Reaching for the stars: structural reform in the private space sector in India
by Anirudh Rastogi and Varun Baliga
|Private capital follows markets that have clear, specific, and predictable regulations, making it difficult for an Indian space company to raise from foreign markets.|
The private industry, however, is cautiously optimistic because of its disappointing experience so far. In 2017, US-based company Hughes announced a $500-million satellite communications system in India. However, Hughes has received neither an approval nor an expected timeline from the government. Multiplicity of approvals and procedural ambiguity have been repeatedly cited as barriers to growth. A satellite company, for example, will typically need to navigate the Department of Space (DoS, which sits under the Prime Minister’s office), ISRO (which sits under the DoS), Antrix (ISRO’s commercial arm), and the Committee for Establishment and Operation of Indian Satellite Systems. In the case of communication satellites, the company also needs approvals from the Department of Telecommunications (DoT) and the Wireless Planning and Coordination Wing (WPC), both within the Ministry of Communications.
The roles of each of these agencies are not clearly defined, further complicating the process. An example of this was the dispute between Antrix and a company, Devas Multimedia. In 2005, Antrix inked a 12-year spectrum deal with Devas Multimedia to provide satellite-based mobile services. In 2010, the deal was cancelled without as much as prior notification to Devas. ISRO reneged on its contract with Devas over allegations of impropriety in granting the contract, one impropriety being that ISRO earmarked spectrum for Devas without securing approval of the WPC or consulting the DoT. Procedural ambiguity in the regulations allowed for this to happen.
A discussion on the disappointments of the private sector experience in India is incomplete without mention of Team Indus. The venture was racing against international participants to launch a rover to the moon, in its bid to win the $30 million Google Lunar X PRIZE and had secured a contract with ISRO to launch the rover on a dedicated PSLV mission. In 2018, seven years after it started on the mission, Team Indus had to abort the mission when its launch contract was cancelled. The company was unable to raise adequate funds to pay an installment to ISRO. Raising capital was a struggle for Team Indus, as it is for the rest of the industry. Private capital follows markets that have clear, specific, and predictable regulations, making it difficult for an Indian space company to raise from foreign markets. Also, given the long gestation periods and capital-intensive nature of the technology, the sector needs access to “patient” capital, which can come from the government or from global private equity markets that can better afford to take long-term, innovative bets.
This also requires foreign direct investment (FDI) reforms. Currently, the establishment and operation of satellites has a 100% FDI limit subject to government approval. Industry bodies have repeatedly raised concerns of projects being held up for years while waiting for such approvals. One way to balance industry needs and the security considerations that the government rightfully looks to protect is to adopt the telecommunication services model. The telecommunication sector in India was the subject of legitimate security considerations that are in some ways similar to the space sector. At the same time, the government recognized the benefits that can accrue from a high-growth telecommunication sector. The balance was therefore achieved through a model of liberalization that now permits investments up to 49% under the automatic route and through the government approval route beyond that limit. This prevents foreign entities from getting a majority stake without government approval while also providing Indian companies with seamless access to capital for a non-controlling stake in the company.
|The government’s recent decisions are welcome steps in the right direction.|
Finally, ISRO is both a regulator and an operator. The apparent conflict of interest is another reason cited for the Team Indus debacle. The conflict manifests in various ways. For example, ISRO and the private sector have not transitioned beyond a “vendor-supplier” relationship. ISRO establishes intellectual property and then shares technical expertise with the private sector in order to buy back components. ISRO maintains complete control over the final product. Private companies are precluded from exercising intellectual property, thereby limiting export and innovation. Private sector players need to be treated as equal market participants. Startups need to be actively incubated by ISRO and be allowed to exercise intellectual property. The inevitable competition between startups will be a net positive for ISRO, which will get access to an overall higher quality product. Moreover, private companies will be able to leverage their intellectual property to export products to the burgeoning international satellite and launch vehicle market.
The government’s recent decisions are welcome steps in the right direction. The intention appears to be to re-focus ISRO’s role to research and development and empower IN-SPACe to promote private space operations. This should be accompanied with a replacement of the present, overlapping regulatory framework to offer a single-window licensing system with a clear application process, precisely drafted exceptions, and strict timelines to be adhered to.
Relevant regulations will also need to be updated to reflect the aspirations of the private sector. It remains crucial for the government to consult key stakeholders in the private sector while overhauling regulations. This may prevent increased red tape from being the price to be paid for private sector participation. India’s space startups are hoping change will come in the form of a conducive policy environment that creates the right incentives, provides access to capital, and assures clarity in regulation.
Note: we are temporarily moderating all comments submitted to deal with a surge in spam.