Government proposes relaxation of FDI norms in construction

NEW DELHI: The government is proposing relaxation of norms for foreign investment in construction, a move that could open up funds flow into the financially stressed sector.
Under current rules, 100 per cent foreign direct investment is allowed through the automatic route in development of townships, housing and built-up infrastructure, subject to stringent conditions.

In what will be a significant relaxation, the government is seeking to allow foreign investors to enter into agreement with farmers to buy agricultural land, obviating the need for taking on an Indian partner, an official privy to the development told ET.

A company owned and controlled by an Indian and having foreign investment would be able to directly buy agricultural land from farmers. But a company controlled by an NRI will be able to buy such land only after it is converted to non-agricultural land.
The Cabinet is expected to soon take up a proposal that also seeks to halve the minimum area and the capital requirement for a project to be eligible for foreign funds.
As per the proposal, minimum capitalisation requirement will be lowered to $5 million from $10 million now, and minimum land area requirement to five hectare for development of serviced housing plots, the official said.
The Department of Industrial Policy and Promotion (DIPP) has circulated a Cabinet note proposing a significant change in area norms for construction-development projects as well. The DIPP is the nodal body for foreign direct investment ( FDI) policy.
Minimum floor area of 20,000 sq m for construction-development projects in cities having a population of more than 100,000 as per the 2011 census is being proposed instead of the norm of 50,000 sq m for all construction- development projects in the existing policy.
Experts say the move will give a fillip to investment in the construction sector, which is saddled with debt and inventory. "Reduction in capital and area would increase deal activity and boost fund flow into the sector," said Akash Gupt, executive director, PwC.
The clause that mandates developing at least 50% of projects within a period of five years from the date of obtaining all statutory clearances is also being done away with. The milestone for completion will be the date of receipt of completion or occupation certificate.
Foreign investors will be permitted to exit a project before the three-year lock-in period if the stake is transferred to another non-resident. They will also be allowed to exit projects if they are finished before the completion of three years without prior foreign investment promotion board approval.
These conditions have been introduced after an earlier proposal was deferred by the cabinet following urban development ministry's objections.
The built-up areas condition has also been replaced with floor area to make it more industry friendly.
Source : Economic Times