certainty to space activities by various stakeholders and to create a thriving space ecosystem.

In light of the ISP and the ongoing efforts to provide opportunities to the private sector players, on February 21, 2024, the GOI has approved certain pertinent amendments (pending formal direction by the Reserve Bank of India (“RBI”)) to the Foreign Direct Investment Policy (“Amended FDI Policy”) liberalizing foreign investments into the Satellite and Space Sector. By way of the Amended FDI Policy, FDI in the Satellite and Space Sector has now been segmented into the following 3 (three) sub-sectors: 

1. Satellite manufacturing and operations, satellite data products and ground segment and user segment, where FDI is allowed up to 74% under the automatic route, beyond which government route will be applicable;
   
   Argus Comment: It is pertinent to note that the term used under the Amended FDI Policy is ‘manufacturing’ and not ‘establishment’, which was used under the 2020 FDI Policy. Establishment can be interpreted to include manufacturing of not just the satellite but its systems and sub-systems as well (covered in (c) below), setting-up of warehouses and other logistical support for the manufacture of satellites, etc., which, when read with the following term ‘operation’, could be construed broadly to mean and include everything from procuring raw materials for manufacturing satellites to launching and operating the satellites.
   
   In this regard, to avoid ambiguity, RBI may need to clarify, by way of FAQs, the ambit of the word ‘operations’ and the activities sought to be covered under this segment. 
2. Launch vehicles and associated systems or sub-systems, creation of spaceports for launching and receiving spacecraft, where FDI can be received up to 49% under the automatic route, beyond which government route will be applicable; and
   
   Argus Comment: Under the 2020 FDI Policy, apart from the establishment and operation of satellites, there is no mention of anything that may be related to the broader Space sector and hence, the allowance of 49% FDI under the automatic route in this sub-sector is definitely a liberalization of the existing position. 
3. Manufacturing of components and systems/ sub-systems for satellites, ground segment and user segment can receive up to 100% in FDI under the automatic route.
   
   Argus Comment: From our review of the ISP, we note that terms such as ‘systems’ and ‘sub-systems’ are not defined, and in terms of the satellite itself, can include various navigation systems, communications system, antennas and transponders that receive and retransmit signals, the power system, the solar panels that provide power, and the propulsion system, the rockets that propel the satellite, etc. Additionally, there seems to be an overlap in the usage of “ground segment and user segment” in (a) and (c), and “systems/ sub-systems” in (b) and (c). It would therefore be pertinent for the RBI to issue clarifications to demarcate the ambit of the 3 segments, to allow NGEs to set-up and scale their business in this niche sector in compliance with the sectoral limits. 

Prior to the reforms, the role of private sector players in the space sector was limited to that of vendors or suppliers to the GOI’s space program. Pursuant to the ISP and now the Amended FDI Policy, the role and inclusion of NGEs and private sector participation in the Indian space program will play a key role in boosting India’s market share on the global scale (which currently stands at around 2%). Further, allowing foreign investments in the private space sector will enable the Indian space program to remain cost competitive within the global space market, and thus create several jobs in this space and other related sectors. Although an excellent opportunity to grow the Indian space sector, the RBI may need to provide clarity in respect of the scope of what might actually be included under each sub-sector and in respect of systems related security concerns that may come-up from the perspective of foreign investments.

This update has been contributed by Ankit Guha (Partner), Vallishree Chandra (Principal Associate) and Pragnya Shabareesh (Senior Associate).

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