How Indian Economy Can Be Expanded Through Space Privatisation

Space exploration commenced with the launch of Sputnik 1, which became the first artificial satellite. This was followed by the launch of an astronaut into space in 1961 by the Union of Soviet Socialist Republics (USSR). The United States (US) followed in 1962. These major achievements were done by government entities. In the modern day, for the first time in 2020, humans accessed space in a vehicle not built by a government agency.

Space exploration has changed, and so have nations’ ambitions. The latest edition of Euroconsult’s satellite market forecast has calculated about 170 constellation projects, the majority of which are in the commercial sector. OneWeb, Guo Wang, Starlink, and Lightspeed will represent 58 per cent of the 17,000 satellites to be launched.

After nearly six decades, the Indian space sector is gearing up for transformation. Allowing private entities into end-to-end space activity, predominantly a government monopoly so far, is a welcome change and one in line with the view of achieving a $5 trillion economy by 2024.

Despite the success of its comparatively nascent and relatively cheap missions to space, India manages to occupy only 2 per cent, or $7 billion, of the global space economy. The small share isn’t solely based on technology and resources but on policy too.

The space economy market is said to grow by over $1 trillion by 2040, in line with the government’s aim of making India a $5 trillion economy by 2024. The Indian space sector then would need to grow to $50 billion by 2024 and contribute 1 per cent to the GDP (gross domestic product).

Only the private sector, particularly the downstream sector, can achieve 48 per cent CAGR (compound annual growth rate), so it is critical that Indian private players participate in the new commercial space age.

Keeping with the new changes proposed by the government in 2021, and using the analytical framework of Matthew Weinzierl in his paper “Space, the Final Economic Frontier”, this article will lay out the market-driven economic prospects of the Indian space programme, highlighting the role of government and private entities in navigating the new commercial space age.

The global space economy is estimated at roughly $447 billion. India presently constitutes 2 per cent of the global space economy and is expected to grow its share to more than 10 per cent by 2030.

Breaking Down The Space Economy

The $447 billion global space market includes the upstream market, which in turn includes the commercial satellite market, launch market, and institutional market, the midstream market (operator revenue, ground infrastructure, and operations), and the downstream market (space services and consumer equipment).

The current value of the total Indian market share is $7 billion (upstream $2.3 billion and downstream $4.7 billion). India is aiming to grow the space sector to $50 billion by 2024, amounting to about 1 per cent of its GDP from its present contribution of 0.23 per cent to the GDP.

It is estimated that around 10,000 satellites will be launched into low-earth orbit by 2026. In this case, lighter satellites have a cost advantage, though 60 per cent of the cost is levied on the launch. Needless to say, the market has grown exponentially and the demand for remote sensing and telecommunication satellites has risen.

Here, India can leverage its diverse pool of talent in the private, and information technology (IT), sector and encourage startups to make satellites that are lighter and cheaper to launch.

Launchers, too, have increased demand, and a projection of 17,000 satellite launches by 2030 makes this a lucrative field to open up to market players. Further, the projected growth of small and miniature satellites has increased three times, growing from $12.6 billion to $42.8 billion, which provides ample opportunities for small and medium enterprises to either follow a business-to-government or even a space-to-space model where things are made in space for space.

Satellite communication is the target market in the upstream sector. Here, Indian startups and hardware manufacturers can build several key elements, from higher bandwidth transponders to satellites for the next generation of telephony.

Another growth area is the servicing of these satellites, which are projected to grow by $4.5 billion.

If India is able to push reforms, such as the inclusion of the private sector, it will be in the position that America was 40 years ago. These new startups can also raise money by being publicly traded companies.

Even though India has a strong and developed space sector, it hardly receives funds from the global $3.2 billion market. This is going to change given the new policy and the interest of companies like Airtel and TATA.

Establishing Markets In Space: Decentralisation

If India is to participate in the new commercial space age, it must first open up the markets. Private players, until recently, were only considered vendors to the Indian Space Research Organisation (ISRO). Indian space needed structural change, and the calls were finally heard when, on 11 October 2021, Prime Minister Narendra Modi announced the launch of the Indian Space Association (ISpA) and Indian National Space Promotion and Authorisation Centre (IN-SPACe).

ISpA is essentially a body that incorporates ISRO and other telecommunications partners to facilitate communications better. The highlight was IN-SPACe, which would power decentralisation.

IN-SPACe

After a long wait and great deliberation, the Union Cabinet approved the bill for IN-SPACe, which aims to provide a level-playing field for private companies to use the Indian space architecture. The agency will also provide knowledge transfer to private players. Public-private knowledge transfer is a crucial feature of IN-SPACe.

In addition, IN-SPACe will act as a channel between ISRO and any private player that wants to participate in space activity, thereby culling lengthy bureaucratic procedures.

The agency will also promote and help private industry, including entrepreneurs, encouraging them to participate. This will benefit the sector in two ways. One, it will allow more research and scholarly work by individuals who have the capability, such as, for example, SpaceX's Elon Musk, and even, perhaps, encourage something similar in India.

Second, it will allow ISRO to focus on more challenging missions and especially next-generation technology development, which further helps society and frees up space and time to dedicate more resources towards generating new ideas and technologies.

IN-SPACe will allow the supply-based mode to be more demand-driven, as in a market economy. This will also allow graduates in the technology sector and others to find jobs in India and expand the space economy even further, since ISRO alone employs about 200,000 people.

The role of IN-SPACe is not limited to providing opportunities to individuals outside the government's purview. It can also encourage space education at the tertiary and secondary levels through the launch of, say, the Atal Tinkering Lab, making museums, and creating world-class facilities to encourage young minds to understand space technology. This can also motivate them to create startups without having to join ISRO or leave the country.

In addition, it will provide a fillip to the government's initiatives of “Aatmanirbhar Bharat,” or self-reliant India, since the manufacturing of equipment can be done by the public sector of the country and the nodal agency, IN-SPACe, will act as a single point of contact and facilitate licencing and technology transfer to these companies.

Another advantage that this opening offers is the ability for companies to raise money from the public by having their startups listed in the stock market. Recently, several technology startups in India have had success in their IPOs (initial public offerings). If they were able to raise money, space startups arguably would be no different.

Since the IN-SPACe announcement, Indian private companies have been showing interest in space activities and services. According to a global report published in June 2021, India has 368 private space firms, placing it fifth in the world in size after the US, the United Kingdom, Canada, and Germany. With these many firms, India is leading China (288), France (269), and Spain (206) in the private space industry.

According to former ISRO chairman K Sivan, the number of private company proposals in the space sector has increased by 30 per cent in 2021 from 22 proposals in 2020. About 27 proposals have reached the government from private companies for various space-related activities such as developing launch vehicles, building and operating satellites, and establishing ground segments and research partnerships.

For example, a consortium led by the Adani Group and another led by L&T and Bharat Heavy Electricals Limited (BHEL) have bid to build five launch vehicles.

Revisiting FDI Norms

Another area of decentralisation is foreign direct investment. This idea is proposed, and if it comes through, it will open the doors for foreign entities to invest in India and, presumably, make things easier through IN-SPACe.

Challenges To Decentralisation

The main challenge to decentralisation is if the private initiative can truly be led by someone who isn’t a part of ISRO. Antrix has been led by a top ISRO employee even though it's the commercial arm of the agency. It needs to be seen if the ISRO influence will hamper the private initiative from being truly independent. The current chairman, though, is from the private sector.

Secondly, the FDI reform is crucial to further decentralise investments. The US firm Hughes Communications announced a $500 million investment but has not been able to get approvals since 2017. Therefore, IN-SPACe needs to act on its mandate and allow not only foreign entities but also domestic innovators to get around the bureaucracy.

In any case, the launch of IN-SPACe has already attracted 26 firms and 40 proposals. India’s large technology pool offers a great potential for economic success.

Addressing Market Failures

A market failure occurs when consumer demand doesn’t meet supply.

There are usually four types of market failure: information asymmetry, concentrated market power, public good, and externalities.

Since the Indian private space market is in its infancy, only a suggestion can be made for the future to prevent a market failure.

Information asymmetry: This is a classic case of when one entity knows more about the product than the other, such as a used car salesman who has an advantage over the vehicle buyer. In this case, it would be ISRO having an upper hand over upcoming startups and private enterprises.

The challenge, of course, seems to have been addressed by stating that the support of ISRO and its technology know-how will be shared.

Concentrated market power: This is where ISRO is at the moment. ISRO is a monopoly and if the market is open and ISRO remains the sole entity, it will be considered a market failure. This is because ISRO technically is the only agency to be active in the space sector and can do whatever it thinks is right because there is no competition and there’s also no incentive to meet the demand.

Public good: There are two types of public goods, non-rival and non-excludable. Theoretically, this type of market failure wouldn’t be likely since ISRO would supply the non-excludable service of security and social benefits to even the non-paying public of the country.

Externalities: This would be space debris. Since the market is open, more corporations can send their vehicles and satellites up into space, which is already crowded. By some estimates, there are over 15,000 traceable and over 200,000 1-10 cm pieces. This is where coordination between the public and private sector can come into play. The government can decide on exactly how many programmes can be allowed in space and if they can partner in the removal of space debris.

Regulation In Pursuit Of Social Objectives

Whenever there is an open market, there is the question of who exactly is benefitting and whether these benefits are for all or only restricted to a certain section of society.

Allowing privatisation will allow certain sections of society to experience space travel or benefit from resource mining since there aren’t any rules against it. The rules being followed are from the 1967 Treaty on Outer Space, which doesn’t restrict private players but calls for cooperation and responsible use.

Another topic of discussion is, who will regulate space? Will a private company be able to claim in the future that, for example, this part of the Moon is now ours and anyone, including scientists, is prohibited from accessing it, or it’s accessible for payment?

Or should the ‘leave enough’ rule be followed, as John Locke would have done with land, water, animals, and the Earth's fruits, that is, “There is enough and as good left in common for others?” This leaves at least some individuals as well off as in a world where resources would have remained unknown.

Of course, this is far-fetched in the Indian context, but it could become a reality in the coming decades. It's up to the government to formulate the legal aspects of ownership and the legality of space exploration.

Concluding Remarks

From the experience of other countries, we can observe that the private space sector not only advances technology, such as reusable rockets, but is also keen on exploring and putting people in space. It means that the private sector can meet the demands that society currently presents.

India today possesses, among spacefaring nations, one of the most advanced space programmes. It has the potential to dominate 5G technology and launch small satellites to form constellations required for modern communications needs, and do so economically. Having private participation in space would allow more technology innovation, which, faced with competition, will tend to be more efficient and economical. But it will also allow the dreams and aspirations of the youth to flourish.

There has already been development in the sector, like Skyroot Aerospace and AgniKul Cosmos, who have demonstrated their ability to launch a rocket and have set up an agreement with ISRO to use their facilities. Currently, they are in the process of raising money through investors, which signals a positive start to the newly launched initiative.

Irrespective of the challenges that may arise, privatisation is a significant step in the right direction for the growth of the Indian economy. This is presumably the only way that a target of $50 billion for the space economy can be reached by 2024, helping with the expansion of the Indian economy to its target of $5 trillion by 2024, with 1 per cent contribution to the GDP from the space sector.

This article has been published as part of Swasti 22, the Swarajya Science and Technology Initiative 2022. We are inviting submissions towards the initiative until the end of March.

Also Read:

Complex Systems: What Makes Them Intractable

Read other Swasti 22 submissions.