Macro Economy

New FDI rules in construction may not give relief to Emaar MGF

Amiti Sen New Delhi | Updated on February 20, 2014 Published on February 20, 2014

Investment issues: Though the DIPP wants the new FDI guidelines to beimplemented prospectively, the Urban Development Ministry wantsretrospective implementation.

Real estate group unlikely to benefit from the watered down norms

Real estate group Emaar MGF, a joint venture between Dubai-based Emaar Properties and India’s MGF, may not get clean chit in the Enforcement Directorate probe on the alleged violation of Foreign Direct Investment (FDI) guidelines despite the proposed watering down of foreign investment rules by the Government.

The company, which was slapped with a fine of ₹8,500 crore for using foreign funds to buy agricultural land, will continue to be in trouble if the planned relaxation in land-use norms for FDI – as proposed in the revised Cabinet note prepared by the Industry Department – is applied prospectively.

The Industry Department (DIPP), which has sent the revised note on FDI in Construction Development to the Cabinet for its consideration, has recommended that the changes in rules related to acquisition of agricultural land be prospective in nature, a DIPP official told Business Line.

The Urban Development Ministry, however, has insisted that once the FDI guidelines are changed, they be applied retrospectively, the official added.

“It is very difficult to apply new rules with retrospective effect. We do not see this happening. However, the final decision with be taken by the Finance Ministry when the Cabinet takes up the note,” the official said.

Emaar MGF was hauled up by the ED for violation of Foreign Exchange Management Act that does not permit use of foreign investment to buy agriculture land without changing land-use for non-agricultural purposes.

As the present FDI rules in Construction Development have no provision on use of agriculture land for construction at all, Emaar-MGF’s case is judged completely on the basis of the existing FEMA rules.

If the Union Cabinet approves the proposed changes in the FDI rules, things would get easier for foreign investors in construction development. According to the proposed changes, a company owned and controlled by an Indian and having foreign investment will be allowed to directly buy agricultural land from farmers. The company will have to sign a MoU stating that it will convert the land use from agricultural to non-agricultural at a later date.

“The RBI will notify the required changes in FEMA rules once the Cabinet takes its decision,” the official added.

In its Cabinet note, the DIPP has also incorporated the recommendation made by the Urban Development Ministry of bringing down the minimum floor area requirement for construction of projects in areas with more than 1 lakh population to 20,000 sq m instead of the existing 50,000 sq m.

This would give flexibility to foreign investors to take up smaller projects.

Published on February 20, 2014

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