Dr Sunil Mani
Thiruvananthapuram, August 6, 2024
The Indian government has set its sights on a dramatic expansion of the space economy, targeting a fivefold increase in its size within the next decade, as highlighted in the Union Budget 2024-2025.
Central to this vision is the creation of a state-backed venture capital fund valued at INR 1000 crore ($201.37 million), (approximately INR 100 crore or about $20.4 million annually).
To gauge the feasibility of this ambitious plan, it is essential to understand the current landscape of India’s space economy.
According to a study by Mani, Dadhwal, and Shaijumon (2023), India’s space economy was valued at around US$6 billion in 2021.
Analysing the Finance Minister’s proposal requires a deep dive into two critical aspects: the current state of the space economy and the optimal financing strategies for its growth.
The Space Economy today
A precise estimate of the space economy’s size and structure is imperative.
The Indian space economy comprises several segments, including space manufacturing, space operations, space applications and ancillary services. Among these, space applications dominate the sector, accounting for nearly 70% of the total market, with space operations following at 26%. Space manufacturing, which includes satellites, launch vehicles, and their components, contributes only about 5%.
India’s space budget has been a significant driver of growth, experiencing a nominal growth rate of 9.3% between 2021-22 and 2024-25 (budget estimates).
A substantial portion of this budget is dedicated to space technology development, which is crucial for the expansion of space applications. Within this sector, traditional services like Direct-to-Home (DTH) broadcasting have been a mainstay, though their growth prospects are limited due to competition from streaming services like Netflix.
On the other hand, emerging services such as geospatial services, which leverage space-based remote sensing, hold significant potential for future growth.
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Financing Strategies
The budget aims to grow the space economy by fostering a large number of small and medium space-based ventures through venture capital funding.
Despite the lack of precise data on the number of such ventures, the recently announced space policy (2023) emphasises greater private sector participation across the entire value chain of the space economy.
Venture Capital is seen as the most viable way to support these ventures, often initiated by young engineering graduates with innovative ideas but limited financial resources.
However, there are three major concerns about the adequacy of these funds: INR 100 crore ($20.4 million) per year may be insufficient for the highly capital-intensive space operations; India has a poor track record in managing government-sponsored and managed venture capital funds, with few successful outcomes; and private sector venture capitalists also have a low success rate in financing early-stage startups.
A potentially more effective financing strategy could involve complementing the venture capital route with research grants, with a proviso that successful ventures pay a percentage of their sales revenue back to the grant administrator, such as the Department of Space, as royalties.
Source: Ministry of Finance, Government of India
Future Projects of ISRO
The Indian Space Research Organisation (ISRO) has several ambitious projects on the horizon, including the Gaganyaan Mission, India’s first manned space mission, and Chandrayaan-3, a lunar exploration mission with a lander and rover.
Other notable projects include Mangalyaan-2, the second mission to Mars; Aditya-L1, a solar observation mission; and Shukrayaan-1, aimed at studying Venus.
Additionally, ISRO is collaborating with NASA on the NISAR mission for Earth observation and is developing the Small Satellite Launch Vehicle (SSLV) for launching small satellites.
The Agency is also working on the Reusable Launch Vehicle-Technology Demonstrator (RLV-TD) for a reusable space plane and has plans to build a space station by 2030.
With these upcoming projects and overall support for technology-based startups, there will be no shortage of space-based ventures seeking funding.
India’s journey to becoming a major player in the global space economy hinges on strategic investments and effective financing models that can nurture innovation and growth in this capital-intensive sector.
Dr Sunil Mani, a postgraduate in Philosophy (MPhil) and a Doctorate (PhD) in Economics from Jawaharlal Nehru University, New Delhi, is a Visiting Professor at the Centre for Development Studies and Ahmedabad University. A renowned academic with a distinguished career spanning several prestigious institutions worldwide, he has held pivotal roles, including Director and Professor, while occupying the Reserve Bank of India Chair at the Centre for Development Studies in Trivandrum, Kerala. Among his earlier assignments include Faculty Member and Head of Graduate Studies at the United Nations University-Institute for New Technologies (now UNU-MERIT) in Maastricht, The Netherlands. He lives in Thiruvananthapuram (Trivandrum), the Capital City of Kerala. The above article represents his personal views.
