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What’s Ailing Indian Space-tech Startups

Even as the global NewSpace market flourishes, Indian Space-tech startups are often seen striving for survival, sometimes by shifting base to other countries. So, what’s been keeping these small companies from making their mark in the larger ecosystem, and will the recent Space reform announcements be the breakthrough they have been hoping for?

By Avneep Dhingra
By Avneep Dhingra

Associate Editor | Policy & Public Affairs

In the words of Benjamin Franklin, “diligence is the mother of good luck”, a thought that pretty much summarizes the story of Indian Space-tech startups, which have for years been silently, but substantially contributing to growth and innovation in the Indian Space ecosystem.

According to DataLabs by Inc42, currently, there are about 120 active Space startups in India, 64% of which have emerged in the last six years. However, despite remarkable growth in the global NewSpace market, which thrives on innovative startups for technology breakthroughs and business development, small companies in India have struggled to find their feet. So, what’s been keeping these players from growing on a par with their counterparts in countries like the US, and will the recent Space reform announcements act as the gamechanger?

Lack of open policy

Ever since its inception in 1969, the Indian Space Research Organisaton (ISRO) has, in a way, had a monopoly on all Space-related activities such as building rockets and satellites, and launching them into orbit. Private players, especially the smaller ones, were limited to making sub-systems and assembling spacecraft, but were not allowed to own them or manage their operations. “A clear Space law that specified what was allowed, and what wasn’t, was missing. This meant that companies couldn’t get frequency allocations, launch permissions, license to manufacture and operate Space assets,” explains Rohan M Ganapathy, CEO & CTO of Bellatrix Aerospace, a research and development company building orbital launch vehicles and electric propulsion systems for satellites.

Unavailability of funds, be it access to non-dilutive funding to start building prototypes and demonstrate proofs-of-concept, or access to investment to sustain operations, has been a major pain point for most startups. Even though the sector has attracted investors in the last few years, considering the quantum of funding needed at the product development phase, there is still a massive gap in terms of requirement and availability. According to Pixxel Founder and CEO Awais Ahmed, building upstream hardware-intensive companies requires large amounts of money, which can in most cases be done only by venture funding that is not adequately available in India.

Like other sectors such as Biotech, AR/VR, and healthcare, Space companies need more R&D contracts and grants from government initiatives. There is also a need to ease criterion for startups to bid in ISRO and DRDO (Defence Research and Development Organisation) contracts, as current perimeters — prior track record, profitability, security deposit, and performance bank guarantee — make it impossible for these companies to independently apply for such bids. Further, the industry is largely dependent on foreign companies for most of the sub-systems, components and material. “There is still a long way before India can become self-sufficient in this area,” feels Ganapathy.

Then there are other problems like lack of a domestic market beyond ISRO. In most cases, startups have to sell only to ISRO and DRDO, or go abroad to get customers. Further, there are also issues like lack of institutional support in way of intellectual property, strategic partnerships, and hand-holding for the nascent industry.

Access to specialized testing and manufacturing infrastructure, which is beyond the reach of startups, has further limited growth and innovation. “Access to expensive test facilities like rocket and propulsion system test centers, rocket launchpads, tracking and telemetry centers, etc. has been a major challenge,” emphasizes Ganapathy. Perhaps that is why, while announcing the government’s decision to involve private players in Space activities, Finance Minister Nirmala Sitharaman particularly stressed on allowing private companies to use the infrastructure and facilities of ISRO.

The decision was reiterated by ISRO Chairman K Sivan, who later also said that ISRO will allow the private sector to set up their own launchpad at the Sriharikota launch center. “We won’t charge anything for such launches. Instead, we will provide them all the expertise they need from us for setting up such facilities,” Sivan was quoted as saying.

Prateep Basu, Co-Founder & CEO, SatSure Ltd, feels that there has been a regulatory vacuum for building, launching and operating satellites from India, and that the existing policy framework is not in line with the global market realities.

GLOBAL SPACE​

$345 billion

The global Space economy's worth in 2016​

$366 billion

The global Space economy's worth in 2019

75%

Commercial industry's share in the overall business

42% ($114 billion)

US's share in the overall commercial satellite industry revenue

75 countries

Were operating 2,460 active satellites in December 2019

Source: 2020 State of the Satellite Industry report by SIA

INDIAN SPACE​

3%

India’s contribution to the global Space economy

2%

Share of launch vehicles in the Indian Space economy

5%

Share of satellites in the Indian Space economy

48%

Share of ground equipment in the Indian Space economy

45%

Share of Space application services in the Indian Space economy

Source: 2020 State of the Satellite Industry report

In search of greener pastures

While different private Space companies have different “business reasons” to shift base outside India, there are some common concerns. “Some companies move out since there is currently no legal framework to allow Indian firms to operate their own Space assets from the country. Other companies move base to Europe or USA for better funding opportunities through NASA and ESA contracts, SBIR and ESA-BIC seed funding, more private investors, access to NASA/ESA patents and lab facilities, easier access to private customers, etc.,” adds Ganapathy, whose company has plans to set up marketing and sales offices in USA and Europe once its product development is complete.

There are multiple countries that can be a good choice outside India. “To name a few, US, UK, Luxembourg, and Singapore. The US is clearly the leader in terms of the industry, and there are clear cut pathways for private companies. Luxembourg is positioning itself to be the Space capital of the world, so there is high potential for growth, and they have liberal regulations as well,” points out Ahmed, whose Bengaluru-based startup plans to launch a constellation of 24 satellites for 24X7 imaging of the Earth.

Some companies also open a subsidiary to contract PSLV for the launch of their satellite because currently, Indian companies are required to pay 18% GST on PSLV services, which is exempt for foreign companies. Basu feels that most startups choose to set up their parent company outside India for the purpose of “ease of doing business” in the Space technology sector. “Unlike the US and Europe, where I co-founded my other two companies, India does not have a robust funding ecosystem,” says Dr. Susmita Mohanty, Co-Founder & CEO, Earth2Orbit.

Dr. Mohanty feels that most Space companies in India are no different from non-profits. They are often bootstrapped with founder capital, and only a handful manage to get small one-time grants. “If they manage to break even, that is considered a big deal. In the US, NASA’s SBIR and STTR programs are robust well-funded mechanisms to propel small businesses. Broadly, speaking, under this scheme, startups can get up to $100,000 to prove the feasibility of their idea, and up to half a million to commercialize a feasible idea or technology.”

Even though the Indian NewSpace sector has attracted investors, considering the quantum of funding needed at the product development phase, there is still a massive gap in terms of requirement and availability

Future prospects at home

In the last few years, improvements in launch systems and innovations such as the use of commercial-off-the-shelf technology for Space applications are driving down costs, enabling smaller players to make their contributions count in the larger ecosystem. This phenomenon, popularly termed NewSpace, is unleashing a host of new possibilities for startups. While the NewSpace market in India is at a nascent stage, there is tremendous potential for growth. The onus is on the government and big companies to provide support and impetus in terms of grants and funding to startups, and act as an anchor customer at least initially to stimulate the market.

The government in particular has an excellent opportunity to create value for both the upstream and downstream NewSpace sector through the recently announced Indian National Space Promotion and Authorisation Centre (IN-SPACe). Startups working in the design and manufacturing of hardware have a talent and cost advantage, so the creation of IP (intellectual property) assets could be fuelled through grants and government support, while downstream market for NewSpace players is open and will function more within the larger ambit of software and electronics segments.

There are a number of pieces that need to come together to ensure India succeeds in promoting its Space ecosystem. Large companies that are currently looking at manufacturers for ISRO must start building internal capabilities to come up with more systems, which they can start supplying as products to upcoming startups and foreign customers. There is also a need for more quality startups and deep-pocket investors in the country that could leverage the evolving ecosystem to build successful ventures out of India.

Some startups open an overseas subsidiary to contract PSLV for the launch of their satellite because currently, Indian companies are required to pay 18% GST on PSLV services, which is exempt for foreign companies

Hopeful, with caution

For the private sector to be a co-traveler in India’s Space journey, all policy reforms and mechanisms need to be implemented in a way that enables businesses and innovation. “The new reforms will need careful detailing, inclusion of global best practices, proper implementation to ensure speed, fairness and long-term impact. These reforms will need to be bolstered with a robust funding ecosystem for the private sector, akin to the United States and Europe,” adds Dr. Mohanty.

As far as IN-SPACe is concerned, she feels that though it is a step in the right direction, a lot depends on its implementation. “IN-SPACe is expected to have five directorates — technical, legal, safety and security, monitoring, and promotion. It will have to be ensured that these directorates do not increase the bureaucratic burden of private players. For IN-SPACe to be effective, it’s management and board must be diverse and inclusive — have men and women, young and old, those with domestic and those with international experience/exposure.” Ahmed argues that IN-SPACe has the potential to alter the course of the private Space industry, just as Telecom Regulatory Authority of India (TRAI) has done to the telecom sector.

According to the government, IN-SPACe “will provide a level playing field for private companies to use Indian Space infrastructure. It will also handhold, promote and guide the private industries in Space activities through encouraging policies and a friendly regulatory environment.”

There is a growing belief that with proper implementation, the recently announced reforms will take the game to a new level for Indian private companies. Ganapathy says that if India can solve all these problems in the next few years, there will be more companies wanting to operate locally. Ahmed agrees, but cautions, “It all depends on the details of the execution. The devil is in the details.”