While India’s space industry did not receive direct fiscal incentives in the Union Budget 2026–27, industry players are increasingly looking toward the defence sector for demand, buoyed by a 15 per cent increase in defence allocation and a renewed focus on capital modernisation.
Finance Minister Nirmala Sitharaman presented the FY27 Budget on Sunday. Ahead of the announcement, industry bodies Satcom Industry Association of India (SIA-India) and Indian Space Association (ISpA) had submitted an ambitious wishlist seeking higher public investment, infrastructure status, targeted incentives, GST rationalisation, and regulatory clarity to accelerate India’s emergence as a global space power.
The two associations, which represent private space companies, had urged fiscal, regulatory and structural reforms aligned with the Space Policy 2023 and IN-SPACe’s decadal vision. However, most of these sector-specific demands did not find a place in the budget.
“Industry expectations included targeted incentives for space manufacturing, GST rationalisation for space-grade inputs, clearer HSN classifications, and a predictable scaling of the space budget in line with India’s ambitions. These did not materialise this year, so there is no direct fiscal boost for the space sector,” said Anil Prakash, Director General, SIA-India.
He added that the budget nonetheless introduced several indirect enablers—ranging from trade facilitation and electronics manufacturing to startup financing and digital infrastructure—that improve the operating environment for the space ecosystem. “While this is not a breakthrough budget for space, it is also not a setback. It provides stability, and we hope future budgets will build on this foundation with more sector-specific impetus,” Prakash said.
Dr. Subba Rao Pavuluri, President, SIA-India, echoed similar views, stating that the budget reflects a strong push toward technology-led growth, manufacturing scale-up, and supply-chain resilience. “While there is no direct space-specific fiscal boost, horizontal measures in electronics, semiconductors, MSME financing, customs modernisation, AI and R&D act as meaningful enablers for the space economy,” he said.
Pavuluri noted that reforms such as automated, risk-based customs systems and digital trade facilitation would reduce logistics uncertainty for high-value space hardware, while semiconductor and electronics incentives would strengthen domestic availability of critical components. However, he pointed out that public space spending remains modest at around 0.04 per cent of GDP, compared with major spacefaring nations.
“As India advances toward its Viksit Bharat/Developed India and Vishwaguru/World Teacher vision, higher and more predictable investment in space is essential to support ISRO’s exploration goals, R&D and innovation capacity,” Pavuluri said, adding that priorities such as targeted manufacturing incentives, GST rationalisation, a hybrid production-linked incentive (PLI) scheme, and formal recognition of space as critical infrastructure are still awaited.
With limited direct budgetary support, the industry is now looking at the defence sector for demand. The defence budget has been raised by 15 per cent to ₹7.85 lakh crore/about £62.8 billion with a strong emphasis on capital modernisation.
“The enhanced defence outlay and focus on aircraft, aero engines and naval platforms reflect a clear commitment to strengthening military preparedness. Customs duty relief for aerospace components is also positive for domestic capability building,” said Lt. Gen. (Dr.) P. J. S. Pannu (Retd.), Advisor, SIA-India and former Deputy Chief of the Integrated Defence Staff (Operations).
Pannu said the current geopolitical environment makes it imperative for India to adopt and secure modern space-based technologies for defence while also safeguarding space assets. “This two-way synergy between defence and space is now a strategic necessity. Stronger procurement reforms, faster indigenisation pathways and structured integration of private space players into national security frameworks will be critical,” he added.
Krishanu Acharya, Co-Founder and CEO of Suhora Technologies, said the increased defence allocation is a strong signal for the space sector. “Defence remains one of the largest and most strategic users of space-based capabilities. We are hopeful this will accelerate the adoption of satellite data analytics for intelligence, surveillance and reconnaissance, terrain monitoring and maritime domain awareness,” he said.
Acharya noted that increased defence demand could help the domestic space ecosystem mature faster, spanning upstream satellite capabilities to downstream analytics and applications. He added that continued support for emerging technologies through initiatives such as the IndiaAI Mission and the ₹10,000 crore/about £800 million SME Growth Fund would strengthen innovation, talent development and long-term collaboration with defence stakeholders.
Lt. Gen. A.K. Bhatt (Retd.), Director General, Indian Space Association (ISpA), said the budget’s emphasis on easing processes and creating a more investment-friendly environment for science and technology could encourage greater private sector participation.
“The increase in ISRO’s allocation to ₹13,705.63 crore/about £1.10 billion in FY27 is an important signal and will support deeper private sector participation in ISRO-led programmes across launch vehicles, satellites and scientific missions,” Bhatt said. He also welcomed the proposed expansion of telescope infrastructure and learning facilities, calling it a meaningful step toward strengthening India’s scientific base in astrophysics and astronomy.
Together, these measures could enhance collaboration between ISRO, academia and industry, and gradually strengthen India’s contribution to global space science and the broader space ecosystem, he added.
Published by Venkatachari Jagannathan
V.Jagannathan (Byline Venkatachari Jagannathan), is a freelance journalist based in Chennai, India covering the country’s space, nuclear, insurance, automobile and several other industries. Jagannathan was with IANS newswire, one of India’s premier news agencies and his articles – news, news analysis, interviews, profiles and others- on various sectors were published in several leading print, online publications within and outside India. He was also with India’s first online business magazine www.domain-b.com. A school and college chess player Jagannathan also writes about Indian chess and has covered World Chess Championships, Chess Olympiads and others.