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The Cabinet has today cleared the proposal for 100% foreign direct investment (FDI) on the automatic route in the construction development sector. Announcing the decision here, Shri Kamal Nath, Union Minister of Commerce & Industry, said that the Government had decided to allow FDI up to 100% under the automatic route in townships, housing, built-up infrastructure and construction-development projects, (which would include, but not be restricted to, housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional level infrastructure) in order to catalyse investment in a vital infrastructural sector of the economy.
It is expected that allowing investment on the automatic route in the construction and development sector would have a multiplier effect on the economy by boosting construction activities of all types. This would mean (a) being an employment intensive sector, it would create employment not only for skilled and unskilled labourers, technicians and artisans but also for engineers, architects and designers; (b) lead to spin-off benefits to manufacturing sector particularly construction material industries like cement, steel and brick making; and (c) ensure rapid increase in built-up infrastructure as well as improving the infrastructure.
In order to avoid speculation in real estate by foreign investors, the sale of undeveloped land has been prohibited.
The salient features of the proposal cleared today are:
? FDI would be permitted up to 100% under the automatic route;
? Minimum area to be developed under each project would be: (i) In case of development of serviced housing plots, a minimum land area of 10 hectares (ii) In case of construction-development projects, a minimum built-up area of 50,000 sq. mts; and (iii) In case of a combination project, any one of the above two conditions would suffice
? The investment would further be subject to the following conditions: (i) Minimum capitalisation of US $10 million for wholly owned subsidiaries and US$ 5 million for joint ventures with Indian partners. The funds would have to be brought in within six months of commencement of business of the Company. (ii) Original investment cannot be repatriated before a period of three years from completion of minimum capitalization. However, the investor may be permitted to exit earlier with prior approval of the Government through the Foreign Investment Promotion Board (FIPB).
? The investor would not be permitted to sell undeveloped plots. “Undeveloped plots” will mean where roads, water supply, street lighting, drainage, sewerage, and other conveniences, have not been made available. It will be necessary that the investor provides this infrastructure and obtains the completion certificate from the concerned local body/service agency before he would be allowed to dispose of the plots.
? The project shall conform to the norms and standards, including land use requirements and provision of community amenities and common facilities, as laid down in the applicable building control regulations, bye-laws, rules, and other regulations of the State Government/ Municipal/Local Body concerned. This essentially means that now it is State Governments and Municipal Bodies which would be approving such projects, not the Central Government. It also means that in terms of treatment, FDI projects would be accorded national treatment on par with local developers.
FDI in this sector will, therefore, not displace or replace the local industry but rather help it to grow at a rapid pace and generate greater economic activity.
Background:
FDI up to 100%, but with prior government approval already exists for development of integrated townships including housing, commercial premises, hotels, resorts etc., vide the government press note No.4 (2001 series) dated 21/5/2001. According to the guidelines subsequently issued vide press note No.3 (2002 series) the minimum area to be developed was 100 acres and a minimum of 2000 dwelling units. The need for a review had been felt as since the opening of this sector, only nine FDI proposals were approved for development of townships and interaction with stakeholders had revealed the requirement of a minimum area of 100 acres etc., to be a major bottleneck in attracting investments. Now, the norms have been modified to allow FDI under the automatic route. Further, the requirement of minimum 100 acres and 2000 dwelling units is being changed to minimum 10 hectares (25 acres) for serviced housing plots or minimum built-up area of 50,000 sq. mts. for construction development projects. Though FDI was permitted in commercial construction earlier, this was only as part of a township project. This linkage is now not mandatory.
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SB/MRS
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