Govt to issue clarification on FDI in construction

Since 2005, 100% FDI through the automatic route is allowed in the construction sector

The government will soon issue some clarifications on the rules for foreign direct investment (FDI) in construction development which were liberalised last month.

"We will issue clarification on the issue shortly," department of industrial policy and promotion secretary said on the sidelines of the India Economic Summit on Thursday. "It would be out in the next two to three days," he added, without elaborating.

In a move to boost affordable housing projects and smart cities across the country, on October 29 the Union Cabinet had relaxed the FDI norms in the sector.

Minimum built-up area required to attract FDI was reduced from 50,000 sq m to 20,000 sq m, and the capital requirement was decreased from $10 million to $5 million. It also allowed investors to exit on completion of the project or after three years from the date of final investment, whichever was earlier. The industry had welcomed the move and shares of real estate developers had rallied after the announcement but it is learnt some more clarifications were sought.

However, the government might allow repatriation of FDI or transfer of stake by one non-resident investor to another before completion of a project. Proposals in this regard will be considered by the Foreign Investment Promotion Board on a case-to-case basis.

Since 2005, 100 per cent FDI through the automatic route is allowed in the construction sector. This includes townships, housing, commercial premises, hotels, resorts and hospitals.

Between 2003 and 2013, the construction development sector received about $22 billion in FDI, which is 11 per cent of the overall FDI in the country during this period. However, since 2012, FDI inflow into the sector has slowed drastically.

In 2012-13, it fell to $1.3 billion from $3.1 billion the previous year. During the first four months of this financial year, only $167 million has flowed.