The forthcoming Union Budget 2023-24 will be crucial for the emerging space industry. Given the government’s impetus in promoting the private sector’s participation in this segment, the budgetary allocations are seen as potential triggers to promote the space sector
In a major policy decision, taken in June 2020, the government opened the space industry to the private sector. Despite being one of a few spacefaring nations in the world, India accounts for only about 2% of the space economy which is currently valued at about $ 360 billion.
The government also opened the Indian Space Research Organisation (ISRO)’s facilities to the private sector for testing, tracking and telemetry, launch pads, and laboratories. It aimed to enable the private space industry to climb the value chain.
In 2021-22, the government allocated Rs 13,949.09 crore to the Department of Space out of which ₹5,720.46 crores has been under the Revenue Budget and the rest of ₹8,228.63 crore under the Capital Budget.
Building upon the mandate, the government also created various independent agencies under the Department of Space. The government defined its strategic roadmap for enhancing the role of Non-Government Entities (NGEs) in the space sector through hand-holding, tech support, and providing them with a level playing field. By opening ISRO’s space infrastructure to private companies, the government laid the ground for developing satellite systems, and the launch of rockets and vehicles developed by the private sector.
In a bid to further the cause of the sector, the Indian Space Association has outlined key policy recommendations. According to Lt General AK Bhatt (Retd.), Director General of the Indian Space Association (ISpA) these recommendations are aimed to put forward the suggestions received from the space industry.
Recommendations for the space sector
Production Linked Incentive (PLI) Scheme for the space industry – The space industry has strongly urged the government to include a production-linked incentive (PLI) scheme for space tech players in the upcoming budget.
In the Union Budget 2021-22, the finance minister announced an outlay of INR 1.97 Lakh Crores for the Production-Linked Incentive (PLI) Schemes for 13 key sectors, to boost domestic manufacturing in sunrise and strategic sectors.
While the PLI Scheme extends to electronics manufacturing on building a vibrant and robust electronic component manufacturing ecosystem for multiple sectors such as IT Hardware, LED Products, Automotive, Medical Devices, Solar Cells, Energy Storage, etc., the space-related activities do not fall under the scheme.
Experts point out the anomalies as the space component is linked to telecom and electronic systems.
“The PLI scheme will promote research and development in India and provide incentives to entities engaged in the space sector,” says General Bhatt, adding that the space sector is all about the investment in new technology.
Voicing a concern similar to ISpA, the SatCom Industry Association of India (SIA-India), whose members include AsiaSat, Dhruva Space, and others, has put forth a demand for the production-linked incentive (PLI) scheme for space tech players in the upcoming budget.
Financial support from Government through loans & grants and tax incentives – The space sector is capital intensive which requires heavy investment in the early stage of the development of satellite, and space-based equipment, including the launch mechanism.
The industry suggests that the tax incentives for companies and organizations operating in the space sector may include reduced corporate tax rates, tax credits for research and development expenses, and other forms of financial support. General AK Bhatt further explained that the private space industry is still maturing at this stage and the incentive will drive the ecosystem. Bhatt further clarifies that the existing policies restrict such invectives for the first 10 years which is applicable to private players, including startups.
Most of the startups in the space domain are nearing 9-10 years so the new draft space policy must extend the benefits to the industry beyond the 10-year mark.
Since the new space policy is in its final stages of development, the provision of tax exemption for startups should be continued till the time the incumbent policy is implemented.
Parity in treatment of capital gains for shares of unlisted companies– Considering that most space-tech companies in India are startups and access to capital is an issue, it would be beneficial to create parity in terms of the short-term capital gains tax rate and treatment with respect to listed and unlisted entities.
GST exemption for private satellite launch service providers – The GST exemption remains the focal point of policy recommendations. While the government has included it in the Draft Indian Space Policy 2022 for consideration, no decision is taken yet on this.
“GST exemption for the provision of satellite launch services must be provided to all the parties who are in the process of providing such services,” Bhatt emphasized.
This would result in the creation of a level playing ground for the entire industry. The government may also consider providing deductions or credits for companies that incur these costs as part of their operations in the space sector. These measures are aimed at encouraging employment generation and supporting the growth of private satellite launch service providers.
Space technology parks — General Bhatt also urges the government to set up space technology parks and form a group of experts for the use of the space ecosystem.
“The development of a Space Technology Park (STP) ecosystem will create a thriving environment for commercial organizations of all sizes, including startups working on new space technology, and will allow the Indian government and industry to develop and improve products and services related to the space industry,” Bhatt says.
Exemption from angel tax--Considering that most space-tech companies in India are startups and access to capital is an issue, it would be beneficial to exempt them from the angel tax bracket altogether as part of its efforts to support the growth of the space industry in India.
Overall, experts believe that if these measures are implemented, it could create a favourable environment for companies operating in the space domain and encourage investment, research, and development with the goal of making India a global hub to produce space-based products.
With such strategic policy interventions, the Department of Space can further work towards tapping the immense potential of the private sector working in the space sector.