Emaar MGF may not get relief with new FDI rules in construction
Real estate group Emaar MGF which is a joint venture between Dubai-based Emaar Properties and India’s MGF, may not get clean chit in the Enforcement Directorate probe on the alleged violation of Foreign Direct Investment (FDI) guidelines despite the proposed watering down of foreign investment rules by the Government.
The company was slapped with a fine of Rs. 8,500 crore for using foreign funds to buy agricultural land. It will continue to be in trouble if the planned relaxation in land-use norms for FDI – as being proposed by the Industry Department in the revised Cabinet note– is applied prospectively.
It is learnt from a Industry Department (DIPP) official that the agency had sent the revised note on FDI in Construction Development to the Cabinet for its consideration and has recommended that the changes in rules related to acquisition of agricultural land be prospective in nature.
The official also added that the Urban Development Ministry has insisted that once the FDI guidelines are changed, they be applied retrospectively.
The official further said, “It is very difficult to apply new rules with retrospective effect. We do not see this happening. However, the final decision with be taken by the Finance Ministry when the Cabinet takes up the note.”
ED hauled Emaar MGF for violation of Foreign Exchange Management Act that does not permit use of foreign investment to buy agriculture land without changing land-use for non-agricultural purposes. Emaar-MGF’s case is being judged completely on the basis of the existing FEMA rules as, presently, the FDI rules in Construction Development have no provision on use of agriculture land for construction at all.
In case the Union Cabinet approves the proposed changes in the FDI rules, it would be easier for the foreign investors to invest in construction development. As per the proposed changes, a company owned and controlled by an Indian and having foreign investment will be allowed to directly buy agricultural land from farmers. The company, however, will have to sign a MoU stating that it will convert the land use from agricultural to non-agricultural at a later date. The official also added, “The RBI will notify the required changes in FEMA rules once the Cabinet takes its decision.”
Another step incorporated by DIPP that would benefit the foreign investors to take up smaller projects is the recommendation made by the Urban Development Ministry of bringing down the minimum floor area requirement for construction of projects in areas with more than 1 lakh population to 20,000 sq m instead of the existing 50,000 sq m.
Source: The Hindu Business Line
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