DIPP wants to relax FDI rules for small constructions

To encourage the flow of foreign direct investment (FDI) in smaller construction projects — integrated townships and hospitality projects — the Department of Industrial Policy & Promotion (DIPP) has recommended changes to the Press Note 2 of 2005. These recomendations have been sent to the Cabinet Committee on Economic Affairs.

The department has asked for a reduction in the minimum area to be developed under each project from 25 acres to 10 acres for development of serviced housing plots. It has also asked for reduction in the minimum built-up area for construction development projects to 10,000 sq m.

DIPP feels that in smaller cities and towns, developing serviced plots or built-up areas according to guidelines prescribed in Press Note 2 is not economically viable. The minimum area requirement is viewed as a deterrent infusing FDI into companies desirous of undertaking small-size construction projects.

Foreign investment brought into such projects will be subject to a lock-in period from the date of infusion. The lock-in would also hold for three years after project completion.

To promote infrastructure development in tourism, DIPP has recommended that 100 per cent FDI be allowed in mixed development projects. The FDI policy permits foreign investment up to 100 percent through the automatic route in tourism-related industry, hotels and hospitals when they are standalone activities. There are an estimated 1.2 million hotel rooms in the country. The country needs to double its hotel rooms to 2.9 million by 2010, to meet the demand during the Commonwealth Games.