Policy regarding Foreign Direct Investment in the space sector

Context:

The Union Cabinet, led by Prime Minister Narendra Modi, has approved changes to the Foreign Direct Investment (FDI) policy for the space sector.

Key Points:

• The satellite sub-sector in India has been separated into three activities, each with specific restrictions on foreign investment. 
• The Indian Space Policy 2023 has been implemented to increase private participation in the space sector. 
• This reform in the FDI policy will improve the business environment and attract more foreign investment, leading to economic growth and job creation.

Foreign Direct Investment:

• Foreign Direct Investment (FDI) is the process of information for residents of a given country to buy assets in another country in order to be the owning company.
• There is a difference between the foreign portfolio investment (FPI) and the Foreign Direct Investment (FDI) where the foreign entity buys the stocks and bonds and has no control over them.
• FDI means foreign capital in which a foreign investor participates such as equity capital, reinvested earnings, and inter-firm loans.
• Equity capital is when an investor acquires the shares of a foreign company, reinvested earnings are the investor’s share of profits that are not distributed as dividends, and the intra-company loan is borrowing and lending between the investor and its affiliates.

Role of FDI in Space sector:

• According to the current FDI policy, approval from the government is required for foreign investment in the establishment and operation of Satellites. 
• However, the amended policy now allows for 100% FDI in the space sector. 
• This change is intended to encourage potential investors to invest in Indian space companies.

Changes in policies regarding foreign direct investment (FDI) in the space sector:

• The proposed reforms aim to make the FDI policy in the space sector more flexible by allowing foreign investment in satellites, launch vehicles, spaceports, and manufacturing of space-related components. 
• These changes are intended to attract investors to invest in Indian space companies.

The different activities included in the updated policy have specific entry routes:

• Upto 74% under Automatic route: The majority of activities related to the manufacturing and operation of satellites, satellite data products, and ground and user segments are controlled by the government, accounting for over 74%.
• Upto 49% under Automatic route: Launch vehicles and their systems, as well as the establishment of spaceports for spacecraft launches and landings, are primarily controlled by the government when they exceed 49% ownership.
• Upto 100% under Automatic route: The production of parts and systems for satellites, as well as the ground and user segments.

Importance of foreign direct investment (FDI) in Space sector:

• The space sector in India is turning towards the participation of private players and creation of networks for Indian companies in global value chains.
• Thus, this motion capitalises on the commercial utilisation of space-related technologies and encourages more business participation in the sector.
• The popularity of India in the successful completion of space missions is due to its reputation of reliable and cost-effective space solutions.
• The integration of those Indian Companies into global value chains will let them get a chance to absorb the latest technology, expand their businesses and capture large parts of the global markets.
• Moreover, the government’s “Make In India” policy will be refined since companies will be able to set up their manufacturing plants within the country.
• Moreover, the new FDI laws will help in reducing the cost of doing business in India, thus, inviting more foreign investment, which in turn will contribute to economic growth.
• In addition to that, the diversity of FDI in the space industry will facilitate the technology exchange and research inventions.

Conclusion:

India’s space industry is on the path to success, with major policy reforms, higher foreign investments, and a focus on involving the private sector. This will have a long-lasting impact on space exploration and technology, driving substantial growth and ushering in a new era of space exploration.

Source:PIB

UPSC Prelims Practice Question:

Q.Consider the following: (2021)

1. Foreign currency convertible bonds
2. Foreign institutional investment with certain conditions
3. Global depository receipts
4. Non-resident external deposits

Which of the above can be included in Foreign Direct Investments?

a. 1, 2 and 3

b. 3 only

c. 2 and 4

c. 1 and 4

Ans: “a”

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