Govt defers decision on FDI in realty sector

fdiThe Government of India delayed the decision on soothing Foreign Direct Investment (FDI) guidelines in the real estate sector including easing conditions for exit of the foreign investors before the three year lock-in-period.

It was proposed to amend the current requirement of having minimum 50,000 sq mts of build up area to 20,000 sq mt for FDI in construction projects. The Urban Minister Kamal Nath suggested for the delay of the proposal in front of the cabinet.

The Cabinet had also suggested a minimal capitalization of USD 5 million for both joint venture and wholly owned arm with Indian partners from existing USD 10 million. The note also demanded to decrease the land requirement for housing project from 10 hectares to 5 hectares as there is a shortage of land and the cost is too high.

The foreign investors need to bring their whole amount with in six months of beginning of the project. The start point of the project will be the date on which the approval for building plan is given by the regulatory officials.

At present, 100 pc FDI is allowed trough automatic route which includes development of townships, housing units, commercial premises, hotels, hospitals, educational institution, and regional constructions in the reality sector.

Housing and Real Estate: Telecom negatives present challenges

While recognising the importance of the services sector (it accounts for 59 per cent of gross domestic product), the Economic Survey has raised concern over several components in it. Three months after the government rolled back its decision to allow 51 per cent foreign direct investment (FDI) in multi-brand retail, the survey referred to it as a major challenge before the sector.

FDI in retail could begin in a phased manner in the metros, the survey suggested, a day ahead of the Budget. Though it did not specify the details, experts said the government document hinted at a low FDI cap, perhaps one of 26 per cent. It has also talked of “incentivising” mom-and-pop stores (kirana shops) “to modernise and compete effectively with retail shops, foreign or domestic”.

While agricultural marketing could improve immensely with the growth in modern retail trade, the revenue to the government could also increase. Currently, the retail sector is largely unorganised and has low tax compliance, it argued.

Reacting to the portion in the survey relating to FDI in retail, Purnendu Kumar, senior vice-president (retail), Technopak, said, “This is something similar to what was articulated earlier — issues like better integration with farmers leading to better pricing for them and quality storage leading to lower wastages. It needs to be seen how the government would be able to execute this, considering the Congress party does not account for the majority on its own.” Incentivising small traders was a welcome step, but the details were not available, Kumar said.

Karandeep Singh, chief financial officer, Flipkart, a leading online retail chain, said, “While the future is promising, it will be realised only if the government acts on some of the guidelines provided in the survey.” According to Singh, opening up FDI in retail and continuing to make the infrastructure sector attractive for investments were critical to creating more jobs and having a multiplier impact on the economy.