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Why Indian space start-ups are feeling forced to set up base abroad

The Modi government is reportedly planning to launch a board to promote private engagement in space activities. The proposal is a promising move towards addressing some of the biggest problems that are keeping the local space industry from achieving its potential.

India makes a great place for building a space business as a startup. It has experienced space professionals who have been nurtured in an ecosystem that has 60 years of space mission experiences.

It has the entrepreneurial spirit, with perhaps one of the youngest sets of founders among space startup hubs around the world. It has established a small and medium enterprises landscape that can cater to the manufacturing and testing of satellites and rockets.

It has academic institutions that produce globally-matched human resources, which can be employed by the emerging startups in the space industry.

Yet, we are seeing several Indian space startups set up entities abroad. To understand what motivates Indian startups to look at the option of setting up abroad, one should look at what is missing locally, and this is where the board may step in.

The perspective of an Indian space startup

Let’s take the example of a startup that wants to build its own satellite and operate it to provide a service. Such a startup will need access to frequencies to operate the satellite.

It is still not clear how startups/private companies in India can get access to space frequencies to conduct routine telemetry, telecommand and payload data operations. India does have a satellite communication policy, but it was instituted with a Direct-To-Home (DTH) service provider in mind, rather than companies that would want other services (e.g. remote sensing). This also extends to setting up ground station facilities to uplink and downlink to space assets over Indian geography.

In the US, for example, this role is played by the Federal Communications Commission (FCC), which provides the guidelines for private companies that either want to set up ground station facilities or access frequencies to operate their space assets.

India’s Wireless Planning Commission or the Department of Telecommunications (DOT), in contrast, do not provide any clarity to space startups on how this process can be pursued in the country.

This creates uncertainty for the startups that plan to operate their own satellites, which is why they might have to look at setting up entities in friendly geographies. This allows them to operate and collect their data over India or other areas of interest without having to go through the hassle of dealing with uncertainty in bureaucratic processes.

The local disadvantage

A foreign company that wants to launch onboard the Polar Satellite Launch Vehicle (PSLV), which is often touted as one of the most cost-effective and reliable launch vehicles in the world, pay 0 per cent Goods and Services Tax (GST).

In contrast, an Indian space startup has to cough up 18 per cent GST to launch from India. If a company is planning to build and launch a 10 kg satellite, at a rough order-of-magnitude price of about $30,000/kg (Rs 22.8 lakh/kg) to launch on the PSLV, it would mean a payment of $54,000 (Rs 41.1 lakh) in taxes alone.

Therefore, it might be easier for an entrepreneur to go set up a company in Singapore or any other destination instead of attempting a PSLV launch as an Indian company.

Access to government support

To incentivise product/service development, several spacefaring nations provide support programmes to help entrepreneurs develop their ideas. For example, the European Space Agency (ESA) has several programmes such as the Business Incubation Centres (BICs), which incubate over 100 space startups every year.

There are also several funding instruments for startups and small/medium-scale enterprises that allow competent companies to develop state of the art intellectual property that forms the basis of novel products/services.

In the US, the Small Business Innovation Research (SBIR) and the Small Business Technology Transfer (STTR) programmes support such innovation in startups and small/medium-scale enterprises. These programmes not only provide an initial thrust to develop products/services, they also add a mark of trust, with space agencies like the ESA and NASA backing some of the work done by the startups.

In contrast, there are no programmes or instruments that provide such support to entrepreneurs who want to create new space products/services in India. With the US still imposing some rules that restrict several grants/programmes to citizens, several Indian founders have now started leveraging the ESA startup programmes to realise their ideas.

A bottoms-up approach to reforms

Entrepreneurs will take advantage of incentives wherever they are available for them. In the present setting, space entrepreneurs in India may just want to leverage the operating cost, the infrastructure and human resources available locally, and have local entities just to manage them. However, to solve some of the significant hurdles mentioned above, they will look to or have already created entities abroad. Ultimately, the government is set to lose out any tax revenue that is generated by them.

It is very important that the proposed board for the promotion of space industry in India work closely with emerging startups to put in place reforms and incentives that allow them to operate locally for the country to benefit from their success.

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