Govt may ease curbs on FDI to buy farms for construction projects

The government is having fresh thinking on allowing foreign direct investment (FDI) for purchase of agricultural land for construction projects.

An inter-ministerial group comprising the ministries of finance, commerce and industry and urban development are likely to meet to examine the matter in the light of Foreign Exchange Management Act (FEMA) regulations and see if they can be incorporated in the amended FDI policy for the construction sector, reports quoting official sources said today.

At present, the government only allows 100 per cent foreign direct investment under the automatic route in construction of storage and warehousing facilities, including warehousing of agriculture products with refrigeration (cold storage) and not any other construction projects.

The National Centre for Cold Chain Development (NCCD) has been established as an autonomous body and registered as a society under the Societies Registration Act 1860.

There has been difference of opinion among the various ministries over allowing FDI in purchase of agricultural land for construction with the finance ministry warning that use of foreign money to purchase agricultural land for non-agricultural use may be in violation of FEMA provisions.

The cabinet, meanwhile, has deferred decision on a proposal to relax FDI guidelines for the construction sector as there was no unanimity among the ministries and departments on the issue of including farm land in construction FDI.

The urban development ministry wanted the ambiguity on the legality of using FDI for purchasing farm lands for construction be removed by incorporating it in the FDI policy.

The finance ministry's fears, however, are not unfounded as can be seen the Enforcement Directorate's notice to realty giant Emaar MGF earlier this year for a Rs8,600-crore fine for diverting FDI money to buy agricultural land in violation of FEMA and FDI rules.

The proposed amendment also aims at making construction projects attractive to foreign investors by bringing down the minimum area and capital requirement for serviced housing plots.