• India has proposed to increase its 2022-23 space programme budget by around 8.4 percent.
  • The changes are expected to boost the research and development efforts that go into missions of national significance.
  • It's predicted the capital could help start-ups expand their operations and support the nation's first space mission.

The buzz around India’s space sector is palpable. In the proposed budget for 2022-23, the Department of Space (DoS) saw an 8.4 percent increase over the previous fiscal year. The budget also identified space as a “sunrise opportunity,” though the accompanying finance bill did not elaborate on specifics.

India’s space sector had already been capturing headlines. Last month the Indian Space Research Organisation (ISRO) announced a new chairman, a former space center director who played a pivotal role in the development of ISRO’s most powerful rocket. India’s first crewed mission to outer space, known as Gaganyaan, is now expected to launch as early as next year. Meanwhile, Indian startups continue to raise modest yet impressive funding to sustain their commercial activities. These are exciting developments for a country that has been a torchbearer for conducting space innovation on a shoestring budget. The proposed budget increase will boost the research and development efforts that go into missions of national significance. But the government also needs to implement measures to stoke the private space industry.

The creation of the Indian National Space Promotion and Authorization Center (IN-SPACe) was a major reform that allowed the government to open up space activities, especially at DoS facilities, at reasonable cost to private players. However, the government still has the opportunity to further expand access for private players by creating a single-window mechanism through which they could handle all their interaction with the government, not just seek use of DoS facilities.

The Economic Survey also pointed out that of 101 startups in India’s space sector, forty-seven were incorporated in the past year. Considering the blistering pace at which many other Indian startups attained “unicorn” status in 2021, this increase in the space economy is encouraging. However, for the unicorn startups, an increase in valuation has been possible not merely because of promising technology and product innovation, but also because of the abundant capital at their disposal. This enables successive rounds of financing that were previously only available in public markets, which allows startups to stay private longer. However, this also increases the risk for venture capital funds that invested early on, so there may be a place for government to step in.

The 2022 budget does try to improve the fiscal situation of startups across sectors. In previous years, newly created startups were eligible for a tax rebate if they earned less than a certain amount. The proposal extended this program into 2023—a welcome step that would arguably enable these businesses to reinvest their rebates to expand their operations.

But this only addresses the needs of the startups and not their investors. Space is a high-risk sector that has traditionally attracted small-ticket investments that do not match those seen by their counterparts in the e-commerce or financial technology sectors. The budget could also give tax breaks to investors who provide seed or angel capital. This could be in the form of a zero percent capital gains tax on their investments, or if the startup has assets under a certain threshold, investors could be exempt from paying capital tax gains on the stocks they sell, provided they hold that stock for a certain number of years. Since the majority of investments in the space sector are seed or angel investments, these tax breaks would help attract sustained investments to this sector.

Space startups are also pursuing the development of path-breaking technologies, but in order to be financially viable, these technologies must have commercial applications. Mulling over this question is worthwhile, since it lines up with the current transition of small Indian private enterprises from traditional ISRO vendors to sellers in the wider marketplace. The government should be exploring which measures could encourage this market shift.

A space policy that lays out a vision for a vibrant space economy is imperative for industry growth. Space exploration activities are supported by numerous startups, so, a robust value chain for the space industry would ideally involve and require expertise in areas such as sound logistics, advanced transportation systems, energy storage technologies, and long-duration life-support systems, among others. Creating such an ecosystem would require seamless coordination between the different players. India could use an approach adopted by the European Space Agency’s Business in Space Growth Network initiative, which involves a cohort of incubators, accelerators, governments, venture capital funds, space agencies, and academics working together to commercialize operations in the low-earth orbit.

This year’s budget may not be the document to incorporate such a move, but a singular space policy would chart a roadmap for India’s space economy. It also provides clarity to private players on how much room they have to accomplish their goals within the confines of a national space policy. Countries such as Australia, China, Russia, the UAE, and the United States all have space policies, and there is no reason India should not have one as well. These policies may appear abstract to some, but they allow space economy enterprises to identify the policy goalposts and work accordingly.

From a geopolitical perspective, the nation that best articulates a comprehensive legal framework for its space economy stands the best chance of exporting its model to others. Given the lack of consensus on many outer space governance norms, whichever country establishes a successful domestic model for regulating new space economy enterprises will be poised to replicate that success internationally as well. This is because the exploration of outer space by private players will require new laws and revisions to existing treaties. The country that outlines its rules first will have a significant role in setting the terms of reference for subsequent international discussions. In India, the space reforms initiated in recent years were the first step toward creating a healthy space economy. It is now important to sustain this momentum and ensure that further policies continue to fund and develop India’s space industry.