Union Cabinet approves 100% FDI in space sector
Context:
The Union Cabinet, approved amendments to the existing Foreign Direct Investment (FDI) policy in the space sector.
- The amended policy allows 100% FDI in the space sector, with different entry routes for various activities.
Relevance:
GS-02 GS-03 (Government Policies & Interventions, Growth & Development)
Key Highlights
- The amendments aim to attract investors, promote employment generation, and foster self-reliance in the space sector.
- The Cabinet approved the continuation of the Flood Management and Border Areas Programme with a ₹4,100-crore outlay for five years.
Liberalized Entry Routes
- The amendments extend the facility of up to 74% FDI under the automatic route for satellite manufacturing, operation, and data products.
- Beyond 74%, government route approval is required.
- Similarly, up to 49% FDI under the automatic route is allowed for launch vehicles and spaceports, with government route approval necessary beyond this threshold.
- Additionally, up to 100% FDI under the automatic route is permitted for manufacturing components and systems/sub-systems for satellites.
Expected Benefits
- These amendments aim to increase private sector participation, generate employment, promote technology absorption, and enhance the self-reliance of the sector.
- By integrating Indian companies into global value chains and enabling them to set up manufacturing facilities within the country, the amendments seek to boost the competitiveness of the Indian space industry.
Foreign Direct Investment (FDI):
- Foreign Direct Investment (FDI) involves an investor from one country establishing a lasting interest in an enterprise in another country, which can take various forms like acquiring shares, setting up subsidiaries, or providing loans.
- FDI is crucial for economic growth as it brings capital, technology, skills, market access, and job opportunities to the host country.
- India has become an attractive destination for FDI due to its large and growing market, favourable demographics, stable political environment, liberalized policies, and improved business environment.
- Between April 2000 and June 2022, India received a cumulative FDI inflow of USD 871.01 billion.
- In 2021, it ranked 7th among the top 20 host economies. In FY22, India recorded its highest-ever FDI inflow of USD 84.8 billion, including USD 7.1 billion in the services sector.
Challenges regarding FDI inflows in India:
- Taxation and Regulatory Compliance: India has made reforms in its tax regime, yet complexities and uncertainties persist. Frequent changes in tax laws, multiple taxation layers, and disputes over tax assessments pose compliance and tax planning challenges for foreign investors.
- Competition from Other Emerging Markets: India faces stiff competition from emerging markets like China, Vietnam, and Indonesia in attracting FDI. These countries offer competitive advantages such as lower production costs, superior infrastructure, and more investor-friendly policies.
- Infrastructure Deficit: Despite efforts to enhance infrastructure, India still grapples with significant gaps in transportation, logistics, power, and telecommunications. Inadequate infrastructure obstructs business operations, increasing operational costs for foreign investors.
