India fully opens FDI gate to Construction sector

In a major development which would infuse the much-needed fund into the sagging construction sector, Indian government has allowed 100 per cent Foreign Direct Investment in construction of projects, which includes commercial, residential, infrastructural and mixed-use developments.

FDI will be allowed for developing townships, construction of roads or bridges, residential  / commercial premises, hotels, hospitals,  educational institutions, resorts, city and regional level infrastructure and recreational facilities, according to a statement issued by the ministry of Commerce and Industry.

The government has promised to provide all necessary approvals through automatic approval system for such projects, the release said.

However, the government has put some restrictions on projects to get eligible for FDI funding. It has fixed the minimum land area for development of serviced housing plots at 10 hectares while for construction of development projects, the minimum built-up area should be 20,000 sq metres.  In case of a combination project, the release said, any one of the two conditions should be met.

On minimum capital investment, it has been fixed at $10 million for wholly-owned subsidiaries while for joint ventures with Indian partners it should be $5 million.

Easing the lock-in period norms, the government said that the lock-in period of three years would be applied from the date of receipt of each installment of FDI or from the date of completion of minimum capitalisation, whichever is later. However, the investor would be permitted to exit earlier with prior approval of the government.

The investor will be permitted to exit on completion of the project or after development of trunk, infrastructure including roads, street lights, drainage, water supply and sewerage.

The rules also made it mandatory for developers to complete 50 per cent of project within a period of five years from the date of obtaining statutory clearances.

The investor / investee company would not be permitted to sell undeveloped plots - undeveloped plots are those where roads, water supply, street lighting, drainage, sewerage, and other conveniences, as applicable under prescribed regulations, have not been made available.

The investor should provide the infrastructure and obtain the completion certificate from the concerned local body before being allowed to dispose of serviced housing plots.

The project should 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 governments and local authorities concerned.

Between 2000 and 2013, India's $126 billion construction industry has attracted 11 per cent of foreign investment into the country, which makes it the second highest of any sector. In the last financial year, the sector has attracted $1.2 billion of FDI till March 31 compared to $1.3 billion the previous year. Between April and August this year, construction sector has got $446 million worth FDI.