Government notifies 100% FDI in Space sector

The Union Ministry of Finance notified the new liberal foreign direct investment (FDI) rule in the space sector. The Union Cabinet approved the liberalised FDI policy in February 2024 to encourage private and foreign players in the space sector. The government notified the new FDI policy on the eve of American billionaire businessman Elon Musk's visit to India.

Elon Musk, who will visit India shortly, is keen to invest in the Indian space sector through his Starlink company, which provides satellite-based internet service. Elon Musk is likely to meet Indian space start-up companies, and there is a strong possibility that his company is looking to invest in the Indian space sector. To encourage foreign/private investment, the government has announced the easing of FDI in the space sector.

FDI in the Space Sector 

The notified FDI in the space sector allows 

• 74 per cent FDI in satellite manufacturing and data products under the automatic routes, 
• 49 per cent for the satellite launch vehicles and spaceports, and
• 100 per cent for manufacturing components required by the space sector.

Significance of the Space Sector Liberalisation 

The Indian space mission has been spearheaded by the government-owned Indian Space Research Organisation (ISRO) since its inception on 15 August 1969.

ISRO has been recognised worldwide for its excellent communication and weather-related satellites. It has also achieved a number of achievements in space exploration, including becoming the first to land on the south pole of the moon through the Chandrayaan -3 mission.

The government of India wants to increase India’s share in the lucrative global satellite launch business. India's share of the global space economy is around 2 to 3 per cent. The government plans to increase it to more than 10 per cent by 2030. 

To achieve this ambitious target, the Indian National Space Promotion and Authorisation Centre (IN-SPACe) estimates an investment of $22 billion in the next 10 years.

The National Space Policy 2023 redefined the role of ISRO. ISRO will be the lead agency which will conduct research and development in the space sector. The private sector will bring the capital to achieve the target of capturing 10 percent of the global space economy by 2030.

Thus, the government has liberalised FDI in the space sector.

What is Foreign Direct Investment

The Foreign Exchange Management Act (FEMA) 1999 defines the terms' foreign direct investment (FDI) ' and' foreign portfolio investment (FPI) '. 

FEMA defines FDI as investment made by a person resident outside India through capital instruments 

1.  in an unlisted Indian company; or 

     (b)  in ten per cent or more of the paid-up equity capital of a listed Indian company.

Thus, 49 percent FDI means that the foreign resident can hold a maximum of 49 per cent equity share of the Indian company.

Sectors in which FDI is not allowed 

There are certain sectors in India where FDI is still not allowed. They are :

(i)  Lottery business,

(ii) Gambling and Betting, including casinos etc.

(iii) Chit funds

(iv) Nidhi Company

(v)Trading in Transferable Development Rights (TDRs)

(vi) Real Estate Business or Construction of Farm Houses, Real estate businesses shall not include the development of townships, construction of residential /commercial premises, roads or bridges and Real Estate Investment Trusts (REITs) regulated by SEBI.

(vii) Manufacturing of cheroots, cigars, cigarillos, and cigarettes, of tobacco or tobacco substitutes

(viii) Activities/sectors where private sectors are not allowed. They are (a) Atomic Energy and (b) Railway operations (other than permitted activities).

(ix)Foreign technology collaboration in any form for Lottery Business, Gambling, and Betting activities.