Cabinet proposal for FDI in construction development silent on land-use norms

The proposal to relax foreign direct investment (FDI) norms for construction development is silent on land-use rules for the sector.

While the Cabinet note being finalised by the Department of Industrial Policy & Promotion includes proposals for reduction in minimum area requirement and minimum capitalisation norms, it is silent on land-use issues including agricultural land. “Norm on land-use is a local issue which will vary from State to State. The FDI policy on construction development has nothing to do with it,” a DIPP official told BusinessLine .

The Cabinet note, which has already received inter-ministerial comments and is being readied for internal approval, proposes reducing minimum built-up area requirement for FDI from 50,000 square metres to 20,000 square metres and halving minimum capitalisation norm from $10 million to $ 5 million respectively, the official said.

It also proposes additional relaxations for projects which commit at least 30 per cent of the total project cost for low cost affordable housing. Such projects will be exempt from minimum built up area and capitalisation requirements. “A decision on the minimum lock-in period for FDI, however, still needs to be firmed up,” the official added.

The erstwhile UPA Government had contemplated allowing companies owned and controlled by an Indian but having foreign investments to buy agricultural land for construction by proposing that such purchases could be made by signing MoUs for the buyers to get the land-use changed to non-agricultural purposes at a later date.

FEMA rules prohibit foreign investments to be used for purchase of agricultural land without first changing it to non-agricultural land. Companies like Dubai-based Emaar have come under scanner for alleged use of foreign funds to buy agricultural land. “If the issue (of land use) is indeed to be considered by the Government, it has to be done separately and not as part of the FDI policy on construction development,” the official said.

The current FDI policy on construction development allows 100 per cent foreign investment in the sector subject to conditions. “What we are trying to do is make some relaxations in the existing rules based on the announcements made in the Union Budget,” the official added.

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