India is reviewing its foreign direct investment (FDI) policy for the real estate sector to see if 100% overseas investment can be allowed in completed projects. If implemented, this will allow real estate companies to monetise completed projects amid the ongoing liquidity crisis aggravated by the Covid-19 pandemic, thus helping to revive an economically critical sector.
The Department for Promotion of Industry and Internal Trade (DPIIT) is looking at ways to attract more investment in construction development on increased interest in the sector from overseas, said people in the know. “There are only limited sectors where FDI norms can be further relaxed and housing is one of them,” said an official.
As per the government’s plan to simplify processes and make it easier to invest in India, DPIIT is looking at reforms in mining and certain sectors where there are still some restrictions.
3-Yr Lock-in Period Condition
The department plans to seek cabinet approval for relaxing norms to allow up to 74% FDI in defence manufacturing under the automatic route. The FDI cap in defence was raised as part of the Atmanirbhar package and needs to be operationalised. DPIIT will issue a detailed press note subsequent to the cabinet nod. FDI into India rose 13% to a record $49.97 billion in FY20 from $44.36 billion a year earlier.India currently allows 100% FDI through the automatic route in construction-development projects — townships, residential and commercial buildings, roads, bridges, hotels, resorts, hospitals, educational institutions, recreational facilities and city and regional-level infrastructure. This is subject to conditions such as a three-year lock-in period before the original investment can be repatriated.
“We are studying the policy carefully as the restriction is largely aimed at preventing speculation in the sector,” said another person aware of the matter.
India, however, prohibits FDI in the real estate business or construction of farm houses. FDI in construction development rose to $617 million in FY20 from $213 million in FY19.
As tax collections and divestments are unlikely to pick up, experts said foreign investment is the only way to pump liquidity into the system and kick-start economic activity.
“Industry has been asking for widening the scope of FDI,” said an expert on FDI issues. “Three-year lock-in period is a good enough time for the government to check for any speculation.”
(Source: Times of India)
