May 26, 2024

General Studies Paper -3

Context: Recently, the Union Finance Ministry notified new rules backing Foreign Direct Investment (FDI) for the space sector under the Foreign Exchange Management Act (FEMA).

FDI in Space Sector

  • The Finance Ministry came with new rules, known as the Foreign Exchange Management (Non-debt Instruments) (Third Amendment) Rules, 2024, that provide a liberalised entry route for FDI in satellites, launch vehicles, spaceports, and manufacturing space-related components and systems.
  • According to it, 100% percent FDI has been allowed for the space sector category of manufacturing and operation of satellites, satellite data products, and ground segment and user segment.
  • Out of this, up to 74% would be through the automatic route and government nod would be required for investment beyond that.
    • Under the earlier policy, any foreign investment in manufacturing and operating satellites was allowed only with government approval.

Significances of FDI in Space Sectors

  • Private Sector Participation: The Indian space structure is moving from building India’s capabilities under ISRO to further capitalization of space-based technology for commercial applications as well as industry involvement in the sector.
  • It is expected to integrate Indian companies into global value chains.
  • Space Missions: India has achieved many considerable feats in space missions and has established its name in the global picture as a provider of reliable and cost-effective space solutions.
  • Technology Absorption and Global Integration: It will enable modern technology absorption.
    • With increased investment, companies could achieve sophistication of products, global scale of operations, and enhanced share of the global space economy.
    • It is expected to integrate Indian companies into global value chains.
  • Boost Manufacturing: Companies will be able to set up their manufacturing facilities within the country, encouraging the Government’s ‘Make In India’
  • Ease of Doing Business: The FDI policy reform will enhance Ease of Doing Business in the country, leading to greater FDI inflows and thereby contributing to the growth of investment, income, and employment.
  • Promote Research and Innovations: FDI in space will promote technology transfer and research innovations.

Concerns and Challenges

  • Limited Investor Interest: There is limited investor interest at later stages of development.
    • This could be due to the high-risk nature of space investments and the long-term return on investment.
  • Talent Pool: The talent pool for space tech startups needs to grow.
    • There is a need for more skilled professionals in the field of space technology.
  • Policy Clarity: There is a need for more policy clarity.
    • Clear and consistent policies can help attract more foreign investors.
  • Simplifying the FDI Process: The process for foreign direct investment needs to be simplified.
    • A complex process can deter potential investors.
  • Capital-Intensive Requirements: Space technology is capital-intensive.
    • This means that it requires a significant amount of capital investment, which can be a challenge for startups and smaller companies.
  • Conflict of Interest with ISRO: Foreign investors have been on the fence about investing in the Government monopolised Indian space sector.
    • The conflict of interest with ISRO as a competitor had perpetuated apprehension in the minds of foreign investors.

Conclusion

  • The liberalisation of the FDI policy in the space sector is a strategic move by the Indian government to lower entry barriers for foreign players seeking to collaborate with or invest in Indian space enterprises.
  • This move is set to revolutionise the Indian space industry by opening new avenues for foreign investment and participation, thereby accelerating India’s journey towards becoming a global space powerhouse.
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