{"id":8072,"date":"2023-10-10T12:55:28","date_gmt":"2023-10-10T07:25:28","guid":{"rendered":"https:\/\/ijpiel.com\/?p=8072"},"modified":"2023-10-10T12:55:29","modified_gmt":"2023-10-10T07:25:29","slug":"fdi-in-the-indian-space-sector-and-the-challenge-to-national-security-a-panoramic-view","status":"publish","type":"post","link":"https:\/\/ijpiel.com\/index.php\/2023\/10\/10\/fdi-in-the-indian-space-sector-and-the-challenge-to-national-security-a-panoramic-view\/","title":{"rendered":"FDI In the Indian Space Sector and the Challenge to National Security \u2013 A Panoramic View"},"content":{"rendered":"\n

Introduction<\/span><\/strong><\/p>\n\n\n\n

\nThe Indian Space Sector is a rapidly growing and flourishing industry. Leading the Indian space manoeuvre, the\nIndian Space Research Organisation\u2019s (\u201cISRO<\/strong>\u201d)\u00a0recent success with Chandryaan-3 and the launch of the Aditya L-1\nMission early this month, has firmly established India\u2019s name in the elite space club of the world. As a corollary, it is\nexpected that the Indian Space Sector will witness even greater foreign investment in the near future. Foreign\ninvestment in the space sector will not only enable growth in the space sector but would pump up many other\nsectors, including inter-alia<\/em>, meteorology, energy, telecommunications, insurance, transport, maritime, and aviation.\n<\/span><\/p>\n\n\n\n

Lack of Clear FDI Policy<\/span><\/strong><\/p>\n\n\n\n

\nHowever, despite the above achievements, presently India accounts for only 2 % (two percent) of the global space\neconomy<\/a> and lags far behind nations like China, USA, Israel, etc. The Indian government envisions expanding\nIndia\u2019s commercial influence in the space with the help of the private sector. In pursuance of the same, ISRO has\nrecently released the Indian Space Policy 2023<\/a>\u00a0(\u201cISP 2023<\/strong>\u201d) with a vision to, inter-alia<\/em>, enable, encourage, and\ndevelop a flourishing commercial presence in space, which suggests an acceptance that the private sector is a critical\nstakeholder in the entire value chain of the space economy.\n<\/span><\/p>\n\n\n\n

\nUnder the current Foreign Direct Investment (\u201cFDI\u201d) Policy<\/a> (\u201cFDI Policy"<\/strong>), FDI is allowed up to 100% (One\nhundred percent) in the area of satellite- establishment, and operations, subject to the sectoral guidelines of the\nDepartment of Space (\u201cDoS<\/strong>\u201d)\/ ISRO In respect of the sectoral guidelines; Remote Sensing Data Policy 2011, Draft\nSpace-com Policy 2020, are inter-alia, the relevant ones. While the ISP 2023 has been lauded for the many\nallowances it made for private entities, critics<\/a> raised concerns about a lack of clear-cut policy on FDI with respect to\nthe space sector in India. Consequently, the Indian National Space Promotion and Authorization Centre (\u201cIN-\nSPACe<\/strong>\u201d) has come up with certain draft measures to fill in the loopholes with respect to FDI in the Space Sector,\nmore elaborately discussed below.\n<\/span><\/p>\n\n\n\n

FDI Measures in Pipeline<\/span><\/strong><\/p>\n\n\n\n

\nThe IN-SPACe draft has already been internally approved<\/a> by the center itself and is awaiting the Government\u2019s\napproval. It is expected<\/a> to be released and operationalized by the end of this year.\n<\/span><\/p>\n\n\n\n

\nIt has been proposed to open up investments in three different areas<\/a> of the Space Sector \u2013 (1) sub-system\nmanufacturing; (2) launch vehicle operation; and (3) satellite operations and establishments. The foreign investments\nin the three different activities may vary from 49 % (forty-nine percent) to 100 % (one hundred percent).\nAdditionally, some level of investment under the automatic route may be permitted. However, the exact details of\nthe same are yet to be made public. This seems to be a great relaxation from the current FDI Policy which allows\nFDI of up to 100% in only satellite operations and establishments through the government approval route.\n<\/span><\/p>\n\n\n\n

\nThe liberalization of the FDI investment regime in the Space Sector is welcomed, however, as we will establish in\nthe upcoming section(s), the space sector is intrinsically linked to national security and thus calls for heightened\nscrutiny of, inter alia<\/em>, the methods of investment screening. There is a need for a balanced regime while\nrecommending the contours of such an FDI policy to achieve the dual objective of attracting foreign investment in\nthe space sector and ensuring national security.\n<\/span><\/p>\n\n\n\n

The Triad of FDI, National Security, and the Space Sector <\/span><\/strong><\/p>\n\n\n\n

\nIn order to better understand the significance of the concern of national security in FDI in the Space Sector, the\nrelationship among these three conceptual framings, i.e., FDI in the space sector, national security, and the Space\nSector, needs to be explored holistically.\n<\/span><\/p>\n\n\n\n

\nThis section will establish two things \u2013 (i) the innateness of the question of national security in FDI Screenings; and\n(ii) the significance of the Space Sector in the interest of national security, both of which would as a corollary –\nhighlight the (iii) significance of the concern of national security in FDI in Space Sector.\n<\/span><\/p>\n\n\n\n

      (i) Security and Screenings<\/strong>\n<\/span><\/p>\n\n\n\n

\nInvestment policies related to essential security interests attracted little policy attention for many years. This changed\nmarkedly in about 2016, with governments in many OECD<\/a> countries beginning to consider whether their essentially\nunconditional openness to foreign investment would make them vulnerable in an evolving geopolitical environment.\nForeign Investments carry the potential baggage of numerous risks with them \u2013 (1) risks of espionage (the ability to\naccess unauthorised and highly sensitive information through for example access to key sites); (2) risks of disruption\n(the ability to disrupt key systems and processes, e.g., key supply chains); and (3) the risks of excessive leverage (the\nability to exploit an investment to influence the country) are few to be named.\n<\/span><\/p>\n\n\n\n

\nIn response to this, for the most part, policy attention has resulted in reforms or the introduction of acquisition- and\nownership-related policies to safeguard essential security interests, most often in the form of investment screening\nmechanisms. Up until 2022, at least 37 countries<\/a> (including India) have introduced new regulatory frameworks for\nthe screening of investments that include national security considerations. This type of policy allows governments to\nprohibit the implementation of certain foreign investment proposals, to require their unwinding, or to impose\nmitigation measures. With this understanding, we can safely establish that FDI is consequential to the security of a\ncountry.\n<\/span><\/p>\n\n\n\n

      (ii) Space and Security<\/strong>\n<\/span><\/p>\n\n\n\n

\nThe Indian Space Sector is increasingly becoming militarized. This orientation can be gleaned from\u00a0official\nstatements<\/a>\u00a0in the Indian Parliament and from organizations such as the United Nations. India\u2019s approach to space is\nnow driven by a sense of pragmatism and by national security concerns, as opposed to morality and sovereignty-\nrelated considerations. Along with capability developments, India has also undertaken institutional\u00a0changes<\/a>\u00a0to\nimprove how its armed forces utilize space, most recently exemplified by the establishment of the Defence Space\nAgency<\/a> in 2018. Thus, the Space Sector is increasingly becoming relevant to the Defence sector and thus has a direct\nbearing on the national security of the country.\n<\/span><\/p>\n\n\n\n

\nIt may be argued that the focus of the ISP 2023, is on civilian and peaceful applications since there is just one\nreference to \u2018security\u2019 in it. Considering that space-based intelligence, reconnaissance, surveillance, communication,\npositioning and navigation capabilities are increasingly seen as a critical mission by the defense services, it is\nreasonable to infer that a defence-oriented space security policy document will be a separate document.\u00a0However,\nthe question of national security still permeates into the said civilian and peaceful applications. For example, a space-\ntech start up Blue Sky Analytics<\/a> is targeting to build the world's largest spatially and temporally continuous dataset\non key environmental parameters and to transform the monitoring, diligence, and risk assessment systems globally.\nFurther, a Bengaluru based startup\u00a0engaged in the space data and the satellite imaging<\/a> segment, successfully raised\nmoney from Google for its operations. Therefore, it is clear that such seemingly private and civilian pursuits are\nsimilar to the ones being carried out by defense agencies in both nature and function and thus, are positioned to\npose a palpable threat to national security.\n<\/span><\/p>\n\n\n\n

      (iii) The Concern of National Security in FDI in the Space Sector<\/strong>\n<\/span><\/p>\n\n\n\n

\nIt has so far been established that, national security acts as an important point of enquiry in the FDI scrutiny, and\nthat the Space Sector forms a significantly sensitive sector when dealing with security concerns. The logical\ndeduction herein thus calls for a higher standard of scrutiny of FDI in this sector in face of the security concerns.\n<\/span><\/p>\n\n\n\n

\nInternational commercial actors \u2013 entities that such an FDI policy seems to encourage to invest, play a key role in\nthe proliferation of technology<\/a> and know-how because they often support multiple international clients. Their\npolitical relations may be unclear and shifting. While some may have an explicit desire to remain neutral, others have\nfixed alliances. Therefore, these firms should invite heightened scrutiny for their investments in the Indian space\nsector.\n<\/span><\/p>\n\n\n\n

\nWhile the authors in this article have chosen to disjoint the ideas of national security and Investment attractiveness,\nit is not totally unreasonable to say that they are not so different after all, and that the latter ultimately leads to\nensuring the former. International competitiveness (or in this context, investment attractiveness) is important from a\nnational security perspective, such that a country does not find itself left behind or exposed as the exploration,\nexploitation, and militarization of space increases. Therefore, FDI policy, which enables a free flow of capital and\ntechnology for the development of Indian space enterprises while also preserving India's national security and\nmitigating cross-border threats will go a long way to ensuring that space technology is developed and used for the\nbetterment of India and Indians.\n<\/span><\/p>\n\n\n\n

Evaluation of the Existing Regime: National Security & Regulatory Ease <\/span><\/strong><\/p>\n\n\n\n

\nThe current regime is contained in the Consolidated FDI Policy, 2020 (\u201cCFP<\/strong>\u201d), Guidelines for Establishing\nSatellite-based Communication Network(s), 2022 (\u201cSBCN Guidelines<\/strong>\u201d), National Geospatial Policy, 2022\n(\u201cNGSP<\/strong>\u201d), and the Remote Sensing Data Policy \u2013 2011 (\u201cRSDP<\/strong>\u201d). Apart from these, there are the Draft Norms,\nGuidelines and Procedures for implementation Spacecom Policy-2020 (\u201cSpaceCom NGP<\/strong>\u201d), and the Draft Norms,\nGuidelines and Procedures for Implementation of Space Remote Sensing Policy-2020 (\u201cSpaceRS NGP<\/strong>\u201d) which\nare awaiting the clearance by the government.\n<\/span><\/p>\n\n\n\n

\nFrom a national security perspective, the CFP is relevant to the extant it provides for a 100% FDI in Satellite\nestablishment and operation through the \u2018government approval\u2019<\/a> route only<\/em>. This, the policy provides, is subjected to\nthe sectoral guidelines of the Department of Space (\u201cDoS<\/strong>\u201d)\/ ISRO. However, given that this article is being penned\ndown with premise of a lack of such guidelines by the DoS, we need to look elsewhere. Before going ahead, it needs\nto be clarified that all the policies\/guidelines being evaluated herein exclusively concern themselves with the specific\nsub-sector of satellite establishment and operations.\n<\/span><\/p>\n\n\n\n

\nThe SBCM Guidelines of the Department of Telecommunications (\u201cDOT<\/strong>\u201d) lay down the conditions for the\nprovision of licenses to firms seeking to establish satellite-based communication networks. Guideline 1.3<\/a> of Chapter\nI suggest that the satellites providing Global Mobile Personal Communication (\u201cGMPC<\/strong>\u201d) services must come with\na Land Earth Station Gateway Switch, for each satellite. The safeguard under Guideline 1.3.2 is that this gateway\nmust be located within the Indian territory, and no calls can be routed through a gateway located outside India.\nFurther, the prospective licensee is mandated to provide for an adequate monitoring facility at the GMPC Gateway.\nLastly, 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 (\u201cIMC-SNC<\/strong>\u201d). This committee, as\ndefined in Chapter II of the guidelines, comprises of representatives from, inter alia, DoS and DoT to act as a single\nplatform to enable the issuance of "in-principle clearance" to the proposed network. While the guidelines provide\nfor other satellite-based services as well, the authors have picked up this very specific instance to show how these\nguidelines are performing the balancing act of strict security review whilst maintaining the regulatory ease. This has\nbeen achieved by maintaining the high rigour of review with multi-tiered requirements, but consolidating the\nclearance bodies and thus minimising the regulatory confusion.\n<\/span><\/p>\n\n\n\n

\nThe NGSP of the Department of Science and Technology (\u201cDoST<\/strong>\u201d) envisages a thriving Geospatial industry in the\ncountry involving private enterprise. The emphasis on the contribution of the private sector in this policy is so much\nso that the phrase \u201cprivate sector\u201d appears fifteen times in the 11-page policy<\/a>. The policy provides for the\nGeospatial Data Promotion and Development Committee (\u201cGDPDC<\/strong>\u201d) as the apex body with the task of\nimplementing the policy, with a representative of the National Security Council Secretariat as one its members. Apart\nfrom this, there has been no emphasis on national security in the policy. The only other mention of \u201csecurity\u201d is\nfound in the functions of GDPDC which is entasked to take measures to foster innovation, provide leadership and\ncoordination, and promote standards necessary to strengthen Geospatial information management so that they can\nbe used to find sustainable solutions to emerging development and security challenges facing the nation. This is\nespecially troubling given the sensitivity<\/a> of the Geo-spatial data to the national security concern. Further, no\nrepresentative from the DoS has been afforded a seat in the GDPDC. The policy defines the role of the DoS, and\nlimits it to, generate Orthoimagery using space-based technology. This is also concerning given the inherent\nsignificance of space-based technology in geospatial data collection.\n<\/span><\/p>\n\n\n\n

\nThe RSDP-2011<\/a> is the only policy discussed here that has been formulated by the DoS. Further, in contrast to the\nNGSP, it explicitly recognizes that national interest is paramount to the objective of the policy and that security\nconsideration of the country needs to be given utmost importance. Given the sensitive nature of the data involved,\nas per the policy, for operating a remote sensing satellite from India, the permission of the government, through the\nnodal agency, is necessary. Moreover, there are strict restrictions even on share of this data. Apart from operation of\nsatellites, for the acquisition or distribution of the remote sensing data within India, the government\u2019s permission is\nmandatory. While the intention of the drafters of the policy is clear, it still suffers from ambiguity. The gaps in the\ntext open the possibility to share such data, (not within but) outside India. The Draft SpaceRS NGP<\/a> addresses this\nlacuna by focusing on the development of space-based remote sensing systems to meet the specific needs of the\ncountry. These needs cannot be effectively, affordably, or reliably met by commercial entities, either due to concerns\nrelated to national security or economic factors. Additionally, the draft policy outlines the identification of a category\nof data as 'sensitive' due to national security considerations, and it envisions a different mechanism for the\ndissemination of such data. The government also retains the right to control the imaging and distribution of its data\nwhen national security demands it. In such cases, the government can restrict the operations of commercial systems\nand limit the collection and sharing of certain data and products. Furthermore, recognizing the sensitivities\nassociated with strategic observations, systems that require indigenous designs will be directly controlled by the\ngovernment and pursued by the Department of Space (DoS). Lastly, the authorization forms for space-based remote\nsensing, as outlined in the policy's annexes, explicitly include a section inquiring about foreign direct investment\n(FDI) in licensee firms. This is done with the intention of assessing the level of scrutiny needed for such\ninvestments.\n<\/span><\/p>\n\n\n\n

\nMuch like the SpaceRS NGP, the Draft SpaceCom NGP<\/a> also has a similar focus. It emphasizes the development of\nspace-based communication systems to address specific needs that cannot be effectively, affordably, or reliably met\nby the commercial sector in India. These limitations may arise due to concerns related to national security or\neconomic factors. The policy acknowledges the importance of creating a favorable environment for the industry to\nfulfill communication requirements for broadcasting, telecommunications, and networking activities in the country.\nHowever, it also recognizes that there will still be communication needs related to areas like national security,\nstrategic communications, surveillance, and critical economic transactions. These requirements necessitate secure\nchannels protected by suitable hardware and software solutions. To meet these sensitive communication needs, the\npolicy emphasizes that the systems must be designed with indigenous components and modules under the direct\ncontrol of the government. It is provided that the Department of Space (DoS) will be responsible for developing\nand managing such systems. Consequently, the policy aims to strike a balance between ensuring national security and\nsimplifying regulatory processes\n<\/span><\/p>\n\n\n\n

Regulatory Proportionality: Drawing the Contours of a Model FDI Regime for Space Sector <\/span><\/strong><\/p>\n\n\n\n

\nRegulatory Proportionality entails ensuring that limitations on investments or transaction conditions do not exceed\nwhat is necessary for safeguarding national security. It underscores the importance of avoiding such restrictions\nwhen other existing measures are sufficient to address national security issues. Each nation has the inherent right to\ndefine its requirements for protecting national security, and this determination should be based on meticulous risk\nassessment techniques that consider the nation's unique circumstances, institutions, and resources.\n<\/span><\/p>\n\n\n\n

\nThe connection between investment restrictions and identified national security risks must be clear. Investment\nrestrictions should be specifically targeted at concerns related to national security. Security-related investment\nmeasures should be crafted to benefit from both ample national security expertise and the necessary skills for\nevaluating the consequences of actions in relation to the advantages of open investment policies and the\nrepercussions of restrictions.\n<\/span><\/p>\n\n\n\n

\nIf deemed necessary, restrictive investment measures should be customized to address the precise risks presented by\nparticular investment proposals. This may involve implementing policy measures, particularly risk mitigation\nagreements, to address security concerns without completely obstructing investments. Restrictive investment\nmeasures should be employed sparingly, primarily as a last resort, only when alternative policies, such as sectoral\nlicensing, competition policies, or financial market regulations, cannot effectively mitigate security-related concerns.\n<\/span><\/p>\n\n\n\n

Way Forward<\/span><\/strong><\/p>\n\n\n\n

\nThe Indian Space Sector stands at the cusp of significant growth and transformation, driven by recent achievements\nand the promise of increased foreign investment. India's aspirations to expand its commercial presence in space, as\noutlined in the Indian Space Policy 2023, reflect a growing recognition of the private sector's vital role in the space\neconomy's development. However, the lack of a clear and comprehensive FDI policy in the space sector poses\nchallenges. To address this issue, the Indian National Space Promotion and Authorization Centre (IN-SPACe) is\nworking on draft measures, expected to be operationalized soon, to open up investments in sub-system\nmanufacturing, launch vehicle operations, and satellite operations and establishments, offering foreign investors\ngreater flexibility.\n<\/span><\/p>\n\n\n\n

\nNevertheless, the integration of FDI in the space sector must be approached with caution due to the inherent\nconnection between space activities, national security, and the potential for technology transfer to international\nactors \u2013 a consequence of FDI. Recognizing this, there is a need for a balanced approach to FDI in the space sector,\none that encourages investment while ensuring robust national security measures. Governments worldwide have\nrecognized the importance of assessing FDI through security screening mechanisms to safeguard essential interests,\nas demonstrated by reforms in numerous countries and the existing regulatory landscape in India attempts to strike\nthis balance of regulatory ease and ensuring national security.\n<\/span><\/p>\n\n\n\n

\nIn conclusion, India's space sector holds immense potential, and FDI is a critical driver of growth. However, it must\nbe integrated judiciously, considering the intricate relationship between FDI, national security, and the evolving\nspace landscape. Striking the right balance through a well-defined FDI policy and regulatory proportionality will\nensure that India's space technology benefits both its citizens and its strategic interests.\n<\/span><\/p>\n\n\n\n

Disclaimer<\/span><\/strong><\/p>\n\n\n\n

The views and opinions expressed by the Authors are personal.<\/em><\/strong><\/span><\/p>\n\n\n\n

About the Authors<\/span><\/strong><\/p>\n\n\n\n

\nMr. Suprabh Garg is an Associate in Verist Law, Mumbai. His area of specialization is General Corporate\/\u00a0Finance.\n
\nMr. Ishaan Sharma is a 3rd Year B.B.A. LL.B. Student at NALSAR University of Law, Hyderabad. His interests span\nCapital Markets.\n<\/span><\/p>\n\n\n\n

Editorial Team<\/span><\/strong><\/p>\n\n\n\n

Managing Editor: Naman Anand<\/em>
Editors-in-Chief: Abeer Tiwari & Muskaan Singh<\/em>
Senior Editor: Kopal Kesarwani<\/em>
Associate Editor: Ishaan Sharma<\/em>
Junior Editor: Nalin Arora<\/em><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

Introduction The Indian Space Sector is a rapidly growing and flourishing industry. Leading the Indian space manoeuvre, the Indian Space Research Organisation\u2019s (\u201cISRO\u201d)\u00a0recent success with Chandryaan-3 and the launch of the Aditya L-1 Mission early this month, has firmly established India\u2019s name in the elite space club of the world. As a corollary, it is […]<\/p>\n","protected":false},"author":266,"featured_media":8161,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":"","wp_social_preview_title":"","wp_social_preview_description":"","wp_social_preview_image":0},"categories":[1,14],"tags":[],"_links":{"self":[{"href":"https:\/\/ijpiel.com\/index.php\/wp-json\/wp\/v2\/posts\/8072"}],"collection":[{"href":"https:\/\/ijpiel.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/ijpiel.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/ijpiel.com\/index.php\/wp-json\/wp\/v2\/users\/266"}],"replies":[{"embeddable":true,"href":"https:\/\/ijpiel.com\/index.php\/wp-json\/wp\/v2\/comments?post=8072"}],"version-history":[{"count":87,"href":"https:\/\/ijpiel.com\/index.php\/wp-json\/wp\/v2\/posts\/8072\/revisions"}],"predecessor-version":[{"id":8160,"href":"https:\/\/ijpiel.com\/index.php\/wp-json\/wp\/v2\/posts\/8072\/revisions\/8160"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/ijpiel.com\/index.php\/wp-json\/wp\/v2\/media\/8161"}],"wp:attachment":[{"href":"https:\/\/ijpiel.com\/index.php\/wp-json\/wp\/v2\/media?parent=8072"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/ijpiel.com\/index.php\/wp-json\/wp\/v2\/categories?post=8072"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/ijpiel.com\/index.php\/wp-json\/wp\/v2\/tags?post=8072"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}