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DIPP issued Press Note 10 to relax FDI norms for the construction development sector

Dec 4, 2014 18:44 IST

Department of Industrial Policy and Promotion (DIPP) on 3 December 2014 issued Press Note 10 of 2014 series to relax the Foreign Direct Investment (FDI) norms for the construction development sector. DIPP is under the Union Ministry of Commerce and Industry.

The eased norms include easy exit norms and reduced built-up area and capital needs.

Revised norms under Press Note 10
• 100 percent of FDI is allowed in construction development sector through the automatic route. However, 100 percent FDI is permitted only in completed projects for operation and management of townships, malls/ shopping complexes and business centres.
• FDI is not permitted in an entity which is engaged or proposes to engage in real estate business, construction of farm houses and trading in transferable development rights (TDRs).
• Foreign investor will be permitted to exit on completion of the project or after development of trunk infrastructure, that is, roads, water supply, street lighting, drainage and sewerage.
• The new norms has made exit easy and has done away with the three-year lock-in period for repatriation of investment. Earlier, investor investors were permitted to exit on completion of the project or after three years from the date of final investment in trunk infrastructure.
• There is no minimum land area required in case of developed service plots.
• In case of construction-development projects, the minimum floor area requirement has been reduced to 20000 square metres from 50000 square metres earlier.
• It permits an investee company to bring minium FDI of 5 million US dollars within six months of commencement of the project. Earlier it was 10 million US dollars.
• The investee company can bring the subsequent tranches of FDI till the period of 10 years from the commencement of the project or before the completion of the project, whichever expires earlier.
• The government may permit repatriation of FDI or transfer of stake by one non-resident investor to another non-resident investor, before the completion of project.  These proposals will be considered by FIPB on case to case basis.
• The Indian investee company will be permitted to sell only developed plots.  For the purposes of this policy developed plots will mean plots where trunk infrastructure has been made available.
• The government has exempted the conditions of minimum floor area and capital requirement if an investee or joint venture companies commit at least 30 percent of the total project cost for low-cost housing.

Comment
The new norms will attract foreign funds in construction of townships, hospitals and hotels and new measures will result in enhanced inflows into the construction development sector. It is also likely to result in creation of much needed low cost affordable housing and development of smart cities in India.

Now smaller projects can attract FDI with reduction in minimum built-up area requirement. Though 100 percent FDI was allowed in townships, housing and built-up infrastructure and construction developments since 2005, but the government had imposed certain conditions.

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