The Narendra Modi government is set to substantially ease norms for foreign investment in the construction sector, hoping to drum up interest in the prime minister's plans for 100 smart cities as well his affordable housing initiative. The government is seriously considering the removal of all restrictions on size and minimum capitalisation for the smart cities as well as affordable housing projects. "The discussions are on for exempting smart cities from all FDI conditionalities. We need to give them a push by making it attractive for investors," said a government official.
The new policy is also expected to provide easier exit windows.The proposal could be moved for the Cabinet's consideration as early as next week. The new foreign direct investment (FDI) regime may allow developers to exit after the completion of the project or through the approval of the Foreign Investment Promotion Board ( FIPB) against the three-year lock-in period currently imposed, a condition that has been a big deterrent to foreign investment in the sector.
Developers will be exempt from restrictions related to minimum capitalisation and exits if they commit 30% of the project cost to affordable housing. "The thrust will be on affordable housing and smart cities. The proposal is that they be exempted from the conditionalities to attract more foreign investment. There is a need to channelise investments in the affordable housing segment," said a government official aware of the development.
The minimum built-up area has been proposed to be cut to 20,000 sq mt from 50,000 sq mt while the minimum capitalisation requirement will be halved to $5 million from $10 million. The government hopes the easier rules will also help in the faster completion of projects delayed by a squeeze on funds because of elevated debt levels. "The (Cabinet) note is more or less finalised," the official added. The government is planning to set up 100 smart cities across the country that will provide modern amenities, education and employment opportunities. Finance Minister Arun Jaitley had proposed an allocation of Rs 7,060 crore in the Union Budget toward smart cities in the country.
The sector attracted $1.2 billion in FDI in 2013-14, down 8% from 2012-13. Investors would likely be able to exit projects on receipt of occupancy and/or completion certificates issued by the competent local authority or after FIPB's nod." It is being discussed to do away with the minimum lock-in period of three years after the completion of the project. A developer should be allowed to exit immediately after completing it," the official added.This will also create an incentive for faster completion of projects.
"The prime minister has a vision of developing 100 smart cities as satellite towns of larger cities and by modernising the existing mid-sized cities," Jaitley had said in his budget speech.
Under current rules, 100% FDI is allowed through the automatic route in development of townships, housing and built-up infrastructure, subject to stringent conditions. Present norms require minimum capitalisation of $10 million for wholly owned subsidiaries and $5 million for joint ventures with Indian partners.Between April 2000 and July 2014, construction development, including townships, housing and built-up infrastructure in the country received FDI worth $23.77 billion, or 10.4% of the total FDI attracted by India during the period.
The issue related to agricultural land will be dealt with at the state level. The BJP government is on a foreign investment liberalisation drive. It increased the FDI cap in defence to 49% from 26% last month and allowed 100% FDI in railway infrastructure while partially opening up railway operations. "International investors are already looking at India again.
The relaxation in construction FDI will definitely create a strong positive sentiment as far as smart cities are concerned. It will need to be backed by faster approvals and addressing issues related to the land acquisition policy," said Sachin Sandhir, MD, RICS South Asia. "The government will give concessions to smart cities to make it attractive for foreign investors. Easing of norms has generated high interest levels from not just the foreign investors but also domestic players," said RR Singh, director-general, National Real Estate Development Council (Naredco).
Source: Economic Times
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