Introduction
The Indian Space Sector is a rapidly growing and flourishing industry. Leading the Indian space manoeuvre, the Indian Space Research Organisation’s (“ISRO”) recent success with Chandryaan-3 and the launch of the Aditya L-1 Mission early this month, has firmly established India’s name in the elite space club of the world. As a corollary, it is expected that the Indian Space Sector will witness even greater foreign investment in the near future. Foreign investment in the space sector will not only enable growth in the space sector but would pump up many other sectors, including inter-alia, meteorology, energy, telecommunications, insurance, transport, maritime, and aviation.
Lack of Clear FDI Policy
However, despite the above achievements, presently India accounts for only 2 % (two percent) of the global space economy and lags far behind nations like China, USA, Israel, etc. The Indian government envisions expanding India’s commercial influence in the space with the help of the private sector. In pursuance of the same, ISRO has recently released the Indian Space Policy 2023 (“ISP 2023”) with a vision to, inter-alia, enable, encourage, and develop a flourishing commercial presence in space, which suggests an acceptance that the private sector is a critical stakeholder in the entire value chain of the space economy.
Under the current Foreign Direct Investment (“FDI”) Policy (“FDI Policy"), FDI is allowed up to 100% (One hundred percent) in the area of satellite- establishment, and operations, subject to the sectoral guidelines of the Department of Space (“DoS”)/ ISRO In respect of the sectoral guidelines; Remote Sensing Data Policy 2011, Draft Space-com Policy 2020, are inter-alia, the relevant ones. While the ISP 2023 has been lauded for the many allowances it made for private entities, critics raised concerns about a lack of clear-cut policy on FDI with respect to the space sector in India. Consequently, the Indian National Space Promotion and Authorization Centre (“IN- SPACe”) has come up with certain draft measures to fill in the loopholes with respect to FDI in the Space Sector, more elaborately discussed below.
FDI Measures in Pipeline
The IN-SPACe draft has already been internally approved by the center itself and is awaiting the Government’s approval. It is expected to be released and operationalized by the end of this year.
It has been proposed to open up investments in three different areas of the Space Sector – (1) sub-system manufacturing; (2) launch vehicle operation; and (3) satellite operations and establishments. The foreign investments in the three different activities may vary from 49 % (forty-nine percent) to 100 % (one hundred percent). Additionally, some level of investment under the automatic route may be permitted. However, the exact details of the same are yet to be made public. This seems to be a great relaxation from the current FDI Policy which allows FDI of up to 100% in only satellite operations and establishments through the government approval route.
The liberalization of the FDI investment regime in the Space Sector is welcomed, however, as we will establish in the upcoming section(s), the space sector is intrinsically linked to national security and thus calls for heightened scrutiny of, inter alia, the methods of investment screening. There is a need for a balanced regime while recommending the contours of such an FDI policy to achieve the dual objective of attracting foreign investment in the space sector and ensuring national security.
The Triad of FDI, National Security, and the Space Sector
In order to better understand the significance of the concern of national security in FDI in the Space Sector, the relationship among these three conceptual framings, i.e., FDI in the space sector, national security, and the Space Sector, needs to be explored holistically.
This section will establish two things – (i) the innateness of the question of national security in FDI Screenings; and (ii) the significance of the Space Sector in the interest of national security, both of which would as a corollary – highlight the (iii) significance of the concern of national security in FDI in Space Sector.
(i) Security and Screenings
Investment policies related to essential security interests attracted little policy attention for many years. This changed markedly in about 2016, with governments in many OECD countries beginning to consider whether their essentially unconditional openness to foreign investment would make them vulnerable in an evolving geopolitical environment. Foreign Investments carry the potential baggage of numerous risks with them – (1) risks of espionage (the ability to access unauthorised and highly sensitive information through for example access to key sites); (2) risks of disruption (the ability to disrupt key systems and processes, e.g., key supply chains); and (3) the risks of excessive leverage (the ability to exploit an investment to influence the country) are few to be named.
In response to this, for the most part, policy attention has resulted in reforms or the introduction of acquisition- and ownership-related policies to safeguard essential security interests, most often in the form of investment screening mechanisms. Up until 2022, at least 37 countries (including India) have introduced new regulatory frameworks for the screening of investments that include national security considerations. This type of policy allows governments to prohibit the implementation of certain foreign investment proposals, to require their unwinding, or to impose mitigation measures. With this understanding, we can safely establish that FDI is consequential to the security of a country.
(ii) Space and Security
The Indian Space Sector is increasingly becoming militarized. This orientation can be gleaned from official statements in the Indian Parliament and from organizations such as the United Nations. India’s approach to space is now driven by a sense of pragmatism and by national security concerns, as opposed to morality and sovereignty- related considerations. Along with capability developments, India has also undertaken institutional changes to improve how its armed forces utilize space, most recently exemplified by the establishment of the Defence Space Agency in 2018. Thus, the Space Sector is increasingly becoming relevant to the Defence sector and thus has a direct bearing on the national security of the country.
It may be argued that the focus of the ISP 2023, is on civilian and peaceful applications since there is just one reference to ‘security’ in it. Considering that space-based intelligence, reconnaissance, surveillance, communication, positioning and navigation capabilities are increasingly seen as a critical mission by the defense services, it is reasonable to infer that a defence-oriented space security policy document will be a separate document. However, the question of national security still permeates into the said civilian and peaceful applications. For example, a space- tech start up Blue Sky Analytics is targeting to build the world's largest spatially and temporally continuous dataset on key environmental parameters and to transform the monitoring, diligence, and risk assessment systems globally. Further, a Bengaluru based startup engaged in the space data and the satellite imaging segment, successfully raised money from Google for its operations. Therefore, it is clear that such seemingly private and civilian pursuits are similar to the ones being carried out by defense agencies in both nature and function and thus, are positioned to pose a palpable threat to national security.
(iii) The Concern of National Security in FDI in the Space Sector
It has so far been established that, national security acts as an important point of enquiry in the FDI scrutiny, and that the Space Sector forms a significantly sensitive sector when dealing with security concerns. The logical deduction herein thus calls for a higher standard of scrutiny of FDI in this sector in face of the security concerns.
International commercial actors – entities that such an FDI policy seems to encourage to invest, play a key role in the proliferation of technology and know-how because they often support multiple international clients. Their political relations may be unclear and shifting. While some may have an explicit desire to remain neutral, others have fixed alliances. Therefore, these firms should invite heightened scrutiny for their investments in the Indian space sector.
While the authors in this article have chosen to disjoint the ideas of national security and Investment attractiveness, it is not totally unreasonable to say that they are not so different after all, and that the latter ultimately leads to ensuring the former. International competitiveness (or in this context, investment attractiveness) is important from a national security perspective, such that a country does not find itself left behind or exposed as the exploration, exploitation, and militarization of space increases. Therefore, FDI policy, which enables a free flow of capital and technology for the development of Indian space enterprises while also preserving India's national security and mitigating cross-border threats will go a long way to ensuring that space technology is developed and used for the betterment of India and Indians.
Evaluation of the Existing Regime: National Security & Regulatory Ease
The current regime is contained in the Consolidated FDI Policy, 2020 (“CFP”), Guidelines for Establishing Satellite-based Communication Network(s), 2022 (“SBCN Guidelines”), National Geospatial Policy, 2022 (“NGSP”), and the Remote Sensing Data Policy – 2011 (“RSDP”). Apart from these, there are the Draft Norms, Guidelines and Procedures for implementation Spacecom Policy-2020 (“SpaceCom NGP”), and the Draft Norms, Guidelines and Procedures for Implementation of Space Remote Sensing Policy-2020 (“SpaceRS NGP”) which are awaiting the clearance by the government.
From a national security perspective, the CFP is relevant to the extant it provides for a 100% FDI in Satellite establishment and operation through the ‘government approval’ route only. This, the policy provides, is subjected to the sectoral guidelines of the Department of Space (“DoS”)/ ISRO. However, given that this article is being penned down with premise of a lack of such guidelines by the DoS, we need to look elsewhere. Before going ahead, it needs to be clarified that all the policies/guidelines being evaluated herein exclusively concern themselves with the specific sub-sector of satellite establishment and operations.
The SBCM Guidelines of the Department of Telecommunications (“DOT”) lay down the conditions for the provision of licenses to firms seeking to establish satellite-based communication networks. Guideline 1.3 of Chapter I suggest that the satellites providing Global Mobile Personal Communication (“GMPC”) services must come with a Land Earth Station Gateway Switch, for each satellite. The safeguard under Guideline 1.3.2 is that this gateway must be located within the Indian territory, and no calls can be routed through a gateway located outside India. Further, the prospective licensee is mandated to provide for an adequate monitoring facility at the GMPC Gateway. Lastly, there is an added safeguard of such GMPC authorization being subject to the security clearance of the proposal by the Inter-Ministerial Committee for Satellite Network Clearance (“IMC-SNC”). This committee, as defined in Chapter II of the guidelines, comprises of representatives from, inter alia, DoS and DoT to act as a single platform to enable the issuance of "in-principle clearance" to the proposed network. While the guidelines provide for other satellite-based services as well, the authors have picked up this very specific instance to show how these guidelines are performing the balancing act of strict security review whilst maintaining the regulatory ease. This has been achieved by maintaining the high rigour of review with multi-tiered requirements, but consolidating the clearance bodies and thus minimising the regulatory confusion.
The NGSP of the Department of Science and Technology (“DoST”) envisages a thriving Geospatial industry in the country involving private enterprise. The emphasis on the contribution of the private sector in this policy is so much so that the phrase “private sector” appears fifteen times in the 11-page policy. The policy provides for the Geospatial Data Promotion and Development Committee (“GDPDC”) as the apex body with the task of implementing the policy, with a representative of the National Security Council Secretariat as one its members. Apart from this, there has been no emphasis on national security in the policy. The only other mention of “security” is found in the functions of GDPDC which is entasked to take measures to foster innovation, provide leadership and coordination, and promote standards necessary to strengthen Geospatial information management so that they can be used to find sustainable solutions to emerging development and security challenges facing the nation. This is especially troubling given the sensitivity of the Geo-spatial data to the national security concern. Further, no representative from the DoS has been afforded a seat in the GDPDC. The policy defines the role of the DoS, and limits it to, generate Orthoimagery using space-based technology. This is also concerning given the inherent significance of space-based technology in geospatial data collection.
The RSDP-2011 is the only policy discussed here that has been formulated by the DoS. Further, in contrast to the NGSP, it explicitly recognizes that national interest is paramount to the objective of the policy and that security consideration of the country needs to be given utmost importance. Given the sensitive nature of the data involved, as per the policy, for operating a remote sensing satellite from India, the permission of the government, through the nodal agency, is necessary. Moreover, there are strict restrictions even on share of this data. Apart from operation of satellites, for the acquisition or distribution of the remote sensing data within India, the government’s permission is mandatory. While the intention of the drafters of the policy is clear, it still suffers from ambiguity. The gaps in the text open the possibility to share such data, (not within but) outside India. The Draft SpaceRS NGP addresses this lacuna by focusing on the development of space-based remote sensing systems to meet the specific needs of the country. These needs cannot be effectively, affordably, or reliably met by commercial entities, either due to concerns related to national security or economic factors. Additionally, the draft policy outlines the identification of a category of data as 'sensitive' due to national security considerations, and it envisions a different mechanism for the dissemination of such data. The government also retains the right to control the imaging and distribution of its data when national security demands it. In such cases, the government can restrict the operations of commercial systems and limit the collection and sharing of certain data and products. Furthermore, recognizing the sensitivities associated with strategic observations, systems that require indigenous designs will be directly controlled by the government and pursued by the Department of Space (DoS). Lastly, the authorization forms for space-based remote sensing, as outlined in the policy's annexes, explicitly include a section inquiring about foreign direct investment (FDI) in licensee firms. This is done with the intention of assessing the level of scrutiny needed for such investments.
Much like the SpaceRS NGP, the Draft SpaceCom NGP also has a similar focus. It emphasizes the development of space-based communication systems to address specific needs that cannot be effectively, affordably, or reliably met by the commercial sector in India. These limitations may arise due to concerns related to national security or economic factors. The policy acknowledges the importance of creating a favorable environment for the industry to fulfill communication requirements for broadcasting, telecommunications, and networking activities in the country. However, it also recognizes that there will still be communication needs related to areas like national security, strategic communications, surveillance, and critical economic transactions. These requirements necessitate secure channels protected by suitable hardware and software solutions. To meet these sensitive communication needs, the policy emphasizes that the systems must be designed with indigenous components and modules under the direct control of the government. It is provided that the Department of Space (DoS) will be responsible for developing and managing such systems. Consequently, the policy aims to strike a balance between ensuring national security and simplifying regulatory processes
Regulatory Proportionality: Drawing the Contours of a Model FDI Regime for Space Sector
Regulatory Proportionality entails ensuring that limitations on investments or transaction conditions do not exceed what is necessary for safeguarding national security. It underscores the importance of avoiding such restrictions when other existing measures are sufficient to address national security issues. Each nation has the inherent right to define its requirements for protecting national security, and this determination should be based on meticulous risk assessment techniques that consider the nation's unique circumstances, institutions, and resources.
The connection between investment restrictions and identified national security risks must be clear. Investment restrictions should be specifically targeted at concerns related to national security. Security-related investment measures should be crafted to benefit from both ample national security expertise and the necessary skills for evaluating the consequences of actions in relation to the advantages of open investment policies and the repercussions of restrictions.
If deemed necessary, restrictive investment measures should be customized to address the precise risks presented by particular investment proposals. This may involve implementing policy measures, particularly risk mitigation agreements, to address security concerns without completely obstructing investments. Restrictive investment measures should be employed sparingly, primarily as a last resort, only when alternative policies, such as sectoral licensing, competition policies, or financial market regulations, cannot effectively mitigate security-related concerns.
Way Forward
The Indian Space Sector stands at the cusp of significant growth and transformation, driven by recent achievements and the promise of increased foreign investment. India's aspirations to expand its commercial presence in space, as outlined in the Indian Space Policy 2023, reflect a growing recognition of the private sector's vital role in the space economy's development. However, the lack of a clear and comprehensive FDI policy in the space sector poses challenges. To address this issue, the Indian National Space Promotion and Authorization Centre (IN-SPACe) is working on draft measures, expected to be operationalized soon, to open up investments in sub-system manufacturing, launch vehicle operations, and satellite operations and establishments, offering foreign investors greater flexibility.
Nevertheless, the integration of FDI in the space sector must be approached with caution due to the inherent connection between space activities, national security, and the potential for technology transfer to international actors – a consequence of FDI. Recognizing this, there is a need for a balanced approach to FDI in the space sector, one that encourages investment while ensuring robust national security measures. Governments worldwide have recognized the importance of assessing FDI through security screening mechanisms to safeguard essential interests, as demonstrated by reforms in numerous countries and the existing regulatory landscape in India attempts to strike this balance of regulatory ease and ensuring national security.
In conclusion, India's space sector holds immense potential, and FDI is a critical driver of growth. However, it must be integrated judiciously, considering the intricate relationship between FDI, national security, and the evolving space landscape. Striking the right balance through a well-defined FDI policy and regulatory proportionality will ensure that India's space technology benefits both its citizens and its strategic interests.
Disclaimer
The views and opinions expressed by the Authors are personal.
About the Authors
Mr. Suprabh Garg is an Associate in Verist Law, Mumbai. His area of specialization is General Corporate/ Finance.
Mr. Ishaan Sharma is a 3rd Year B.B.A. LL.B. Student at NALSAR University of Law, Hyderabad. His interests span
Capital Markets.
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