1. The overseas funding coverage was ambiguous about house actions past satellites, resulting in totally different interpretations. 
2. Some firms made investments foundation the view that investments within the actions not listed beneath the FDI coverage on this sector might be made as much as 100% with out prior authorities approval.
3. The proposed FDI Space Policy addresses these issues and permits 100% overseas investments beneath the automated and governmental approval route.
4. Formal notification is awaited which can make this coverage efficient as regulation.

Background

India at present is dwelling to greater than 200 house start-ups, and the house sector in India has attracted USD 124.7 million funding within the 12 months 2023. The present overseas funding coverage of India (“FDI Policy”) requires overseas buyers to acquire prior authorities approvals for investing within the house sector, notably for the institution of satellites. 

Considering the expansion of this sector, the Indian authorities has been periodically releasing insurance policies / notifications, establishing organizations, and so forth. with the intent to permit extra personal participation on this sector. This has led to the institution of a company to advertise the sector referred to as the Indian National Space Promotion and Authorization Centre in 2020, in addition to the introduction of the National Geospatial Policy, 2022 adopted by the Indian Space Policy, 2023. 

On February 21, 2024, the Union Cabinet authorized amendments to the Foreign Direct Investment (“FDI”) coverage and communicated it in a press launch (“FDI Space Policy”) which proposes to liberalize investments within the house sector. However, a proper notification from the related authorities continues to be awaited for the amendments to change into enforceable as regulation.

Existing FDI Policy 

Existing overseas funding limits within the house sector are offered beneath the Schedule I of Foreign Exchange Management Act (Non-Debt Instrument) Rules, 2019 (“NDI Rules”). The present norms don’t acknowledge “space” as a sector in itself. Instead, the house associated actions are primarily captured beneath the pinnacle – “satellites – establishment and operation”. 100% overseas funding is allowed on this sector however the identical is topic to approval from the federal government together with compliance of sectoral tips from Department of Space / Indian Space Research Organisation. In essence, all overseas investments in firms endeavor the actions of satellites-establishment and operations require authorities approval. 

Reforms – New FDI Space Policy 

The proposed FDI Space Policy permits 100% overseas funding within the house sector and has additionally created sub-categories, entry route and funding thresholds for numerous house associated actions, that are as follows:

Analysis 

(i) Status of present investments

The present FDI coverage didn’t embody house sector associated actions (apart from satellites-establishment and operation) comparable to launch car enterprise, floor phase, consumer phase, sub-component / sub-systems manufacturing, information merchandise and so forth. 

Various stakeholders argued that for the reason that present FDI coverage didn’t specify sure actions comparable to launch autos, information units, manufacturing of house methods / elements and so forth. beneath the pinnacle of “satellites-establishment and operation”, overseas investments in such instances ought to be permitted as much as 100% beneath the automated route. This was based mostly on the interpretation beneath the FDI coverage that sectors / actions not particularly listed or prohibited, are permissible for overseas funding as much as 100% beneath the automated route, topic to sectoral conditionalities. Relying on the identical, overseas buyers made investments in house start-ups whose actions weren’t explicitly listed or regulated beneath the present FDI regime with out acquiring authorities approval. 

Some stakeholders interpreted “satellites” very broadly and took a extra conservative view that each one house associated actions required authorities approval. Similarly, there have been overlaps in actions / interpretation of the FDI coverage beneath the sectors of defence, telecom and manufacturing. 

The house liberalization norms beneath the proposed FDI Space Policy could have truly de-liberalized this sector for sure firms who acquired investments in allied house actions based mostly on the understanding that sectors / actions not particularly listed or prohibited, ought to be eligible for overseas investments as much as 100% beneath the automated route. In such instances the place the funding thresholds beneath the proposed FDI Space Policy could also be breached, it might be fascinating to see the federal government’s method together with granting approvals on a post-facto foundation. 

(ii) Sub- categorizations of actions throughout the Space Sector

While the federal government has acknowledged the sub-categories of actions throughout the house sector, it hasn’t clarified its rationale for offering totally different overseas funding thresholds for such actions. Relaxed thresholds for satellites (i.e., 74% beneath the automated route (as much as 100% beneath authorities route)) and its sub-components (i.e., 100% beneath the automated route) encourage overseas participation in business elements of house actions. In distinction, the 49% cap on overseas investments beneath the automated route (as much as 100% beneath authorities route) on launch autos acknowledge their dual-use potential for each civilian and defence functions. This sensitivity, mixed with the launching state’s heightened legal responsibility beneath Article II of the Convention on International Liability for Damage Caused by Space Objects (“Liability Convention”), could also be considered as necessitating larger authorities oversight. 

However, business gamers have additionally criticized the differential remedy offered to launch autos vis-a-vis satellites. They consider, in essence, each industries have comparable sensitivity points and therefore ought to be handled at par from a overseas funding perspective. Hence, the distinction in overseas funding thresholds require extra rationalization from the federal government.

(iii) Satellite Data Products 

The time period ‘satellite data products’ has not been outlined beneath the proposed FDI Space Policy however investments in such actions can be permitted as much as 74% beneath the automated route (as much as 100% beneath authorities route). This could result in some battle from a satellite tv for pc imagery / information perspective learn together with the liberalized Geospatial Guidelines, 2021. (“Geospatial Guidelines”). 

The Geospatial Guidelines largely allow overseas investments as much as 100% beneath the automated route with restricted overseas funding restrictions particularly if the exercise is for (i) creation / possession / storage of geospatial information of a sure accuracy (as outlined beneath the Geospatial Guidelines); (ii) terrestrial cellular survey, road view survey and surveying actions in Indian territorial waters. There appears to be no particular restriction on satellite tv for pc generated information (apart from the above) beneath the Geospatial Guidelines. Thus, the proposed FDI Space Policy could find yourself limiting overseas investments for actions referring to Satellite Data Products (which would come with geo-spatial information) through which in any other case is considered to be permissible as much as 100% beneath the automated route.

The authorities must also outline what constitutes satellite tv for pc information merchandise and to the extent potential it might be beneficial that overseas funding as much as 100% ought to be permitted beneath the automated route.

Additionally, the rationale for capping investments for satellite tv for pc information merchandise beneath the proposed FDI Space Policy appears unclear as these are information units which might be regulated beneath the Geospatial Guidelines and the brand new Indian privateness regulation. 

(iv) Where are sub-components for launch autos coated?

The proposed FDI Space Policy explicitly covers the manufacturing of elements and methods / sub-systems for the satellite tv for pc sector, floor & consumer phase, and permits 100% FDI beneath computerized route for a similar. With the absence of comparable language for elements in launch autos, it may indicate its inclusion beneath the broader launch car class, therefore falling beneath the 49% computerized route (as much as 100% beneath authorities route). Alternatively, it may be argued since it isn’t expressly specified, the identical might be coated beneath the 100% computerized route class. However, contemplating the essential position of such elements within the sector’s growth, clarification from the federal government would supply much-needed consolation particularly if the elements are twin use (satellite tv for pc and launch car utilization).

(v) What about floor phase and consumer phase for launch autos?

Following the sample noticed with the satellite tv for pc and floor phase classes, the absence of particular point out for the “ground segment & user segment” within the launch car part raises additional questions. This omission might be an oversight or intentional, however the lack of readability hinders transparency and predictability for potential buyers. Further readability on the inclusion from an business perspective within the official modification notification would guarantee a complete and constant coverage framework for all the launch car sector.

(vi) Were any sub-categories / actions missed?

As house actions could broaden to incorporate house mining, exploration, worldwide house station building, house tourism and so forth., India must proactively deal with these areas. Especially, if these ought to be interpreted for overseas investments as much as 100% beneath the automated route, as this might have a bearing on India’s capacity to draw overseas funding whereas safeguarding nationwide pursuits, technological competitiveness, and accountable stewardship of India in house.

Conclusion

While the proposed FDI Space Policy offers substantial liberalization, additional readability is awaited based mostly on the formal notification which can make this efficient as regulation. Ideally, the Government ought to present definitions / explanations for the proposed categorization and sub-categorizations, and additional readability on the inclusions and omissions of actions which can be associated to most house sector features comparable to consumer and floor segments. 

While the transfer in direction of liberalization considerably reduces authorities management over the house sector, its inherent interconnectedness with different regulated domains like telecommunications / geospatial can’t be ignored. Despite these challenges, the federal government’s willingness to open the house sector to overseas investments is a constructive step providing larger confidence to overseas buyers. Relaxation within the present norms additionally signifies a supportive stance in direction of the business, encouraging each home and worldwide participation. Notably, India efficiently attracted substantial overseas funding even in the course of the period of full authorities management. Therefore, with the present reforms, a big improve in overseas investments is predicted.

Footnotes
[1] Rajya Sabha Questions, Department of Space, obtainable at
https://sansad.in/getFile/annex/262/AU621.pdf?source=pqars
[2] Notification, Department of Space, obtainable at https://pib.gov.in/PressReleasePage.aspx?PRID=1988864
[3] Notification, Ministry of Commerce & Industry, obtainable at
https://pib.gov.in/PressReleaseIframePage.aspx?PRID=2007876
[4] Article II of the Liability Convention offers {that a} launching State shall be completely liable to pay compensation for injury brought on by its house object on the floor of the earth or to plane flight.