The government on Thursday fully opened up the construction development sector for foreign investors, a move that will create more jobs and boost economic growth.
However, the government barred the sale of undeveloped land by foreign investors to prevent speculation in real estate.
Announcing the decision of Cabinet Committee on Economic Affairs, Commerce Minister Kamal Nath said FDI up to 100 per cent will be allowed under automatic route in townships, housing, built-up infrastructure and construction-development projects.
Construction development projects would also include housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional level infrastructure.
The government approved 100 per cent FDI in construction in order to catalyse investment in a vital infrastructural sector of the economy, Nath said.
"It is expected that allowing investment on the automatic route in the construction and development sector would have a multiplier effect on the economy by boosting construction activities of all types," he said, adding that it would create employment not only for skilled and unskilled labourers, technicians and artisans but also for engineers, architects and designers.
The move would also lead to spin-off benefits to manufacturing sector particularly construction material industries like cement, steel and brick making.
Allowing 100 per cent FDI will also ensure rapid increase in built-up infrastructure as well as improving infrastructure.
Apart from the 100 per cent FDI, Nath said minimum area to be developed under each project would be 10 hectares in case of development of serviced housing plots.
In case of construction-development projects, a minimum built-up area of 50,000 sq mt, while for a combination project, any one of the above two conditions would suffice.
The investment would further be subject to the following conditions -- a minimum capitalisation of $10 million for wholly owned subsidiaries and 5 million dollar for joint ventures with Indian partners.
The funds would have to be brought in within six months of commencement of business of the company.
Original investment cannot be repatriated before a period of three years from completion of minimum capitalisation.
However, the investor may be permitted to exit earlier with prior approval of the Government through the Foreign Investment Promotion Board.
The investor would not be permitted to sell undeveloped plots. Undeveloped plots will mean where roads, water supply, street lighting, drainage, sewerage, and other conveniences, have not been made available.
It will be necessary that the investor provides this infrastructure and obtains the completion certificate from the concerned local body/service agency before he would be allowed to dispose of the plots.
The project shall conform to the norms and standards, including land use requirements and provision of community amenities and common facilities, as laid down in the applicable building control regulations, bye-laws, rules, and other regulations of the state government or municipal or local body concerned.
This essentially means that now it is state governments and municipal bodies which would be approving such projects, not the central government.
It also means that in terms of treatment, FDI projects would be accorded national treatment on par with local developers.
FDI in this sector will, therefore, not displace or replace the local industry but rather help it to grow at a rapid pace and generate greater economic activity, Nath said.
Till now, FDI up to 100 per cent but with prior government approval already exists 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 subsequently issued vie press note No-3 in 2002, the minimum area to be developed was 100 acres and a minimum of 2000 dwelling units.
The need for a review had been felt as since the opening of this sector, only nine FDI proposals were approved for development of townships and interaction with stakeholders had revealed the requirement of a minimum area of 100 acres, etc., to be a major bottleneck in attracting investments.
Now, the norms have been modified to allow FDI under the automatic route. Further, the requirement of minimum 100 acres and 2,000 dwelling units is being changed to minimum 10 hectares (25 acres) for serviced housing plots or minimum built-up area of 50,000 sq mt for construction development projects.
Though FDI was permitted in commercial construction earlier, this was only as part of a township project. This linkage is now not mandatory.