FDIs likely to increase as lock-in period may reduce

Foreign investors investing in construction sector of India are likely to be allowed to exit even before the mandatory three years lock-in period. But for this, the investors should have completed the project in which they have invested in and would have obtained the completion occupancy certificates from the concerned authorities.

On a move to attract more investments, the government is planning to reduce the current lock-in period of three years for foreign direct investments (FDI) in India. As per the existing rules, they can only exit before the lock-in period of three years, if they seek permission of the Foreign Promotion and Investment Board (FIPB).

DIPP prepares cabinet note

The Department of Industrial Policy and Promotion (DIPP) is preparing a Cabinet note, with regard to the new set of rules. According to it, official sources have revealed that, the foreign developers will be allowed to take back their entire investment before three years, after obtaining the government’s approval. There will be a general easing of FDI norms and the foreign investors can heave a sigh of relief. The DIPP has sought approvals from various departments and will finalise the note shortly.

As per the existing FDI policy, the lock-in period of three years applies to every tranche of investment brought in by a foreign player from the date of receipt of investment or from the date of ‘completion’ of minimum capitalisation, whichever is later. Moreover, the investors cannot take out their money within three years from the completion of minimum capitalisation.

Developers unhappy with present norms

From a long time, it has been claimed by developers that restrictions like the strict lock-in norms, kept them away from investing in the Indian market. There is currently a requirement of paid-up capital of a minimum of $10 million in wholly-owned subsidiaries and $5 million in joint ventures. Besides, the new norms may even cut short the minimum capitalisation of $10 million to $5 million for wholly-owned subsidiaries.

With investors proposed to be allowed to exit earlier on receipt of completion occupancy certificate, there would be an incentive for players to complete the projects.

100% FDA for housing

As of now, a 100 percent FDA is allowed in India through the automatic route in housing, townships, built-up infrastructure and construction-development projects, subject to certain conditions.

During the period of 2000 to 2013, the construction development sector has witnessed nearly $22 billion of FDI, which comprises about 11 percent of the total FDI that entered the nation in this period. However, since 2012, there has been a slowdown in the FDI witnessed by the sector. In 2012-13, it was down to $1.33 billion, against $3.14 billion the previous year. In the first four months of the current financial year, only $0.36 billion foreign direct investment has flowed into this sector.