Cabinet approves amendment in the Foreign Direct Investment (FDI) policy on Space Sector

Subject: Economy

Section: External sector

Context:

The Union Cabinet chaired by Prime Minister Shri Narendra Modi approved the amendment in Foreign Direct Investment (FDI) policy on the space sector.

More on news:

The satellite sub-sector has been divided into three different activities with defined limits for foreign investment in each such sector.
The Indian Space Policy 2023 was notified as an overarching, composite and dynamic framework to implement the vision for unlocking India’s potential in the Space sector through enhanced private participation.
The FDI policy reform will enhance Ease of Doing Business in the country.
It will further lead to greater FDI inflows and thereby contributing to growth of investment, income and employment.

FDI in Space sector:

As per the existing FDI policy, FDI is permitted in establishment and operation of Satellites through the Government approval route only.
Under the amended FDI policy, 100% FDI is allowed in the space sector.
The liberalized entry routes under the amended policy are aimed to attract potential investors to invest in Indian companies in space.

The entry route for the various activities under the amended policy are as follows:

Upto 74% under Automatic route:
- Satellites-Manufacturing & Operation, Satellite Data Products and Ground Segment & User Segment.
- Beyond 74% these activities are under government route.
Upto 49% under Automatic route:
- Launch Vehicles and associated systems or subsystems, Creation of Spaceports for launching and receiving Spacecraft.
- Beyond 49% these activities are under government route.
Upto 100% under Automatic route:
- Manufacturing of components and systems/ sub-systems for satellites, ground segment and user segment.

Benefits of Increased FDI:

This increased private sector participation would help to generate employment, enable modern technology absorption and make the sector self-reliant.
It is expected to integrate Indian companies into global value chains.

About Foreign Direct Investment:

Foreign Direct Investment

FDI is the process whereby residents of one country (the home country) acquire ownership of assets for the purpose of controlling the production, distribution and other activities of a firm in another country (the host country).
It is different from Foreign Portfolio Investment where the foreign entity merely buys stocks and bonds of a company. FPI does not provide the investor with control over the business.
Flows of FDI comprise capital provided (either directly or through other related enterprises) by a foreign direct investor to an enterprise.
FDI has three components, viz., equity capital, reinvested earnings and intra-company loans.
Equity capital is the foreign direct investor’s purchase of shares of an enterprise in a country other than its own.
Reinvested earnings comprise the direct investors’ share (in proportion to direct equity participation) of earnings not distributed as dividends by affiliates, or earnings not remitted to the direct investor. Such retained profits by affiliates are reinvested.
Intra-company loans or intra-company debt transactions refer to short- or long-term borrowing and lending of funds between direct investors (or enterprises) and affiliate enterprises.