NEW DELHI – In what may prove to be a major boost for Indian economy, the Union Government today decided to relax foreign direct investment (FDI) norms in the construction sector, allowing 100 per cent of foreign funds in building projects.
The approval came at a Cabinet meeting, which was chaired by Prime Minister Narendra Modi, where the existing FDI policy on the “Construction Development Sector” was amended in line with the announcement made as part of the Union Budget earlier this year.
After the meeting, the government said “100 per cent FDI under automatic route will be permitted in the construction development sector”. The Cabinet also cleared the proposal of the Department of Industrial Policy and Promotion (DIPP), under the Commerce and Industry Ministry, to bring down the minimum built-up area requirement for FDI in construction projects from 50,000 sq metres to 20,000 sq metres.
The Cabinet further gave its approval for reducing the minimum capital requirement for projects from $10 million to $5 million.
An official statement said: “The investee company will be required to bring minimum FDI of $5 million within six months of commencement of the project. The commencement of the project will be the date of approval of the building/layout plan by the relevant statutory authority. Subsequent tranches of the FDI can be brought till the period of 10 years from the commencement of the project or before the completion of the project, whichever expires earlier.”
The government, however, clarified that the FDI was not permitted in any entity that was engaged or proposes to engage in real estate business, construction of farmhouses and trading in Transferable Development Rights (TDRs).
The move was aimed at attracting more foreign investment in construction and real estate sector as investment in the construction development sector has a multiplier effect on the economy by way of infrastructure creation; substantial employment generation over the entire spectrum from unskilled workers to engineers, architects, designers as well as financial and other supporting services.
Further, it creates demand for the products of a number of related industries, including those in the manufacturing sector such as cement, steel, fittings and fixtures and others.
Officials said besides generating employment and income generation potential, greater investment in the sector would help augment the available housing stock, including affordable housing and built-up infrastructure for different purposes.
Enhancement of the affordable housing stock is an urgent need in order to stem the proliferation of slums in and around the cities. The sector witnessed steadily rising FDI from 2006-07 to 2009-10 after which the levels of inflows have been much lower. Between April 2000 and August 2014, construction development, including townships, housing and built-up infrastructure in the country, received FDI worth $23.75 billion or 10 per cent of the total FDI attracted by India during the period.
Although 100 per cent foreign direct investment is allowed in townships, housing and built-up infrastructure and construction developments, the government has imposed conditions.
Finance Minister Arun Jaitley in his maiden Budget had said projects which commit at least 30% of the total project cost for low cost affordable housing would be exempted from minimum built-up area and capitalisation requirements.
