Relaxation in FDI Norms for the Mega-Construction Industry

In a rapidly developing country like India, the construction industry is a major contributor to the economy. Hence the central government is making continuous efforts to boost the sector. One of the major hurdles faced by the mega construction industry guidelines is the inflow of investment from private sources. The Foreign Direct Investment (FDI) inflow in the construction industry is way too much regulated, thus making it difficult for the investors.

Relaxation in FDI Norms for the Mega-Construction Industry

However, on November 10 the finance ministry has liberalized the FDI norms for the 15 sectors including the construction industry. This reform has been wholeheartedly welcomed by the investors as well as dealers. Let us learn about the characteristics and impacts of these reforms.

The package to the construction industry included the following:

  • 100% Foreign Direct Investment (FDI) has been allowed in construction projects.

  • The minimum floor area was 20,000 sq.m. which has now been removed.

  • Sub-ceiling to affordable housing in large projects.

  • The builders had to raise a minimum capital of $ 5 Million within six months of commencement of business; this rule has now been waived off.

  • Such projects can also be put up for leasing and renting.

  • Exit and repatriation even before completion; exit at any time or trunk infrastructure.

  • Stakes can be transferred from one NRI to another without hassles or lock-in period.

  • The ceiling for Foreign Investment Promotion Board (FIPB) has been raised from Rs 3,000 Cr to Rs 5,000 Cr.

  • Lock-in period will not totally apply to hotels, transit resorts, hospitals, special economic zones, educational institutions, old-age homes and investment by NRIs.

It is a very bold announcement made by the central government and is welcomed by some and also criticized by others. Some see it as a future obstacle in the way of developers and Indian private investors who want to put their money in such projects. The liberalisation of FDI norms has made it easier for the foreign investors to venture in the Indian mega construction industry.

The Indian real estate industry forms a major part of the country’s GDP. It currently contributes 10-12% to the GDP but it is estimated that by 2020, the Indian realty sector will have an investment of about 200 million dollar which would raise its GDP contribution to 19%. This liberalization in FDI norms is a major step for making India a popular destination to invest among the foreign investors.

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