Budget 2026-27: Space budget recovers but misses crucial private sector reforms

Union Budget 2026-27

The Indian space program has moved out of its post-pandemic slump and is entering a phase of sustained, if also cautious, consolidation.

Since 2012-2013, the national space budget has grown by 182%. This sounds massive but most of the growth actually happened in the last decade, especially between 2014 and 2019. Allocations have increased more slowly in the last five years. In fact, for a while, the 2019-2020 expenditure of ₹13,017 crore was like a high-water mark that the Department of Space struggled to exceed in actual spending terms, thanks to the COVID-19 pandemic and delays due to missions being rescheduled.

The 2026-2027 budget estimate is now 5.3% higher than the pre-pandemic peak, indicating that the ‘lost years’ of the pandemic are officially over, with the Department finally planning for a scale of operations that actually exceeds its previous historical maximum. In fact, if the expectation for NewSpace India, Ltd. (NSIL) to generate ₹1,403 crore from its own internal resources is included, the expenditure on the total space ecosystem is currently around ₹15,000 crore.

Structural reforms

That said, the fiscal roadmap also reveals a disconnect between the government’s rhetoric on privatisation and financial reality. The budget numbers suggest the state-led programme is stabilising, but by focusing almost exclusively on direct budgetary support to the Indian Space Research Organisation (ISRO) and administrative costs for IN-SPACe, the Finance Ministry has overlooked the structural reforms that industry bodies like the Satcom Industry Association-India (SIA-India) and the Indian Space Association (ISpA) have demanded.

Follow | Budget 2026 LIVE

Leading up to the budget, these industry associations had coalesced around a specific set of demands designed to make Indian space manufacturing globally competitive. As articulated in pre-budget memoranda submitted by SIA-India and ISpA to the Ministry, the sector desperately needs a production linked incentive (PLI) scheme for space-grade components, echoing the success seen in the mobile manufacturing sector. They further recommended rationalising GST rates for satellite launches to lower entry barriers.

The 2026-2027 Union Budget documents are however silent on these fronts. There is no PLI scheme to subsidise the high cost of domestic manufacturing nor a dedicated ‘space fund’ beyond the administrative allocation to IN-SPACe, the nodal supervisor and promoter of non-governmental entities in the space programme. Instead the government has effectively continued its role as a provider of funds to its own agency, ISRO, rather than evolving into  the sort of facilitator industry representatives have been asking for.

“Given that ISRO is taking a stand that IN-SPACe is the promoting agency, [the latter] should have been allocated at least ₹1,000 crore or so to run its own schemes to support the industry,” Narayan Prasad, cofounder of satsearch, the largest supply chain discovery platform in the space industry, told The Hindu. “The funding for IN-SPACe [would mostly have been] to create demand for high tech platforms like new generation microsatellite bus, and novel payloads and subsystems that can have significant service implications.”

‘Death valley’

Both ISpA and SIA-India have argued that the current GST regime creates a cash-flow problem: space companies pay significant taxes on high-tech imports and raw materials but because their final product is often exempt, they can’t claim refunds on these inputs. The result is a hidden 18% tax on manufacturing, which makes ‘Made in India’ space hardware more expensive than components from jurisdictions with integrated VAT/GST refunds. Both associations have instead demanded a “zero-rated” GST regime, similar to exports, to allow companies to claim full refunds on input taxes and thus free up liquidity.

Perhaps the most significant missed opportunity is the refusal to classify the space sector as ‘critical infrastructure’. In its pre-budget submission, ISpA had argued that this classification is essential to access long-term low-cost lending from institutional banks. They estimated that such a status, which would cover ground stations, launch pads, and telemetry networks, would reduce the cost of capital by 2-3% — a difference that could decide if a project is viable in a capital-intensive industry with gestation periods of half a decade or more.

The global space economy is currently transitioning to a high-volume commercial model with smaller margins. India currently holds around 3% of the global space market and the government has resolved to reach 10% by 2030. Without ‘critical infrastructure’ status, however, Indian start-ups will have to continue to borrow at commercial rates (often 10-12%) while international competitors in the US (SpaceX, Blue Origin) or Europe (Arianespace) are able to access venture debt or state-backed financing at lower interest rates.

Industry members have also highlighted a lack of relief to plug the gap between initial investments in research and development (R&D) and first revenue, colloquially called the “death valley”. SIA-India and ISpA both asked for a five-year tax holiday and tax credits for R&D, to incentivise heavy research spending. Otherwise, the financial risk remains entirely on the private entity and discourages the deep-tech innovation the government claims to want.

“It seems like the government is interested in industry but ISRO is not,” Mr. Prasad said. “ISRO has neither created significant pathways nor subsidised efforts that allow engagement of startups.”

‘Inertia model will continue’

Industry members have also said that as a result private firms will likely remain “second-grade” suppliers for ISRO’s designs rather than endeavour to develop their own intellectual property. This in turn could prevent disruptive innovation, like reusable rockets or satellite-based IoT, that usually flourishes when private firms have the liquidity to take risks. It could also lead to brain drain.

“India’s private space ecosystem is entering a critical growth phase where early-stage capital must bridge the gap between prototype development and commercial scale-up,” Deloitte India had written in a budget expectations report. “Despite rising investor interest since liberalisation in 2020, deep-tech ventures remain constrained by high hardware burn rates, long gestation timelines and limited private risk appetite.”

In the 2024-2025 budget, the Finance Ministry announced a dedicated venture capital (VC) fund of ₹1,000 crore for the space sector to boost the space economy 5x over the subsequent decade and to close the “death valley”. The Cabinet cleared the setting up of this fund in October 2024 and placed it under the aegis of IN-SPACe. After SEBI approved the fund, the Ministry earmarked ₹150 crore for 2025-2026.

However, ISpA and SIA-India have differentiated between equity investment (which the VC fund provides) and fiscal or structural support, such as direct funding for high-risk R&D and for building private launch pads. So while the VC fund was a significant move for innovation, even if it was quite small relative to the industry’s needs, as experts noted last year, it also doesn’t get rid of the capital traps created by the GST regime and the high cost of debt for infrastructure projects.

In effect, the government has opened the door to the private sector legally, but financially it has yet to clear the path. The budget stabilises the public space programme, ensuring ISRO has the funds for Gaganyaan and future planetary missions, but has ignored the fiscal levers of GST rationalisation, infrastructure status, and tax holidays, which the industry’s own representative bodies have championed. Thus it stops short of creating a viable private space market.

“Basically this indicates that, this year again, the inertia model will continue, with ISRO focusing on activities within itself,” Mr. Prasad added.

Published – February 01, 2026 06:08 pm IST