The Union Cabinet chaired by the
Prime Minister, Shri Narendra Modi, today gave its approval for amending the
existing Foreign Direct Investment (FDI) policy on the 'Construction
Development Sector' in line with the Budget announcement of the Government.
The amendments in the relevant paragraphs
of the extant FDI policy as contained in the Consolidated FDI Policy Circular
2014 are as follows:
I.
100
percent FDI under automatic route will be permitted in the construction
development sector.
II.
Investment
will be subject to the following conditions:
(A)
Minimum area to be developed under each project would be:
i.
In
case of development of serviced plots, there is no condition of minimum land,
ii.
In
case of construction-development projects, a minimum floor area of 20,000 sq.
meters.
iii.
In
case of a combination project, any one of the aforestated two conditions will
need to be complied with.
(B) The investee company will be required to bring
minimum FDI of US$ 5 million within six months of commencement of the project. The
commencement of the project will be the date of approval of the building
plan/lay out plan by the relevant statutory authority. Subsequent tranches of
FDI can be brought till the period of ten years from the commencement of the
project or before the completion of the project, whichever expires earlier.
(C) The investor will be permitted to exit on
completion of the project or after three years from the date of final
investment, subject to development of trunk infrastructure.
(D) The Government may, in view of facts and
circumstances of a case, permit repatriation of FDI or transfer of stake by one
non-resident investor to another non-resident investor, before the completion
of the project. These proposals will be considered by FIPB on case to case basis.
(E) The project shall conform to the norms and
standards, including land userequirements and provision of community amenities
and common facilities, as laiddown in the applicable building control
regulations, bye-laws, rules, and otherregulations of the State
Government/Municipal/Local Body concerned.
(F) The Indian investee company will be permitted to
sell only developed plots. Forthe purposes of this policy
"developed plots" will mean plots where trunkinfrastructure including roads, water supply, street
lighting, drainage and sewerage, have been made available.
(G) The Indian investee company shall be responsible for obtaining
all necessary approvals, including those of the building/layout plans, developing
internal and peripheral areas and other infrastructure facilities, payment of
development, external development and other charges and complying with all
other requirements as prescribed under applicable rules/bye-laws/regulations of
the State Government/ Municipal/Local Body concerned.
(H) The State Government/ Municipal/ Local Body concerned, which
approves the building / development plans, will monitor compliance of the above
conditions by the developer.
These measures are expected to
result in enhanced inflows into the Construction Development sector consequent
to easing of sectoral conditions and clarification of terms used in the Policy.
It is likely to attract investments in new areas and encourage development of
plots for serviced housing given the shortage of land in and around urban
agglomerations as well as the high cost of land. The measure is also expected
to result in creation of much needed low cost affordable housing in the country
and development of smart cities.
Note:
1.
It is clarified that 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).
"Real estate business" will have the same meaning as
provided in FEMA Notification No. 1/2000-RB dated May 03, 2000 read with RBI
Master Circular that is dealing in land and immovable property with a view to
earning profit or earning income therefrom and does not include development of
townships, construction of residential/ commercial premises, roads or bridges,
educational institutions, recreational facilities, city and regional level
infrastructure, townships.
2.
The conditions at (A) to (C) above, will not apply to hotels and
tourist resorts; hospitals; Special Economic Zones (SEZs); educational
institutions, old age homes and investment by NRIs.
3.
The conditions at (A) and (B) above, will also not apply to the
investee/joint venture companies which commit at least 30 percent of the total
project cost for lowcost affordable housing.
4.
An Indian company, which is the recipient of FDI, shall procure a
certificate from an architect empanelled by any Authority authorized to
sanction building plan to the effect that the minimum floor area requirement
has been fulfilled.
5.
'Floor area' will be defined as per the local laws/regulations of
the respectiveState governments/Union territories.
6.
Completion of the project will be determined as per the local
bye-laws/ rules and other regulations of State Governments.
7.
Projects using at least 60 percent of the FAR/FSI for dwelling
units of Carpet Area not more than 60 sqm. will be considered as Affordable
Housing Projects. In addition, 35 percent of the total number of dwelling units
constructed should be of carpet area 21-27 sqm for EWS category. Such projects
can have a mix of EWS/LIG/Higher Category DUs and commercial units. Provision
of servant's quarter along with the main dwelling unit will not be counted as
dwelling units for EWS/LIG under Affordable Housing (AH) project.
8.
It is clarified that 100 percent FDI under the automatic route is
permitted in completed projects for operation and management of townships,
malls/ shopping complexes and business centres.
Background
Investment in the
construction development sector has a multiplier effect on the economy by way
of infrastructure creation; substantial employment generation over the entire
spectrum from unskilled workers to engineers, architects, designers as well as
financial and other supporting services. Further, it creates demand for the products
of a number of related industries including those in the manufacturing sector
like cement, steel, fittings and fixtures and others. Besides its employment
and income generation potential, greater investment in the sector would help to
augment the available housing stock including affordable housing and built up
infrastructure for different purposes. Enhancement of the affordable housing
stock is an urgent need in order to stem the proliferation of slums in and
around the cities. The sector witnessed steadily rising FDI from 2006-07 to
2009-10 after which the levels of inflows have been much lower. Therefore in
order to step up investment in construction development with its backward and
forward linkages for many other sectors of the economy, it is felt that some
liberalization and rationalization of the FDI policy on construction
development could be the necessary catalyst to give a boost to the sector.
DS