DIPP clarifies on construction sector FDI policy
14 March 2015
The Department of Industrial Policy and Promotion (DIPP) has clarified on the minimum capitalisation and exit clauses related to foreign direct investment in the construction sector, in a bid to bring in greater policy precision.
In a clarification issued on Friday, DIPP has specified that the minimum capitalisation norm for FDI in construction is project-specific and not company-specific.
A minimum capitalisation of $5 million has to be achieved within six months of commencement of a project before bringing in fresh capital, DIPP clarified.
No new FDI can be brought in the project if the minimum capitalisation of $5 million is not achieved within six months of commencement of the project. If the minimum capitalisation is achieved within the stipulated time, FDI can be brought in till the period of 10 years or till the completion of the project, whichever is earlier.
The reckoning date for this would be the commencement of the project, which is the date of approval of the building plan / layout plan by the relevant statutory authority.
The DIPP note, however, fails to clarify on other local approvals, which, it merely stated, ''are just addendum / modification to the first approval.''
An investor may be permitted to exit a project with FIPB approval on case-to-case basis even before completion of the project or development of trunk infrastructure.
In case of residential / commercial projects, such exits would be allowed only after the completion of the project. However, in case if "trunk" infrastructure of any project, which is defined as development of roads, water supply, street lighting, drainage and sewerage, is developed first, the investor is automatically permitted to exit thereafter.
For proof of completion of a project infrastructure, the investor has to produce a certificate from an architect registered with the Council of Architecture certifying the completion of development of trunk infrastructure.
Exit will be permitted on completion of the project or after development of trunk infrastructure, whichever is earlier.
In case a non-resident investor wants to transfer stake in a project to a non-resident entity before completion of the project or before completion of trunk infrastructure, it has to be done only through the FIPB route.
Business centre includes where multiplicity of businesses of same or different nature are being carried out from a particular building.
The new FDI policy mandates exit on the completion of the project or completion of trunk infrastructure. If the unused land is part of the project and trunk infrastructure has not been developed, then exit can take place with prior approval of FIPB.
FDI is permitted in completed projects for operation and management of townships, malls/ shopping complexes and business centres as long as they do not get into the realm of real estate business.
`Real estate business' includes dealing in land and immovable property with a view to earning profit or earning income therefrom and does not include development of townships, construction of residential/ commercial premises, roads or bridges, educational institutions, recreational facilities, city and regional level infrastructure, townships.
DIPP said the new FDI policy, which provides for a more liberal FDI regime in the construction sector, supersedes the earlier FDI policy on Construction Development sector contained in the FDI Policy Circular of 2014.