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Enhancing private sector participation in India's commercial space sector

IBEF, Knowledge Centre

May 20, 2021 12:09

India’s space programme is one of the most well-developed in the world and is driven by a state-owned agency—the Indian Space Research Organisation (ISRO).

The current global space economy is estimated at US$ 360 billion, with India accounting for ~2% (US$ 7 billion). The Indian space sector is projected to increase at a ~48% CAGR over the next five years to reach US$ 50 billion.

In the global space market, rocket and satellite launch services—an area in which ISRO specialises—amount to only 5% share.  This segment requires robust infrastructure and heavy investments. Satellite-based services and ground-based systems account for the remaining 95%.

At present, the government drives a certain level of participation by the Indian private sector, primarily in the rocket and satellite launch services segment. However, enhanced private sector participation will be necessary to penetrate satellite-based services and ground-based system segments.

Enhancing the Role of Private Players
Indian players have generally been unable to compete in satellite-based services and ground-based systems segments, as they have mainly been suppliers of components and subsystems. Also, Indian companies do not have the resources or the technology to undertake independent space projects or provide space-based services. Further, as ISRO works on the traditional vendor-supplier model, most intellectual property is owned by the organisation; this has hindered the technological advancements of Indian companies.

However, private players can bring in the innovation needed for developing space-based applications and services. Additionally, the demand for these services is soaring worldwide and in India, with satellite data, imageries and space technology being used across most sectors. Moreover, ISRO would have to expand 10x the current level to meet this rising demand. According to industry estimates, India currently has 40+ start-ups working on space and satellite projects and this number is likely to increase.

Large corporations such as Larsen & Toubro, Godrej and Tata have been long-term vendors for ISRO and have capabilities such as testing infrastructure, manufacturing capabilities and assembly lines, but space manufacturing is only a small fraction of their total industrial output. As the space sector is a capital-intensive business, the initial step to increase private sector participation must be taken by these conglomerates.

Space Sector Reforms
In 2020, the Union Cabinet approved the draft legislation that enabled the private sector to participate or undertake a range of space activities, such as building/developing rockets and satellites, providing launching services and owning satellites. Through this new draft, private businesses will be able to carry out R&D activities, collaborate with ISRO on various science and interplanetary missions and use ISRO’s facilities.

These reforms will be implemented by a new nodal agency, the Indian National Space Promotion and Authorisation Centre (IN-SPACe), and while ISRO’s commercial activities will be delegated to government-owned units—New Space India Ltd. (NSIL) and Antrix, leaving the organisation to focus on R&D, scientific missions and space exploration.

Also, the NSIL will re-orient its space activities from a ‘supply-driven model’ to a ‘demand-driven model’ and ensure optimum utilisation of space assets.

Role of Government-owned Commercial Organisations
Will act as a single-point interface between ISRO and private companies that want to participate in space-related activities or use India’s space resources. In-SPACe will be responsible for regulating and permitting private sector activities in the sector. It will appoint its own directorates for security, legal, promotion (of activities) and monitoring purposes. The organisation will also be responsible for promoting private industries by creating an amiable regulatory ecosystem and ensuring seamless transfer of technological knowhow from ISRO to the private players.

Indian National Space Promotion Board: Will be established to strengthen the Department of Space and promote private space entrepreneurs.

NSIL: Is the commercial arm of ISRO and primarily responsible for enabling Indian industries to take up high-tech, space-related activities. It is also responsible for promotion and commercialisation of products and services in the space industry. In addition, the NSIL will soon take over a large share of ISRO's responsibilities—operational launch vehicles, satellites and commercial activities—that will be executed in the form of industry consortia.

Antrix Corporation Limited: Was incorporated as a marketing arm of ISRO; it handles ISRO’s commercial deals for satellites and launch vehicles with foreign customers.

Even though the government has undertaken steps to boost private sector participation in India, companies are cautiously optimistic and have often cited multiplicity of approvals and procedural ambiguity as barriers. For example, in 2017, Hughes, a US-based company, had announced a US$ 500 million satellite communications system in India. To date, the company has not received any approvals or an expected timeline.

A satellite company will typically need to obtain approvals from the Department of Space (which is under the Prime Minister's office), ISRO (under the DoS), Antrix (ISRO's commercial arm) and the Committee for Establishment and Operation of Indian Satellite Systems, and in case of communication satellites, the Department of Telecommunications and the Wireless Planning and Coordination Wing (both are under the Ministry of Communications and Information Technology).

In addition, lack of clear, specific and predictable regulations may also create hurdles for companies raising private capital. Given the long gestation period and capital-intensive nature of space technology, private players would need access to 'patient' capital, which can be achieved from the government or global private equity markets as only these can afford to bet on long-term space initiatives. This would require FDI reforms and at present, private players (operating satellites) have a 100% FDI limit that is subject to government approval. However, this approval may be prolonged for years. To offset this challenge, the government can consider implementing the telecommunications FDI model, which allows investments (up to 49%) under the automatic route and investments (>50%) through the government’s approval.

Finally, as ISRO is both a regulator and an operator, this conflict of interest is likely to manifest during dispute resolution between private players and ISRO entities. Even though IN-SPACe is meant to be an independent agency, it falls under the ambit of ISRO and the resulting potential conflicts of interest can be a cause of concern for the private players.

Despite all challenges, the government's recent decisions are a step in the right direction. Within months of the government opening up the space sector, IN-SPACe received at least 26 proposals from Indian and foreign firms. These proposals ranged from approval for ground stations, setting up satellite constellations, developing and launching satellites & launch vehicles to providing applications.

Moreover, firms such as US-based Amazon Web Services, UK-based OneWeb (backed by Bharti Group), Tata’s NELCO and L&T showed interest in this sector. In December 2020, the Department of Space signed an agreement with Agnikul Cosmos Pvt. Ltd., a Chennai-based small rocket company, to access facilities and provide technical expertise for Agnikul’s launch vehicle/rocket development programme at ISRO.