Government proposes relaxation of FDI norms in construction
The government is taking a move that could open up funds flow into the financially stressed sector by proposing relaxation of norms for foreign investment in construction.
100 per cent foreign direct investment is allowed through the automatic route in development of townships, housing and built-up infrastructure, subject to stringent conditions, under current rules.
A company owned and controlled by an Indian and having foreign investment would be able to directly buy agricultural land from farmers ,whereas a company controlled by an NRI will be able to buy such land only after it is converted to non-agricultural land.
Soon the Cabinet is expected to take up a proposal that also seeks to halve the minimum area and the capital requirement for a project to be eligible for foreign funds.
Minimum capitalization requirement will be lowered to $5 million from $10 million now, as per the proposal, and minimum land area requirement to five hectare for development of serviced housing plots, the official said.
The DIPP is the nodal body for foreign direct investment (FDI) policy, and has circulated a Cabinet note proposing a significant change in area norms for construction-development projects as well.
Instead of the norm of 50,000 sq m for all construction- development projects in the existing policy, Now 2011 census has proposed Minimum floor area of 20,000 sq m for construction-development projects in cities having a population of more than 100,000.
The move will give a fillip to investment in the construction sector, which is saddled with debt and inventory, Said by an expert. Akash Gupt, executive director, PwC said “Reduction in capital and area would increase deal activity and boost fund flow into the sector.”
The clause that orders developing at least 50% of projects within a period of five years from the date of obtaining all statutory clearances is also being done away with. The date of receipt of completion or occupation certificate will be the milestone for its completion.
Foreign investors will be allowed to exit projects if they are finished before the completion of three years without prior foreign investment promotion board approval. They will also be allowed to exit a project before the three-year lock-in period if the stake is transferred to another non-resident.
These conditions have been instigated after an earlier proposal was deferred by the cabinet following urban development ministry’s objections. The built-up areas condition has also been substituted with floor area to make it more industry friendly.
Source: The Economic Times.
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