Rules for foreign funds in Construction to be relaxed

Close on the heels of liberalising foreign direct investment (FDI) norms in the defence sector and the Railways, the Government is now trying to fast-track a decision on easing rules for foreign investments in the construction development sector.

The Department of Industrial Policy & Promotion (DIPP) has floated a Cabinet note proposing to bring down the minimum built-up area requirement for FDI in construction projects from 50,000 sq metres to 20,000 sq metres. It has also proposed reducing the minimum capital requirement for such projects from $10 million to $5 million.

The existing policy allows 100 per cent FDI in the construction sector subject to minimum built-up area and minimum capitalisation requirements.

The draft Cabinet note also suggested that projects which commit at least 30 per cent of the total project cost for low cost affordable housing will be exempted from minimum built-up area and capitalisation requirements.

“As these proposals are in line with the announcements made in the Union Budget, we do not expect major opposition from other Ministries and Department. We hope to finalise our note for Cabinet’s approval soon,” a DIPP official told BusinessLine.

With the Government eager to attract investments in the 100 smart cities proposed in the Budget, easing rules for FDI in construction is very important.

“Countries such as the US, Japan and UK have all expressed interest in investing in smart cities. The more liberal norms will ease the flow of such investments,” the official added.

The existing post completion lock-in period of three years for investors, however, will not be relaxed to avoid early exits.

The Union Cabinet recently relaxed FDI rules for the defence sector, increasing the FDI cap from 26 per cent to 49 per cent. It also allowed 100 per cent foreign investments through the automatic route in a number of areas in the railways including high-speed trains, railway line, passenger terminals and coaches manufacturing and maintenance facilities.

The new rules in both sectors have been notified.

The BJP Government, however, is reluctant to allow FDI in multi-brand retail as it believes that it could hurt small retailers.

It is also not willing to open up the e-commerce sector to foreign investments for now.

Source: http://www.thehindubusinessline.com