Growth Engine

The space sector has experienced unprecedented growth in recent years, fueled by advancements in technology, international collaborations and increasing private sector involvement. Governments and private companies alike are investing heavily in space explorations, satellite technology and space tourism. The space economy is projected to generate over $1 trillion in annual sales by 2040, up from around $370 billion in 2020.^[1]

The Indian space sector too has experienced rapid growth with over 100 start-ups already active in diverse areas such as building launch vehicles or rockets, designing advanced satellites, space situational awareness solutions.^[2] The country’s space market is worth nearly $8 billion, growing at a compound annual growth rate of 4% in the last few years compared to 2% globally.^[3] The space is also attracting increasing foreign investment including Google’s $36 million investment in Pixxel, a satellite-image start-up^[4] and GIC’s investment in Skyroot Aerospace, which is touted as the largest funding round in the Indian spacetech sector ($51 million)^[5]. As per Government estimates, it is expected that with the implementation of the Indian Space Policy, 2023, $44 billion Indian space economy can be achieved by the year 2033.^[6] Along with advancement in technology, the legal landscape in this area is also in flux, and we discuss below some of the significant developments.

Key Regulatory Updates

Artemis Accords

To guide space exploration cooperation among nations, National Aeronautics and Space Administration (NASA) in coordination with the U.S. Department of State, established the Artemis Accords in 2020 together with seven other founding member nations.^[7] The Artemis Accords establish a practical set of principles to guide space exploration cooperation among nations participating in the agency’s 21^st century lunar exploration plans.^[8] On June 21, 2023, India became the 27^th country to sign the Artemis Accords.^[9]

Draft Space Activities Bill, 2017^[10]

The draft Space Activities Bill, 2017 (“Space Bill”), published in 2017 for public comments, proposed to empower the Central Government to provide a regulatory mechanism to promote the growth of every matter relating to space activity including exploration and use of outer space and to foster the development of scientific and technical potential in the sector. The Space Bill laid down the ground rules for authorization and licensing for commercial space activities and imposed restrictions on unauthorized space activities. The licensing conditions included broad based requirements for the licensee to conduct operations in such a way as to (i) prevent the contamination of outer space or adverse damage or pollution to the environment of the earth, (ii) avoid interference with the activities of others in the peaceful exploration and use of outer space, (iii) avoid any breach of India’s international obligations, and (iv) preserve the public health, sovereignty and integrity of India, security of State, defence of India, friendly relation with foreign States, public order, decency or morality. The Space Bill further contained penal provisions inter alia for damage arising out of commercial space activity, undertaking unauthorized commercial space activity and causing damage to the environment, and otherwise provided broad rule making powers to the Central Government. However, the Space Bill has since lapsed.^[11]

Indian Space Policy, 2023^[12]

The Government of India seeking to provide regulatory certainty to space activities by various stakeholders and in order to create a thriving space ecosystem, formulated the Indian Space Policy – 2023 (“Policy”). The Policy inter alia aims at promoting greater private sector participation in the entire value chain of the space economy, including in the creation of space and ground based assets. As per the Policy, Indian consumers of space technology or services (such as communication, remote-sensing, data-services, launch-services, etc.), whether from public or private sectors, shall be free to directly procure them from any source, whether private or public.

The Policy defines the role and responsibilities of the various participants in the sector as follows:

• Non-Governmental Entities (“NGEs”)^[13] shall be allowed to undertake end-to-end activities in space sector through establishment and operation of ‘space objects’, ground-based assets and related services, such as communication, remote sensing, navigation, etc. This would be subject to such guidelines / regulations as prescribed by Indian National Space Promotion and Authorization Center (“IN-SPACe”);
• IN-SPACe will function as an autonomous Government organization, to promote, hand-hold, guide and authorize space activities in India for which IN-SPACe will periodically issue guidelines and procedures. It is to act as the single window agency for the authorisation of space activities by Government entities as well as NGEs, subject to relevant Government directives, keeping in mind safety, national security, international obligations and/or foreign policy considerations;
• Indian Space Research Organization (“ISRO”) will focus primarily on research and development of new space technologies and applications;
• NewSpace India Limited will be responsible for commercializing space technologies and platforms created through public expenditure, and manufacture, lease or procure space components, technologies, platforms and other assets;
• Department of Space (“DOS”) will inter alia oversee distribution of responsibilities outlined in the Policy, act as the nodal department for implementation and interpretation of the Policy, create appropriate mechanism to resolve disputes arising out of space activity.

It should however be noted that this is a policy document, and any proposed sectoral regulation will have to be enacted by appropriate legislative steps including as regards the regulations, guidelines and procedures that the Policy itself contemplates.

Extant FDI Regime

Under the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, foreign direct investment (“FDI”) was permitted up to 100% with Government approval in the area of satellite establishment and operation and subject to sectoral guidelines of DOS / ISRO. DOS is the competent authority for grant of approval for foreign investment for such activities.^[14] Further, the Standard Operating Procedure for processing FDI proposals^[15] provides that such investment shall also require security clearance from Ministry of Home Affairs.

However, as per the recent press release dated February 21, 2024 issued by the Union Cabinet^[16], the satellites sub-sector has been divided into three different activities with defined limits for foreign investment in each  sector. The entry route and investment limits for the various activities under the amended policy are as follows:

1. FDI upto 74% is allowed under the automatic route in the Satellites-Manufacturing & Operation, Satellite Data Products and Ground Segment & User Segment. These activities would fall under the government route for investment beyond 74%.
2. FDI is allowed upto 49% under the automatic route for Launch Vehicles and associated systems or subsystems, Creation of Spaceports for launching and receiving Spacecraft. Beyond 49% these activities are under the government route.
3. For manufacturing of components and systems/ sub-systems for satellites, ground segment and user segment, FDI is allowed upto 100% under Automatic route.

Through a further press release dated March 5, 2024^[17], the Ministry of Commerce and Industry has notified the aforesaid amendments and the terms provided in the three parts have been defined to provide clarity regarding the activities that would be included in each part. For example, Satellites — Manufacturing & Operation is defined to mean: “end-to-end manufacturing and supply of satellite and/or payload, establishing the satellite systems including control of in-orbit operations of the satellite & payloads.” The press release further states that “the investee entity shall be subject to sectoral guidelines as issued by the Department of Space from time to time”. These provisions will take effect from the date of the notification under the Foreign Exchange Management Act, 1999.

Way Forward

With ambitious missions to the Sun, the Moon, Mars and beyond, India is poised to play a pivotal role in shaping the future of science, technology, and commerce on a global scale. As the Indian space industry continues to evolve, India faces the challenge of implementing a regulatory framework to encourage investment while safeguarding national interests and adhering to India’s international treaty obligations, as was also recognized in the draft Space Bill referred above. While the aforesaid amendments to the FDI policy is a positive step, its effectiveness as law depends on formal notification. It is hoped that these amendments will bring in greater regulatory certainty and a balanced sectoral regulatory framework for governing commercial activities in the space sector, which will in turn benefit foreign investors and domestic industry alike, and help propel India’s space ambitions.

Footnotes:

[1] Space – CitiGPS (citigroup.com)

[2] India’s space economy could potentially touch $100 billion by 2040, says new global report – BusinessToday

[3] Ibid

[4] Pixxel | Alphabet Inc’s Google leads $36 million funding round for Bengaluru-based space startup Pixxel – Telegraph India

[5] In largest Indian spacetech funding, Skyroot raises $51 million from Singapore’s GIC – Times of India (indiatimes.com)

[6] Press Release SNC/PK/LS2946 & 2978 dated December 20, 2023 by the Department of Space available at: Press Information Bureau (pib.gov.in)

[7] NASA Welcomes India as 27th Artemis Accords Signatory – NASA

[8] NASA, International Partners Advance Cooperation with First Signings of Artemis Accords – NASA

[9] NASA Welcomes India as 27th Artemis Accords Signatory – NASA

[10] Draft Space Activities Bill, 2017, PRS, available at: https://prsindia.org/files/bills_acts/bills_parliament/1970/Draft%20Space%20Activities%20Bill%202017.pdf

[11] Expanding India’s share in global space economy – The Hindu

[12] IndianSpacePolicy2023.pdf (isro.gov.in)

[13] As per the Policy, “NGE” shall mean (i) a company incorporated under the Companies Act, 2013 or (ii) a partnership firm established under the Limited Liability Partnership Act, 2008, (iii) Trusts under the Indian Trusts Act 1882 (iv) Association of persons or body of individuals incorporated under relevant statutes in India

[14] Consolidated FDI Policy (effective from October 15, 2020) issued by the Department for Promotion of Industry and Internal Trade, Ministry of Commerce and Industry Government of India

[15] Dated August 17, 2023 issued by the Department for Promotion of Industry and Internal Trade, Ministry of Commerce and Industry Government of India

[16] Press Release dated February 21, 2024 by the Department of Space available at: Press Information Bureau (pib.gov.in)

[17] Press Release dated March 5, 2024 by the Department of Space available at: Press Information Bureau (pib.gov.in)