India relaxes rules for foreign investment in construction

NEW DELHI (Reuters) - India on Wednesday relaxed rules for foreign direct investment in construction development, aiming to make it easier for overseas capital to invest in building in Asia's third-largest economy.

The reductions of minimum requirements for built areas and capital may help Prime Minister Narendra Modi deliver on his promise to create 100 "smart cities" in India by 2020.

Previously, the government allowed 100 percent foreign direct investment in real estate development but with strict riders, including a lock-in period of three years during which the investment cannot be repatriated.

Under the new rules, the minimum built area for projects in which foreign investment is allowed will be reduced to 20,000 square metres from 50,000, the government said in a statement late on Wednesday. The minimum capital investment by foreign companies has been cut to $5 million from $10 million.

The investor will be allowed to expatriate the investment on completion of the project or three years after the final investment is made, the statement said.

India received $1.2 billion of foreign direct investment in the fiscal year ended March 31 compared with $1.3 billion the previous year. Between April and August this year it has received foreign investment worth $446 million.

The new rules will encourage development of smaller projects, especially in urban areas, where the availability of land is limited, said Akash Gupt, executive director at PWC.

The risk of delay in smaller projects will be reduced, said Gupt.

(Reporting by Aditi Shah; Editing by Rajesh Kumar Singh and Andrew Roche)