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100 per cent FDI in construction industry through automatic route

By Sushma Ramachandran

NEW DELHI, FEB. 24. The Government today allowed 100 per cent foreign direct investment in the construction industry through the automatic route. Conditions restricting FDI to a minimum area of 100 acres and 2,000 dwelling units are relaxed to 25 acres and 50,000 square metres for construction development projects.

Announcing this here after a meeting of the Cabinet Committee on Economic Affairs (CCEA), the Commerce and Industry Minister, Kamal Nath, said that to avoid speculation in real estate by foreign investors, the sale of undeveloped land had been prohibited. Detailed guidelines would be unveiled later.

He said that earlier 100 per cent FDI had been allowed in the construction sector but it had to be cleared on a case-by-case basis by the Foreign Investment Promotion Board (FIPB). Proposals for FDI could now come in directly through the automatic route.

Several riders have been attached to this decision to ensure that concerns expressed by the Left parties are taken into account. For instance, the barring of sale of undeveloped land by foreign investors is aimed at preventing speculation while it has also been stipulated that foreign investors will have to abide fully by the bylaws and other rules of the State governments.

"Undeveloped plots" have been defined as those where roads, water supply, street lighting, drainage, sewerage and other conveniences have not been made available. The investor will have to first provide this infrastructure before selling it under the new norms.

Construction-centric

Mr. Kamal Nath said the decision ensured that FDI was "construction-centric" rather than " land-centric" in the past. Foreign investors could now come in any area but would have to construct at least 50,000 square metres within a timeframe so that they did not hold land for speculative purpose.

An official press release said that though FDI was permitted in commercial construction earlier, this was only part of a township project. "This linkage is now not mandatory."

The Minister said 100 per cent FDI would now be allowed in development of townships, housing, built-up infrastructure commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional level infrastructure.

Investors would be permitted to exit before the stipulated three-year period with prior FIPB approval. The State governments and municipal bodies and not the Central Government would ensure that the project conformed to norms.

Multiplier effect

He stressed that FDI projects would be given national treatment on a par with local developers but this was not expected to displace or replace local investors.

Instead, he said, it was expected that allowing investment on the automatic route in the construction and development sectors would have a multiplier effect on the economy by boosting construction activities of all types.

Spin-off benefits

Being an employment-intensive sector, it would create jobs not only for skilled and unskilled labourers, technicians and artisans but also for engineers, architects and designers. It would also lead to spin-off benefits to the manufacturing sector particularly construction material industries such as cement, steel and brickmaking.

The construction project will have to conform to the norms, including land use requirements and provision of community amenities and common facilities, as laid down in the applicable building control regulations, bylaws, rules and other regulations of the State government or municipal or local body concerned.

Till now, FDI up to 100 per cent but with prior government approval has been allowed for development of integrated townships, including housing, commercial premises, hotels, resorts, etc., as per the government press note No.4 of 2001.

According to the guidelines issued vide press note No.3 in 2002, the minimum area to be developed was 100 acres and a minimum of 2,000 dwelling units.

Since the opening of this sector, only nine FDI proposals had been approved for development of townships due to the requirement of a minimum area of 100 acres.

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