By Aditya Kalra and Munsif Vengattil

NEW DELHI (Reuters) - India's telecom regulator plans to recommend that satellite broadband spectrum be allotted for around five years to assess initial market adoption, defying Elon Musk's Starlink, which is seeking a 20-year permit, said a senior government source.

The Telecom Regulatory Authority of India (TRAI) is currently working on key recommendations to the federal government, including a time frame and pricing of satellite spectrum, which will be administratively allotted.

Musk and Indian billionaire Mukesh Ambani forged a partnership this week that will allow Starlink devices to be sold in Ambani's Reliance stores, giving it large distribution access. They were rivals earlier - Ambani's telco subsidiary had unsuccessfully lobbied New Delhi for months to auction spectrum, and not allot it administratively as Musk wanted.

Starlink has pushed New Delhi to allot spectrum for 20 years to focus on "affordable pricing and longer-term business plans", while Reliance sought it for three years, after which it wants India to reassess the market, according to their public submissions.

Another Indian telco, Bharti Airtel, has also pushed for a 3-5 year period for the licence. Airtel and Musk have also signed a distribution deal for Starlink, like Ambani's Reliance.

TRAI plans to agree to demands for a lower licence time-frame "of around 5 years and then see how the sector grows," said the senior government source, who declined to be named as the decision-making process is confidential.

"This will help understand how the market stabilises, so there's no point going beyond five years," said the official.

An industry source familiar with licensing processes said the shorter time-frame will allow New Delhi to revise spectrum prices after five years as the market develops.

TRAI did not respond to Reuters queries. Airtel, Reliance and Starlink also did not immediately respond.

The government source added it will take about a month for the TRAI to finalise its recommendations on the licence time- frame and a per megahertz spectrum pricing, which will then be submitted to India's telecoms ministry for further action.

Musk's deals with Reliance and Airtel are subject to Starlink winning pending regulatory clearances in India, but came weeks after Indian Prime Minister Narendra Modi met Musk in Washington, where they discussed issues including space, mobility, technology and innovation.

Ambani has been worried that his telecom company, which spent $19 billion in airwave auctions, risks losing broadband customers to Starlink and potentially even data and voice clients later.

The satellite spectrum pricing "will be substantially lower" than traditional telecom licences, which are granted via auction for 20 years, the government official added.

KPMG estimates India's satellite communication sector will grow more than 10 times in size to touch $25 billion by 2028.