22 October 2019

Infratrack

Development boost

 

A revised directive has been issued by the government relaxing FDI norms for the construction sector

Finally there is much for the construction and infrastructure to exult upon. The Department of Industrial Policy and Promotion (DIPP), which falls under the Union Ministry of Commerce and Industry, has issued a revised directive - Press Note 10 of 2014 - which eases Foreign Direct Investment norms for the construction industry. This is expected to encourage investments which have over the years witnessed a reduction. 

 

Under the new directives 100 per cent Foreign Direct Investment will be allowed in construction of projects such as townships, residential and commercial premises, roads, bridges, hotels, resorts, hospitals, educational institutions, recreation facilities, city and regional infrastructure. It is reported such projects will get approval through the automatic route with immediate effect.

 

 

CONDITIONALITIES

For eligibility for FDI, the minimum land available for development of serviced housing should be 10 hectares. The minimum built up area will be to the extent of 50,000 sq metres in the case of construction development projects and in case where it is a combination either of the two conditions will suffice.. While the minimum capitalisation for wholly owned subsidiaries has been set at $10 million for joint ventures with Indian partners it has been fixed at $5 million. 

 

As part of the terms laid out funds would have to be brought within six months of commencement of the company’s business and repatriation of original investment is restricted before three years of completion of minimum capitalisation.  Investors are however permitted to exit before the lock in period of three years with prior approval of the government through the FIPB route. It is stipulated further that not less than 50 per cent of the project requires to be developed within a period of five years from the date of obtaining all statutory clearances. The investor firm will not be permitted to dispose off plots without a completion certificate from the local body which declares that infrastructure conveniences like roads, water supply, street lighting, drainage etc have been made available. It is mandatory that the project conform to the norms and standards including land use requirements and provision of community amenities and common facilities as stipulated under building control rules and regulations laid out by the state.  It is reported a project using at least 40 per cent of the floor space index for dwelling unit of floor area of not more than 140 square metre will be considered as affordable housing project for the purpose of FDI policy in construction Out of the total FSI reserved for affordable housing, at least one-fourth should be for houses of floor area of not more than 60 square meter. FDI will not be allowed in an entity which is engaged, or proposes to, in real estate business, construction of farm houses and trading in transferable development rights (TDRs)

 

Restrictions regarding land area, period of construction and repatriation of capital will not apply to the construction of hotels and tourism infrastructure, hospitals, educational institutions, old age homes, and special economic zones.  Investors will have to bear the burden of obtaining all necessary approvals, including those related to building and layout plans, developing internal and peripheral infrastructure, payment of development charges and compliance with requirements under the extant rules and regulations.

 

 

ENVIRONMENTAL DOWNSIDE

 

The recent FDI directive is an added boost to the measures taken up by the Narendra Modi government in respect of exempting infrastructure projects from environmental clearances. However there are other grey zones in government policy which need to be addressed. For example, to give boost to the development of urban townships the authorities have toned down the Environment Impact Assessment Notification of 2006 thus exempting several categories of buildings and construction projects from obtaining environmental clearances. As per the draft notification it has been made mandatory only for residential buildings, commercial structures, hotels, hospitals, hostels, office blocks, IT parks and software development units with a built-up area more than or equalling 20,000 sq m but less than 150,000 sq m to be assessed for their impact on the environment. Critics point to the fact that the draft notification is based on the premise that only certain structures can negatively impact on the environment whereas other buildings like educational institutions, sporting infrastructure like stadiums, religious buildings like temples and mosques, industrial units like factories – not falling in the ambit of the 2006 notification – and public utilities like bus depots and metro stations will not have a debilitating effect on the environment. It is being pointed out that structures like barrages, bridges and embankments on rivers, not to mention developments on the railways sector, too have an impact on the environment and remain unaddressed.

 

 

CONCLUSION

 

Admittedly, while the new norms which removes anomalies like minimum lock in period will serve to bring in enhanced inflow of foreign funds in the much needed infrastructure development – which includes construction of smart townships, hospitals and hotels, and lead to a filling up of the national gap in the area of affordable housing – they do not address the issue of how projects undertaken under the earlier policy will be treated.




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