Reform in FDI: Ministry of Commerce and Industry

Reform in FDI: Ministry of Commerce and Industry

certain significant relaxations in the FDI regulations applicable to the construction-development sector, which have just been released in a Press Note issued by the Government of India. The key changes are summarized below for your easy reference:-

1.     Conditions on minimum area and minimum capitalization within a period of 6 months have been removed;

2.     Each phase of the construction-development project would be considered as a separate project for FDI policy purposes;

3.     Foreign investor would be permitted to exit and repatriate foreign investment before completion of project under the automatic route, provided lock-in-period of three years is completed for each tranche of foreign investment;

4.     Transfer of stake from one non-resident to another non-resident, without repatriation of investment, will neither be subject to any lock-in period nor to any government approval. Nonetheless, exit is permitted at any time if project or trunk infrastructure is completed before the lock-in period;

5.     Condition of lock-in period will not apply to Hotels & Tourist Resorts, Hospitals, SEZs, Educational Institutions, Old Age Homes and investment by NRIs;

6.     FDI is not permitted in an entity which is engaged or proposes to engage in real estate business, construction of farm houses and trading in transferable development rights. Earning of rent / income on lease of property, not amounting to transfer, will not amount to real estate business;

7.     100% FDI under automatic route is permitted in completed projects for operation and management of townships, malls / shopping complexes and business centers;

8.     Consequent to foreign investment, transfer of ownership and / or control of the investee company from residents to non-residents is also permitted. However, there would be a lock-in-period of three years, calculated with reference to each tranche of FDI, and transfer of immovable property or part thereof is not permitted during this period.

The proposed changes are significant and should trigger a positive effect on the economy (relaxations are proposed for a number of other sectors as well)