Much to the cheer of foreign real estate developers, those investing in India’s construction sector might be allowed to exit before the mandatory three years stipulated at present. However, for that, they would have to complete the project and procure completion occupancy certificates from local authorities.
Currently, they can exit before three years of putting in money only with permission from the Foreign Promotion and Investment Board (FIPB).
That’s not all. According to a Cabinet note, being prepared by the Department of Industrial Policy and Promotion (DIPP), foreign developers will be allowed to take back the entire invested amount before three years, after obtaining the government’s approval. A senior official involved in the process confirmed this to Business Standard.
According to the current FDI policy, the lock-in period of three years applies to every tranche of investment brought in by a foreign player from the date of receipt of investment or from the date of ‘completion’ of minimum capitalisation, whichever is later. Developers had long been complaining that restrictions, such as the lock-in norms, deterred them from investing in the Indian market.
At present, at least $10 million of paid-up capital is required in wholly-owned subsidiaries and $5 million in joint ventures.
“There will be general easing of conditions in the lock-in norms. If they (foreign developers) want to exit, they should not be scared to come to us for an approval,” the official said.
DIPP, which has received approvals from most departments, is now in the process of firming up its proposal. It is expected to shortly finalise the final Cabinet note.
With investors proposed to be allowed to exit earlier on receipt of completion occupancy certificate, there would be an incentive for players to complete the projects.
India allows 100 per cent FDI through the automatic route in townships, housing, built-up infrastructure and construction-development projects, subject to certain conditions.
Between 2000 and 2013, the construction development sector has received about $22 billion of FDI — about 11 per cent of the country’s total FDI inflow during the period.
However, since 2012, FDI in the sector has slowed down significantly. In 2012-13, it was down to $1.33 billion, against $3.14 billion the previous year. In the first four months of the current financial year, only $0.36 billion foreign direct investment has flowed into this sector.
FDI inflows in the construction sector
2011-12: $3.14 bn
2012-13: $1.33 bn
2013-14*: $0.36 bn
Source: Department of Industrial Policy & Promotion