Ready for lift-off: Why India's space tech ecosystem will require more govt interventions

Two days after the country launched its Chandrayaan-3 mission to explore the lunar surface, the GST Council, in a surprise announcement, exempted private launch service companies from paying GST if they launched satellites into space using their launch vehicles or rockets. Welcoming the announcement, Lt Gen. (Retd) Anil Kumar Bhatt, Director General of Indian Space Association (ISpA), the country’s apex industry body, tells Business Today that this will definitely incentivise the nation’s space industry and help in its growth. “We hope this is made available across all satellite service domains, including applications.”

Space technology start-ups in the country, currently around 150, are over the moon hearing the news. Skyroot Aerospace, which launched India’s first privately built rocket into space in November 2022, hails the move as a historic one towards a more level playing field. “Previously this [exemption] was only available to New Space India Ltd (NSIL, the commercial arm of the Indian Space Research Organisation or Isro). It’s heartening to note that it has been extended to private players as well,” says Pawan Kumar Chandana, Co-founder & CEO of the Kondapur, Telangana-based spacetech firm Skyroot Aerospace. Bengaluru headquartered space situational awareness (SSA) firm Digantara Research & Technologies, which recently raised an additional $10 million in funding, called the move “transformative”. “By eliminating this tax barrier, the government has demonstrated its commitment to fostering innovation and growth within the space tech sector,” says Co-founder & CEO Anirudh Sharma.

In April this year, the Cabinet Committee on Security (CCS) approved the Indian Space Policy, 2023. While promoting the role to be played by the private sector, the policy aims to augment the country’s space capabilities; enable, encourage and develop a flourishing commercial presence in space; use space as a driver of technology development and derive benefits in allied areas; pursue international relations; and create an ecosystem for effective implementation of space applications among all stakeholders. Moin S.P.M., Co-founder & COO of Chennai-based launch vehicle maker AgniKul Cosmos, believes the policy will give a fillip to research and development (R&D) in emerging areas such as launch vehicles, space tourism, satellite servicing and space-based applications for climate change, disaster management, and other societal needs. “This will encourage India’s private players on the whole to be a part of future global leaders in the space sector.”

The opening of the Indian space sector to private entities in 2020 is beginning to bear fruit. The sector has secured $62 million in funding in the first half of 2023, a 60 per cent increase over the corresponding period last year. In 2022, it attracted $112 million in funding, a growth of 22 per cent over 2021. Over the past few years, despite the current funding winter, India’s space technology industry has expanded at a remarkable pace. “As a result of government initiatives to support local entrepreneurs and the opening up of the space market to private operators, the industry has seen a lot of growth,” says Neha Singh, Co-founder of market intelligence platform Tracxn. A report by global consultancy Arthur D. Little endorses Singh’s view. “India’s current space market is around $8 billion in size, and has grown at a CAGR of 4 per cent in the past few years compared to 2 per cent globally,” says the report.

Although this is encouraging, it may be necessary to take more enabling measures before the companies competing for India’s spacetech pie can be successfully launched into the next growth orbit. But space is a cruel place where failure is not an option unless entities involved have government backing (as is the case with most global space agencies), or well-capitalised, like Elon Musk’s SpaceX. This justifies the relaxing of FDI regulations for the sector, in addition to the incentives already provided by India, say experts.

FDI IN THE FINAL FRONTIER

Before 2030, India’s spacetech ecosystem will produce multiple unicorns in multiple segments, predicts an early investor in the domain. “I am convinced that we will have at least three to four unicorns emerging in India’s spacetech industry in another five years,” says Ravinder Pal Singh, Partner at venture capital fund Kalaari Capital. Singh led the fund’s investments in spacetech infrastructure firm Digantara, which was among the first start-ups to successfully demonstrate its proof of concept in 2022.

The growth potential of the sector is immense. In the past 10 years, nearly $27 billion in investments were made globally in certain segments of the space sector, which is now worth close to $4 trillion, according to Singh. “If you look at space from the insurance industry perspective, it is not even tapped. Imagine if somebody can provide better visibility and transparency not only for objects in space but also for objects on the earth, that will be a huge thing,” he says.

Therefore, the industry has long advocated for relaxing FDI norms, as the current framework is often ambiguous and confusing. Ranjana Kaul, Partner at New Delhi-based law firm Dua Associates, describes this as a “generic demand”. “FDI has been allowed for setting up satellite systems for 23 years. It used to be 74 per cent and then during the launch of the Make in India programme in 2018 it was overnight made 100 per cent, subject to sectoral guidelines. Those guidelines say that within five years, you have to bring it down to 74 per cent. So, whenever anyone says FDI should be allowed, the question that needs to be asked is which precise point are they looking for? That’s the story on FDI.”

The good news is that policymakers are aware of the difficulties private spacetech companies have in attracting funding and are actively working on a solution. “We realised that many of the start-ups are facing difficulties in raising funding, while there’s an interest among foreign investors to invest in them. In less than a year, we have covered major ground in terms of a revised [FDI] policy draft that strikes a very fine balance between the needs of our start-ups getting funding and the needs of foreign companies that are [setting up shop] in India, while also protecting the interests of India’s nascent private sector,” says Pawan Goenka, Chairperson of the Indian National Space Promotion and Authorisation Centre (IN-SPACe), the single window nodal agency for authorising, promoting and regulating private players in the space sector. He adds that the revised FDI policy draft is being approved and will be released soon. Partially echoing Kaul on foreign investment, Goenka says this is much needed because there are no clear guidelines on FDI despite the sector’s enormous growth potential. “A liberal FDI policy in the space sector will definitely help in increasing the access to capital for the Indian spacetech start-ups, which will open more opportunities for collaboration and growth in the sector in the coming years.”

In addition, India’s spacefaring potential is widely acknowledged globally because of the country’s demographic dividend and highly trained workforce. Elizebeth Varghese, People in Space-Leader at Deloitte and author of the best-seller Stellar Singularity: Navigating the Spacefaring Economy, says, “The new [space] policy will allow FDI in three different kinds of activities: satellite establishment and operations, launch vehicle and manufacturing, and subsystem manufacturing.” And this needs to be sped up through a supportive FDI mechanism, or else the country risks losing some of the benefits it has gained on the international stage.

“At one [point in] time, we had about a 2 per cent share of the international commercial space launch market. But then [Elon] Musk introduced his reusable Falcon 9 rocket, bringing down the cost of a commercial space launch significantly. India is no longer the cheapest in the market,” says Kaul.

In a first-of-its-kind move, Isro will transfer the technology of the Small Satellite Launch Vehicle (SSLV) it developed to the private sector to power low-cost launches, mitigating the high cost of its time-tested workhorse, the Polar Satellite Launch Vehicle (PSLV). The private sector will be the recipient of this major technology transfer through a competitive bidding process. Since Isro has spent years and hundreds of crores of rupees to develop various technologies, making them available to the private sector is a “big deal”. Goenka says this will be a “big enabler”. Reiterating that the progress wouldn’t have been achieved without the national space agency’s co-operation, he calls Isro “essential to the private space industry’s advancement.”

PROPELLING INDIAN ACTIVITY IN SPACE

Finally, a Space Activity Act may need to be enacted to bring Indian laws in line with global frameworks for space travel and exploration. In this regard, the government had put up a Space Activity Bill draft for public comments in 2017. However, it was soon forgotten until three years ago, when the government decided to open up the space sector to the private sector. Kaul, who is critical of the way the old Bill was framed, believes that any draft legislation should be thoroughly thought through, as space exploration is already a highly regulated industry. “When companies that have been suppliers to Isro since 1972 are governed under the normative laws of the country, subject to special terms of the contract, sectoral guidelines and so forth, how could it possibly have been contemplated by the drafters that the new space companies would be governed under a different, rather burdensome, legal regime and law? Are the existing players going to be happy to be under this?”

As Indian businesses globalise, local laws may need to match international norms. For instance, international aircraft lessors cannot immediately recover their assets if an airline in India goes bankrupt since India has not joined the Cape Town Convention and Protocol (CTCP). Start-up founders see the implementation of the Bill as complementing the space policy. “An early clearance of the Space Activity Bill will complement the Space Law but also open up the scope for unlimited innovation-led home-grown start-ups to be launched,” says Suyash Singh, CEO & Co-founder of Bengaluru-based satellite maker GalaxEye Space. Arindrajit Chowdhury, CEO of space factory start-up Inspecity, also believes that an early passage of the Bill will benefit the fledgeling industry in many ways. “The Bill will pave the way forward for any actor in the space community to develop technologies with the proper authorisation and frameworks, without being concerned about the legalities of the action!”

Besides, Deloitte’s Varghese believes a space activity law will provide a solid foundation for more companies entering the sector. “Innovation thrives when companies and entities feel protected, and understand risks and how things work. The intention of any space Bill is not necessarily to regulate and make things onerous, but to provide security and guardrails around how things can be done effectively,” says Varghese. That’s really important to keep in mind when we are looking at more foreign companies wishing to join India’s space economy, leverage Indian innovation and talent, and use more Indian talent and resources in things like [space] research and launches,” she adds.

Goenka says that the Space Activity Bill will follow once the FDI norms are finalised since the operating document is part of the space policy. “The draft [Space Activity] Bill is already there. The 2017 draft Bill is not relevant anymore because a lot has changed since then. Therefore, a new draft Bill has been made, which is consistent with where we are today. Bills take time, and the new draft will go through a process,” he adds.

Meanwhile, Sreedhara Panicker Somanath, Chairperson of Isro and Secretary in the Department of Space, has one piece of advice for private companies entering the space. In a country where freebies are suddenly a hot topic, spacetech companies must develop business models that make their solutions affordable to millions. “We must find ways to deliver on-ground infrastructure and connectivity to millions at low cost,” he recently said at an industry gathering. In agreement, Varghese explains, “At the start of the internet economy, companies had a separate internet division. Eventually, they had to consolidate. The space sector is at a similar inflection point, where every company will become a space company by harnessing some of the technologies. Whether it’s healthcare, finance, or insurance, we are going to see an impact on how this space economy is unfolding.”

Arthur D. Little says that as against the estimate of India’s space economy touching $40 billion by 2040, it can potentially be worth $100 billion. In India’s case, this is likely to hold true. In June, during Prime Minister Narendra Modi’s state visit to the US, India became the 27th signatory to the non-binding Artemis Accords, a multilateral agreement between the US and other countries to return humans to the moon by 2025. And as the country preps to send its first human mission into space through its low-cost Gaganyaan mission, the final frontier may well be within reach.

@manishpant22