In a pathbreaking move, the Govern-ment of India has permitted 100% FDI in the construction industry. Earlier, FDI was allowed only with the prior approval of the Foreign Investment Promotion Board (FIPB). FDI will now be allowed through the automatic route in the development of housing and commercial segments like shopping malls, hotels, resorts, hospitals, educational institutions, recreational facilities, urban infrastructure, etc., in order to catalyze investment in a vital infrastructural sector of the economy. The government has also allowed repatriation of profits after a three-year period.
The construction industry plays a very crucial role for the development of an economy. In developed countries, the construction industry accounts for over 6% of the GDP. In the UK, it accounts for 8%, in Ireland 16% and in Dubai it accounts for 11% of the GDP. Though in India it does account for about 6% of the GDP, it is still low given the fact that India is aiming to grow at 8-10% p.a. In China, 30% of the FDI flows into real estate. The opening up of the real estate sector will fuel development and stimulate the economic growth of the country.
Lack of proper infrastructure facilities has been a bottleneck for the development of the economy as a whole. Lack of housing, commercial, industrial, infrastructure facilities such as roads, ports, airports have hindered the growth and development of the economy. Taking the Indian housing sector into consideration, Dr. Susmita Dasgupta, Deputy Chief Economist, Economic Research Unit, Joint Plant Committee, Union Ministry of Steel, Government of India, estimates that the deficit houses in India are 40 million dwelling units. Further, taking that 5 people stay in a house that makes it 200 million people; these people are supposed to be accommodated under their own roof. Dasgupta adds, "This is about 20% of the Indian population. The funds for housing through both the government and private sources can account for only 50% of what is needed to meet the demand for housing. FDI is supposed to cover this gap. Since the gap in the demand for and the supply of housing finance is large, fears that FDI might crowd out domestic investment would not be imminent."
A need to review the earlier FDI norms was hence felt. Since the opening of this sector only, 9 FDI proposals were approved. The minimum requirement area of 100 acres had proved to be a major bottleneck in attracting investments. The FDI norms in the construction sector have been modified to make the sector more construction-centric than land-centric. The government, after allowing for 100% FDI in the housing and construction through the automatic route, has laid down certain norms to be followed. |
