Strategic policy reforms that can propel the Indian space sector to a faster growth trajectory

The upstream segment includes all activities such as manufacturing, launching and operation of space assets.

By Dhwani Gada and Parth Sangani

India created history in space technology with the successful landing of Chandrayaan-3 on the moon, also triggering a significant evolution and becoming a global powerhouse. Beyond these triumphs lies a new space era driven by the private sector and startups and supplemented by government initiatives.

The ambitious vision of India reaching a $44 billion space sector leader by 2033 is now on the horizon propelling India into further strides in space exploration. To fully unlock this potential, strategic policy reforms for the private sector are paramount, presenting both challenges and thrilling prospects on the path forward.

Broadly the space value chain is categorised into

(a) upstream segment

(b) downstream segment

(c) auxiliary segment

Upstream Segment

The upstream segment includes all activities such as manufacturing, launching and operation of space assets. This segment is capital incentive and is facing challenges in raising capital from India. Supporting this segment with reduced tax rate on interest on foreign borrowings would help Indian companies access foreign funding at cost-effective rates for project financing.

Further, in line with the government incentive policies to promote ‘Make in India’ across key sectors, it may be time to consider a dedicated Production Linked Incentive (PLI) scheme to manufacture space-grade components much like the recently announced dedicated PLI scheme for drones and drones’ components. This will help incentivise domestic production under the Make in India campaign and attract investment by providing financial incentives to manufacturers based on their output.

Specific Customs duty exemption and concessions on import of goods/ equipment/machinery used to manufacture notified goods under the Import of Goods at Concessional Rate of Duty scheme (IGCR), should be considered for the sector.

Downstream Segment

The downstream segment broadly covers application of data and insights from space and effective utilisation of the same on earth. Recently, exemption from levy of GST was provided on satellite launch services. While such exemption reduces GST cost on output activity of satellite launch services, the resultant impact on the input tax credit on procurement of goods and services should also be analysed.

This adds to the cost of providing service to the value chain. Thus, similar exemption should be provided for procurement of key goods and services (including capital goods) by business for the purpose of satellite launch services. This will help reduce the GST input tax credit costs and the intended benefit would be enjoyed by the supply chain.

Additionally, a service-linked incentive (SLI) scheme, similar to a PLI scheme, could be designed to incentivise and promote specific services offered by the space sector. Just as a PLI scheme encourages and rewards manufacturing activities, a service linked incentive scheme could focus on service-oriented offerings of the space sector.

Auxiliary Segment

The auxiliary segment consists of non-core service areas such as space insurance service, technical and skill set development for the space sector, specialised automotive sector etc. State governments can support by creating space technology parks which will have all-encompassing space infrastructure including office space, workshops and labs, testing and validation infrastructure as well as production facilities which could be located or co-located in proximity of each other for space industry to thrive in their states.

On the regulatory front, the Indian space industry eagerly awaits the enactment of the Space Activity Bill which will encourage the participation of private sector players in space activities in India under the guidance and authorisation of the government through the Department of Space.

As India stands on the cusp of a new era in the space sector, the trajectory ahead promises unprecedented growth and innovation. The strides made by the Indian Space Research Organisation (ISRO) have not only captured the imagination of our nation but have also paved the way for a vibrant and competitive private space industry.

The future of India's space sector is not just about exploring the cosmos but creating a robust ecosystem that fosters innovation, collaboration and sustained growth. The challenges may be daunting, but the thrill of unlocking the vast potential of our space sector makes the journey ahead both exhilarating and worthwhile.

Dhwani Gada and Parth Sangani are with Deloitte Haskins and Sells LLP. Views are personal, and do not represent the stand of this publication.