Easing of foreign direct investment norms in the space sector
The union cabinet chaired by the prime minister of India, on February 21, 2024, approved the amendment in the Foreign Direct Investment (“FDI”) policy (“FDI Policy”) on space sector (“Amended Policy”). Under the existing FDI Policy, FDI is permitted in the establishment and operation of satellites only through government approval. The Amended Policy seek to liberalise the FDI Policy provisions in space sector by prescribing liberalised entry route and providing clarity for FDI in the space sector viz a viz satellites, launch vehicles and associated systems or subsystems. The liberalised entry routes under the Amended Policy are aimed to attract potential investors to invest in Indian companies in space and to encourage collaboration between public and private entities. The specific amendments to the FDI Policy and the Foreign Exchange Management (Non-Debt Instrument) Rules, 2019 are awaited.
Early last year, the GoI introduced the Indian Space Policy, 2023 (“Space Policy”), which was formulated as an overarching, composite, and dynamic framework to implement the reform vision in the space sector. The Space Policy looks to (a) augment space capabilities; (b) enable, encourage, and develop a flourishing commercial presence in space; (c) use space as a driver of technology development and derived benefits in allied areas; (d) pursue international relations; and (e) create an ecosystem for effective implementation of space applications among all stakeholders. Prescribing liberalised FDI thresholds for a variety of subsectors/activities, the union cabinet has eased the FDI policy on the space sector in tandem with the vision outlined in the Space Policy.
The entry routes for various sub-sectors/activities under the Amended Policy are as follows:
- Upto 74% under automatic route: satellite manufacturing and operation, satellite data products and ground segment and user segment. Beyond 74% these activities are under government route.
- Upto 49% under automatic route: launch vehicles and associated systems. Beyond 49% these activities are under government route.
- Upto 100% under automatic route: for activities involving the manufacture of components and systems/sub-systems for satellites, ground segment, and user segment.
The Amended Policy and the Space Policy aim to create a flourishing commercial presence in space. The amendments are likely to result in increased foreign investment in the space sector in India. Such increased foreign investment have the potential of increased technology transfers thereby giving impetus to larger private participation and India's Make-in-India policies, that would in turn help in employment generation, and integrate Indian companies into the global space industry.
Amended definition of ‘unit'
The MoF vide notification dated March 14, 2024, amended the definition of ‘unit' under the Foreign Exchange Management (Non-debt Instruments) Rules, 2019. Rule 2(aq) defines the term ‘unit' as the beneficial interest of an investor in an investment vehicle. An explanation is inserted to the definition that a unit will include a unit that is partly paid up, which is permitted under the regulations framed by the SEBI, in consultation with GoI.
Opening, holding and maintaining a Foreign Currency Account outside India
RBI, vide their notification dated April 19, 2024, issued the Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India) (Amendment) Regulations, 2024, amending the Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India) Regulations, 2015. Pursuant to this amendment, funds raised through direct listing of equity shares of companies incorporated in India on international exchanges, which are either pending their utilisation or repatriation to India, can be held in foreign currency accounts with a bank outside India, subject to compliance with the conditions regarding raising of funds and resources. This condition was initially applicable only to funds/ resources raised by external commercial borrowings or American Depository Receipts or Global Depository Receipts.
Investments in other instruments of investment funds overseas
RBI, vide circular dated June 7, 2024, has amended the Foreign Exchange Management (Overseas Investment) Directions, 2022. The amendments are as follows:
- the definition of ‘Overseas Portfolio Investment (“OPI”)' is amended to include investment (including sponsor contributions) in units or any other instrument issued by an duly regulated investment fund overseas. Prior to this amendment, investment was permitted only in units issued by an investment fund overseas. It is further clarified that the term ‘investment fund overseas, duly regulated' also includes funds whose activities are regulated by financial sector regulator of the host country or jurisdiction through a fund manager; and
- a person resident in India, being an Indian entity or a resident individual, may make investment (including sponsor contributions) in units or any other instrument issued by an investment fund or vehicle set up in an IFSC, as OPI. Prior to this amendment, such investment was permitted only in units issued by an investment fund or vehicle set up in an IFSC.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.