Dilution proposed in required capital, minimum area, lock-in period

The Government has started work on easing Foreign Direct Investment norms in the construction industry in order to help attract more foreign capital into the cash-strapped sector.

The Industry Department is finalising a draft note (that will soon be submitted to the Cabinet) proposing to relax conditions related to entry guidelines , minimum-area requirement and minimum lock-in period for investments, an official in the Department of Industrial Policy and Promotion told Business Line. The note has been prepared based on inputs given by the Ministry of Housing and Urban Poverty Alleviation.

“We will soon finalise the note and circulate it to other Departments and Ministries concerned for their comments. We will then place it before the Cabinet for clearance,” the official said.

Several riders

At present, the FDI policy permits 100 per cent foreign investment, including in housing, townships and construction infrastructure, but several restrictions apply .

These include a three-year lock-in period for investments in housing and townships, a minimum built-up area of 50,000 square metres and minimum capitalisation of $10 million for wholly-owned subsidiaries.

To make the sector more attractive, the Housing Ministry has proposed that the minimum lock-in period be reduced, the built-up area required be brought down to 20,000 sq m and minimum capitalisation reduced to $5 million.

“We have incorporated most of the suggestions made by the Housing Ministry to the extent possible. It is also important to get the views of others such as the Finance Ministry and the Planning Commission. We will incorporate all views in the final note,” the official said

Industry lukewarm

Meanwhile, industry players said the proposed changes may not help attract funds immediately as foreign players will closely monitor the fine-print before doing so.

There is country-risk, exchange rate risk and even policy risk associated with FDI. The Government needs to maintain clarity. A drastic change in policy midway will be detrimental to India’s investor confidence, was what industry players said when asked to react to the move. “To make an investor take the final decision of investing his funds in India, the domestic real estate story needs to be strengthened and stabilised. Interest rates in India are one of the highest; consistent support and incentives for the sector are lacking . If these areas can be worked on, there is a huge appetite that exists; but investors will now judge both intent and commitment of the policy makers before making long term commitments,” said Gaurav Pandey, Senior VP, Head — Research and Consulting, PropEquity, a real estate consulting firm.

The construction sector attracted a little more than $22 billion in FDI between 2000 and 2013, accounting for 11 per cent of the total FDI that came into India, but foreign investments into the sector have started drying up since 2012.



(This article was published on September 17, 2013)
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