Overview
The Indian Government recently announced its intention to open the Indian space sector to FDI. This article analyses the implications of allowing FDI in space and gives an overview of the Indian space regime.
Introduction
India is one of the few nations in the world to dominate the space arena. For a developing nation, India has achieved a great feat in exploring outer space. Despite being a space faring nation, India accounts for only 2% of the global space economy. India’s achievements in the space sector fall short behind countries like US and China which hold a greater contribution in the $447 billion dollar global space economy. The reason for India holding only a small share in the global space economy stems from the Indian space sector being primarily Government controlled.
Indian space program was started in the 1960s and has revolutionised the space domain through its national space agency ISRO (Indian Space Research Organisation) which functions under the aegis of Indian Department of Space. For more than 5 (five) decades under Department of Space administration, ISRO has functioned as both an operator and regulator of space activities. This consolidation of complete control over Indian space sector in the hands of statutory bodies has impeded participation from private players. Cognizant about the importance of collaboration with private foreign players, the Indian Government recently announced its intention to open the Indian space sector to foreign direct investment.
Overview of Indian Space Sector
As mentioned above, the Indian space sector has been predominantly Government operated. Under the umbrella of Department of Space and ISRO, private players never got the opportunity to fully participate and spearhead space activities. While ISRO has had a long-standing relationship with numerous private players, their role has always been limited to being a vendor, subcontractor, or supplier for ISRO and this constraint on private collaboration has severely inhibited the growth of the Indian space domain.
In the year 2020, the Indian space sector welcomed its first set of major reforms to boost private sector participation. As part of these reforms a new body, namely, IN-SPACe (Indian National Space Promotion and Authorisation Centre) was created to regulate and promote private sector participation in space activities.
IN-SPACe is contemplated to be the main interface for collaboration between Government and private actors. The private players have responded well to these new government initiatives of providing a level playing field in a once closed off sector. As of 2022, about 75 (seventy-five) startups have registered on the government portal with novel ideas to take the Indian space sector to newer heights. IN-SPACe will enable private players to be more than a vendor and provide them with the option to build and launch space objects, set up base at Department of Space premises, utilise ISRO facilities and infrastructure and develop new space infrastructure for ISRO.
Despite the government’s encouragement towards private participation, the issue remains that there has been a lack of foreign investment to augment the Indian space economy. Foreign investors have been on fence about investing in Government monopolised Indian space sector. The conflict of interest with ISRO as a competitor had perpetuated apprehension in minds of foreign investors who could not see a way ahead to reap the benefits of the Indian space program initiatives.
FDI in Space
Presently, FDI in space is allowed under government route only for satellite establishment and operations. Further, FDI in space is approved by the Government on a case-by-case basis and often this approval takes years. However, witnessing the change in approach of the Indian Government towards private players involvement, foreign companies have expressed interest in investing in this space. Soon after opening the Indian space sector to private actors, the next step has been to seek foreign direct investment. ISRO officials have called for introduction of a new FDI policy to engage with foreign firms and make the Indian space sector accessible to both domestic and foreign players.
In February 2022, the Indian Minister of Space informed the Indian Parliament about the government’s intention to allow FDI in space. While currently FDI is limited to satellite making operations, we can expect the new FDI policy to attract investment in other space activities as well. As per ISRO officials this new FDI approach would enable foreign companies to set up base in India and utilise ISRO facilities for undertaking a diverse range of space activities. While we are yet to see the exact sectoral guidelines that the Government will impose on FDI but as per ISRO Chairman the sectors that were previously closed off to FDI will be opened up to forge mutually beneficial relationship between Government and private players.
To ensure effective collaboration between Indian and foreign players, IN-SPACe would be the agency in charge for facilitating foreign investment in space sector and will provide a one-stop interface for foreign players to enter Indian space market. For a foreign investor, investing in Indian space domain presents numerous benefits:
- Cost-effective: The operating costs of setting up base and launching space vehicles in India is comparatively much less compared to its counterparts like NASA. Nothing illustrates the economical nature of Indian space endeavours better than the words of the Indian Prime Minister Narendra Modi on the Indian mission to Mars costing less than the whole budget of the Hollywood movie Gravity.
- Exceptional success rate: ISRO is the 6th (sixth) largest space agency in the world and holds an exceptional success rate. India has made a name for itself by successful launch of about 342 (three hundred and forty-two) foreign satellites from over 34 (thirty-four) countries.
- Innovative equipment: ISRO holds the cutting edge equipments and is also in process to launching SSLV (small satellite launch vehicle) in partnership with private companies. This will provide a greater avenue for foreign players to form partnerships with the Indian space sector.
- Liberalised space sector: Over the years, ISRO has forged strong relationships with numerous industrial ventures that will be beneficial to foreign players who wish to set up base in India.
Draft Space Activities Bill
As India tries to meet the rising commercial needs of its Indian space program it must balance this against its international obligations to ensure safe and peaceful use of outer space. Regulation of space activities comes under the ambit of international law and to solidify the obligation of sovereign States the UN Committee on Peaceful Use of Outer Space (UNCOPUOS) obligates the State parties to execute domestic space legislations to govern space activities.
Pursuant to this, India is in the process of passing a Space Activities Bill that will provide a conducive environment for private participation and lay down a strong regulatory framework for managing space activities. It is proposed the Space Activities Bill will provide guidelines for attracting FDI and regulating private sector participation. The 2017 draft of the Bill provides for a licence mechanism for undertaking commercial space activities. As per the Bill, the Indian Government on an application made by an entity stipulating the proposed commercial space activity will be issued a licence. Based on this, domestic and foreign private players can apply for a licence and undertake commercial space activities on ISRO’s playground.
Conclusion
In conclusion, with India having one of the best space programs in the world, the move to allow FDI in space will make India a bigger player in the global space economy. FDI in space will allow foreign players with a window to venture into the India space domain, this will contribute to Indian national and foreign reserves, promote technology transfer and research innovations. Further, the introduction of Indian Space Activities Bill will give greater clarity to private players on how to be an integral part of the space sector.
Lastly, at the 72nd International Astronautical Congress held in 2021, the ISRO Chairman emphasised on the government’s intention to create a favourable environment for foreign investment and suggested foreign participants to start investing in India. Therefore, the time is now ripe for foreign enterprises to penetrate and establish a presence in the Indian space market.
† Partner, Khaitan & Co.
†† Counsel, Khaitan & Co.
††† Associate, Khaitan & Co.
Related
FAQs
Union Minister Dr Jitendra Singh says, presently FDI in space sector is allowed up to 100% in the area of Satellites-Establishment and Operations through Government route only.
Who is India's largest FDI investor? ›
During the first half of this fiscal, Singapore emerged as the top investor. It was followed by Mauritius, the U.A.E., the U.S.A., the Netherlands and Japan.
Which country invests more FDI in India? ›
Top investor countries in India in 2022. Between April to December 2022, Singapore accounted for maximum inward FDI in India at US$13.07 billion, followed by the US (US$4.95 billion), Mauritius (US$4.73 billion), UAE (US$3.10 billion), and the Netherlands (US$2.15 billion).
Why is India attractive to FDI? ›
India's skilled and semi-skilled workforce is a valuable human resource. Labor is cheap, which lowers production costs and increases competitiveness. The country's purchasing power is enormous. These elements will undoubtedly entice any investor.
Is FDI good or bad for India? ›
FDI provides India with stability in inflows of funds, access to international markets, export growth, technological transfer, and skills to improve the balance of payment. But FDI doesn't guarantee a high growth rate.
Who is responsible for FDI policy in India? ›
Explanation: In India, the Department of Promotion of Industry and Internal Trade is the nodal Department for the formulation of the policy of the Government on Foreign Direct Investment (FDI).
Is US the largest source of FDI in India? ›
Trend on Foreign Direct Investment (FDI) in India. Singapore (27.01%) and USA (17.94%) have emerged as top 2 sourcing nations in FDI equity flows into India in FY2021-22 followed by Mauritius (15.98%), Netherland (7.86%) and Switzerland (7.31%).
Who are the top 10 foreign investors in India? ›
Mauritius, Singapore, the U.S., the Netherlands, Japan, the U.K., Germany, and the United Arab Emirates are the main investing countries in India. Investments were mainly oriented towards services, computer software and hardware, telecommunications, trade, the automobile industry, construction, and chemicals.
What is the impact of FDI in India? ›
IMPACT OF FDI ON ECONOMY
Acquiring foreign direct investment seems to have become a significant component of India's economic growth plans. In developing nations, FDI assures a large quantity of domestic capital, production level, and job prospects, which is a crucial step toward the country's economic progress.
What is the rank of India in world in FDI? ›
Key Findings of the WIR 2022. UNCTAD World Investment Report (WIR) 2022 has ranked India at 7th rank among the top 20 host economies for 2021, in terms of FDI. In 2021, FDI inflows increased from USD 74,391 million in FY 19-20 to USD 81,973 million in FY 20-21.
According to the latest results of our Coordinated Direct Investment Survey , and as shown in our Chart of the Week, the world's top ten recipients of foreign direct investment by end-2020 were the United States, the Netherlands, Luxembourg, China, the United Kingdom, Hong Kong SAR, Singapore, Switzerland, Ireland, and ...
What is the difference between India and China FDI? ›
India have large pools of labor and strong domestic markets, it have also great opportunity for FDI, but if compare FDI in India and China there is significant difference in these two. In last year China received $111.7 billion (inbound FDI) whereas India only received $22.24 billion.
Is India good for destination for investment? ›
India a long-term investment destination even among G-20 countries. India has consistently delivered 9-11% returns, be it short-term or long-term investment, ranking it among the top 3 in the list of G20 nations delivering high returns.
Is USA good for FDI? ›
The United States is the top destination of inward foreign direct investment. Source: IMF Data, Coordinated Direct Investment Survey. Note: Chart shows inward FDI positions.
Is FDI good or bad for India's economic growth if so why? ›
Foreign direct investment can enhance the economy of the country where it is produced, encouraging local firms while also improving the investor's environment. Emerging economies benefit from foreign direct investment.
What is the main source of FDI for India? ›
Top 5 sectors receiving highest FDI Equity Inflow during FY 2021-22 are Computer Software & Hardware (24.60%), Services Sector (Fin., Banking, Insurance, Non Fin/Business, Outsourcing, R&D, Courier, Tech.
Where does India generally receive FDI from? ›
Sectors. During 2014–16, India received most of its FDI from Mauritius, Singapore, Netherlands, Japan and the US. On 25 September 2014, Government of India launched Make in India initiative in which policy statement on 25 sectors were released with relaxed norms on each sector.
What is the history of FDI in India? ›
Foreign direct investment (FDI) in India was introduced in the 1991 under the Foreign Exchange Management Act (FEMA) implemented by the then finance minister, Dr. Manmohan Singh. It commenced with the baseline of 1 billion dollars in 1990.
Which country has the most FDI in the US? ›
The U.S. FDI stock in 2021 reached USD 13,619 billion. Equity investments were up by 54%, and new greenfield project announcements also increased (+28%) to USD 86 billion.
...
FDI STOCKS BY COUNTRY AND BY INDUSTRY.
| Main Investing Countries | 2019, in % |
|---|
| Japan | 15.0 |
| Canada | 12.9 |
| Germany | 11.6 |
| United Kingdom | 9.9 |
6 more rowsMohnish Pabrai is an Indian-American businessman, investor, and philanthropist.
Rakesh Jhunjhunwala became a billionaire in 2008. He is often referred to as "the Big Bull of India" or "India's Warren Buffett." Since then, his fortune has been of national concern because of how steadily his financial situation has improved. He was ranked 438th out of the world's richest people as of right now.
Who is no 1 share investor in India? ›
Rakesh Jhunjhunwala
Over the decades, his investments soared, and he became one of the wealthiest investors in the country. His few holdings include Tata Motors, Titan Company and Star Health & Allied Insurance. In 2003, he founded his asset management company, Rare Enterprises, headquartered in Mumbai.
What is the impact of FDI on growth? ›
FDI contributes to economic growth by augmenting capital and interacting with the host country's conditions. Infrastructural development is the channel that allows FDI to have the most impact. FDI tends to crowd out domestic investment at certain levels.
Why FDI is decreasing in India? ›
Why FDI Inflows declined? Experts say that the proximate reason is that big-ticket mergers and acquisitions (M&As) which attracted FDI flows in recent years were not repeated. One major reason for declining FDI across the world was the Covid-19 pandemic that had stopped many projects and investments.
What is the outflow of FDI from India? ›
FDI outflows originating in India have risen from $2 billion in 2004 to $15 billion in 2021, constituting around 1 per cent of the global outflows.
Which country has lowest FDI in world? ›
Percent of world Foreign Direct Investment, 2020 - Country rankings: The average for 2020 based on 186 countries was 0.54 percent. The highest value was in China: 21.36 percent and the lowest value was in Switzerland: -21.72 percent. The indicator is available from 1993 to 2020.
What is the FDI in the United States? ›
According to BEA, FDI in the United States is defined as the ownership or control, directly or indirectly, by one foreign person, or entity, of 10 percent or more of the voting securities of an incorporated U.S. business enterprise or an equivalent interest in an unincorporated U.S. business enterprise.
What is a real life example of FDI? ›
A U.S.-based cellphone provider buying a chain of phone stores in China is an example. In a vertical FDI, a business acquires a complementary business in another country. For example, a U.S. manufacturer might acquire an interest in a foreign company that supplies it with the raw materials it needs.
What is China's FDI ranking? ›
The country is ranking 50th amongst 82 countries reviewed in the latest Economist Intelligence Unit business environment rankings for 2022-26.
Why does China attract more FDI than India? ›
Also, in the case of China, lower wage rates play an important role in attracting FDI, while in the case of India, it is policy reforms that play a crucial role in attracting FDI. Foreign direct investment is one of the most important phenomena in the world economy.
Experts are of the opinion that India has performed better than China in the financial sector. Indian bond market is known as one of the most liquid in Asia, which is well regulated by the RBI and is fully electronic. India is known as one of the best countries in the world in the way the financial sector is managed.
Is China a bigger financial power than India? ›
The country's nominal GDP of USD 18 trillion is roughly six times that of India. China has historically had a larger population.
Where to invest safely in India? ›
Q5. What are the safest tax saving investment options available in India?
- Equity Linked Savings Scheme ( ELSS)
- National Savings Certificate.
- Public Provident Fund (PPF)
- Sukanya Samriddhi Yojana (SSY)
- Life Insurance Plan.
Gujarat and Rajasthan Emerge as India's Leading Investment Destinations. Gujarat and Rajasthan have emerged as two of India's top states for attracting corporate investments, inviting investments worth INR 3.98 trillion and INR 2.91 trillion, respectively, in FY 2022.
Who is the largest FDI investor? ›
The United States recorded the largest increase of inward foreign direct investment of all economies in 2021.
Who is the top FDI investor? ›
Nevertheless, the United States and China were the top two FDI destinations worldwide in 2022, followed by Brazil, receiving peak level of inflows partly due to increased reinvestment of earnings.
Who is the greatest investor of India? ›
Below is the list of the Top 10 Investors in India:
- Radhakishan Damani.
- Rakesh Jhunjhunwala.
- Mohnish Pabrai.
- Ashish Dhawan.
- Nemish S Shah.
- Vijay Kedia.
- Akash Bhansali.
- Ashish Kacholia.
Amazon is the leading global investor
US-based logistics giant Amazon remained the leading parent company for FDI in 2021 for the second year running, according to the Global FDI Annual Report 2022.
Who is the greatest investor in the world? ›
Warren Buffett is often considered the world's best investor of modern times. Buffett started investing at a young age, and was influenced by Benjamin Graham's value investing philosophy.
What is an example of a foreign direct investment FDI? ›
A U.S.-based cellphone provider buying a chain of phone stores in China is an example. In a vertical FDI, a business acquires a complementary business in another country. For example, a U.S. manufacturer might acquire an interest in a foreign company that supplies it with the raw materials it needs.
FDI Examples
Over the last decade, India has witnessed a steady flow of Foreign Direct Investment. From pharmaceuticals to automobiles, textiles to railways, nearly every sector has received significant sums of foreign investment. The Importance of FDI cannot be undermined.
Which country has lowest FDI? ›
The average for 2020 based on 186 countries was 0.54 percent. The highest value was in China: 21.36 percent and the lowest value was in Switzerland: -21.72 percent. The indicator is available from 1993 to 2020. Below is a chart for all countries where data are available.
Which country invests the most in the US? ›
In 2021, no country had a higher foreign direct investment (FDI) position in the United States than Japan, followed by the Netherlands and Canada.
...
| Characteristic | FDI in billion U.S. dollars |
|---|
| Japan | 690.02 |
| Netherlands | 629.52 |
| Canada | 527.9 |
| United Kingdom | 512.43 |
9 more rowsSep 30, 2022
The foreign direct investment in the United States position increased $506.1 billion to $4.98 trillion at the end of 2021 from $4.47 trillion at the end of 2020. The increase mainly reflected a $378.4 billion increase in the position from Europe, primarily the Netherlands and the United Kingdom.
Does Apple use FDI? ›
Apple set for new sales in India as foreign direct investment rules are relaxed. India has liberalised its foreign direct investment rules, in a boost to single-brand retailers such as Apple.
What are the two types of FDI? ›
FDI can take two different forms: Greenfield or mergers and acquisitions (M&As).
- greenfield investment involves the creation of a new company or establishment of facilities abroad. ...
- mergers and acquisitions amounts to transferring the ownership of existing assets to an owner abroad.
