Space FDI won’t be near-term booster, but long-term prospects bullish

The move is expected to give space funding a big boost.
The move is expected to give space funding a big boost.

Summary

  • Late on 21 February, the Union cabinet approved a new FDI policy for the space sector, which will allow FDI ranging from 49-100% in different areas.

India’s decision to allow up to 100% foreign direct investment (FDI) in space companies will help the industry in the long run, even though it may not offer an immediate boost, industry veterans and stakeholders said. Late on 21 February, the Union cabinet approved a new FDI policy for the space sector, which will allow FDI ranging from 49-100% in different areas.

The move is expected to give space funding a big boost. “In just three years from 2021, the global space sector has raised $37.1 billion in investments," Pawan Goenka, chairman of the central government’s nodal space body, Indian National Space Promotion and Authorization Centre (In-Space), said. “The easing of FDI will enable Indian space start-ups working on capital-intensive products to access this global pool of capital, in order to expand manufacturing and production capacities."

The new policy for the space industry, a nascent field that was only privatized in 2020, will allow up to 49% automatic foreign investments—without needing government approvals—in space launch vehicles (or rockets), and building of space-port solutions for launching and landing rockets.

Automatic foreign investments of up to 74% for equity stake in companies will be allowed in satellite manufacturing and operation ventures, including those that offer satellite-based data solutions. And 100% automatic FDI has been allowed in space ventures working on component manufacturing for the satellites industry.

India’s space startups, who stand to gain from the new policy, are over the moon. Pawan Kumar Chandana, chief executive of Skyroot Aerospace, a rocket manufacturer, said that while foreign investors were interested earlier too, the liberalization of FDI will help startups ease pitching to global investors, and also give them regulatory clarity.

“Since our business requires frequent capital infusion, the move is a positive one in terms of offering clarity to businesses in terms of the total amount of equity they can offer to foreign investors," said Chandana. “The government has also allowed for 100% FDI even in rocket launch services through government approval (this is correct), which will further help in maximizing the ability to attract global investors."

Sanjay Nekkanti, chief executive of Dhruva Space, a satellite manufacturing, ground services and analytics firm, added that the startup’s “full-stack space engineering solutions (of) building, launching and operating satellites are poised to leverage these (FDI) opportunities, to make significant contributions to the global space community".

The space FDI policy comes after the private-sector Space Policy was introduced in April last year, formally opening up the industry for private sector participation.

However, global investments in the capital-heavy space industry have so far not been free-flowing for Indian entities.

Hyderabad-headquartered Skyroot Aerospace, the only private entity to have launched a rocket from Indian soil, is the most-funded space startup in the country with cumulative funding of only $95 million as of October last year.

Skyroot, along with fellow rocket manufacturer Agnikul Cosmos, and satellite imagery-based data analytics provider Pixxel, have so far raised funding from global investors.

While Agnikul’s latest round saw participation from US space fund Rocketship.vc, Pixxel has so far raised funds from Canada’s Radical VC and Google.

While Pixxel has so far raised $71 million, Agnikul Cosmos’ total funding presently stands at $40 million.

The new FDI policy can bring in more of this money. Vishesh Rajaram, co-founder and managing partner at early-stage venture capital firm Speciale Invest, said, “A lot of our portfolio companies will, of course, raise more capital along the way. The FDI move is validation that the space sector can grow multi-fold from here, and for small early-stage investors like us, it’s important that our companies get access to the right capital in the long run. This also marks space in India as an important industry for global participation."

Space startups in Speciale’s investment portfolio include Agnikul, space communications technology firm Astrogate Labs, and satellite imagery startup Galaxeye, among others.

Going forward, Rajaram and other experts believe that the quantum of funds available to Indian space ventures will grow. One such startup currently in funding conversations is Dhruva Space. Two senior industry consultants claimed that Dhruva is currently in talks to raise its next round of funding, a move that is likely to benefit from the opening-up of FDI.

“A lot of foreign investors, including the likes of Temasek that have already invested here (in Skyroot), have been keen on a few Indian space ventures. However, investors typically look to avoid complicated paperwork procedures over investment—Dhruva’s ongoing funding talks are likely to benefit from this," one of the consultants said, requesting anonymity. The startup declined to comment on the matter.

In the long run, stakeholders believe that the FDI will boost prospects. “This is an industry where failure is very expensive, and you’re smarter if you spend more time

to reduce your chances of failure. For reference, it’s important to go back and see how much time the western markets took to develop their own space solutions. In that, we actually look quite good in terms of capital efficiency," Speciale’s Rajaram said.

Anupam Shukla, partner at law firm Pioneer Legal, added that one key aspect is the lack of precedent for India in deep-tech innovation. “International investors are

looking to invest in growing markets. Unfortunately, India has so far faltered in terms of emerging technologies, despite providing good support systems and services. We’re not known as primary innovators, or holders of the most patents. However, that doesn’t mean that India does not have the ability; abroad, Indians form a sizeable percentage in research and academia. This will require global funding to take local ventures to the next level. Most foreign VCs have similar opinions as well," he said.

The near term may not see drastic effects of the FDI policy due to the nature of the overall space sector. “It’s not surprising that India’s space-tech industry is taking longer to mature. This is an extremely tech-intensive and capital-intensive industry—where solutions being built, such as 3D-printed rocket engines at scale, are unprecedented at mass scale globally. A number of Indian startups switched to working on satellite services and imaging software, instead of launch vehicles (rockets), because the latter would have taken far more time and capital—and the ability to find investors who would be in it for the long haul," Shukla said.

However, some industry veterans exercise caution. Chaitanya Giri, associate professor, science and technology at Flame University, said that the slow innovation and

funding pace can also be attributed to a lack of demand for space launch services. “Early estimates for the need to have such space startups were likely overblown. Exacerbated by the macroeconomic slowdown in the West, you can see that the demand to build

and launch satellites has been pulled back, as more companies look to rationalize their tech spending. This can leave many space startups in India without a real, urgent need to launch their services," Giri said.

Going forward, seven private rocket launches have been marked in India’s space sector schedule by March 2025. While reschedules and delays in space launches are common,

industry veterans believe that the opening up of FDIs in the nascent space industry of India could largely benefit startups, which may even be on target to meet industry revenue projections over the next decade.

According to In-Space’s Decadal Vision published by Goenka in October last year, India’s space sector is projected to capture 8% of the global space economy by 2033, earning $44 billion in revenue.

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