The year 2014 has been a year full of excitement and trill for India as country, especially since the nation saw a major shift in the center leadership resulting from the general elections conducted in April- May this year. Amongst the various issues that the new government laid special emphasis on, the revival of infrastructure growth and construction industry is definitely one of highest priority. From the day one, the new government at the centre has been working towards providing better means and methods for infrastructure and real estate growth across the entire nation. The latest decision of the government to ease the norms for Foreign Direct Investment (FDI) in the construction industry is being seen as a major step taken in this direction.
Getting Familiar With The Changes
The changes that have been introduced in the FDI norms are aimed at boosting the inflow of foreign investment in the real estate sector. The three primary benefits that are in store foreign developers investing in the construction and infrastructure industry in India, are discussed in brief as follows.
Low Minimum Investment And Build Up Area: A major feature of the new policy is the lowering of minimum investment limit from USD10mn to USD 5mn. In addition the government has also reduced the required build-up area from 50,000 sq m to 20,000 sq m. This means that FDI in smaller projects will now be a lot easier and there will also be a greater scope for development within urban clusters unlike the earlier focus on developing projects outside the cities.
Relaxed Lock-in Period: Earlier the foreign developers could retract the invested amount only three years after the completion of minimum capitalization of the project. Under the new norms overseas investors can withdraw from a project just after its completion or even after finishing up the task of providing basic trunk infrastructure including roads, street lights, sewage and water supply etc. For this the foreign investors need to seek the permission of the government.
No Minimal Area For Affordable Housing Projects: For investments projects, where 30% of the costs are reserved for affordable housing, the limitation of minimum area and minimum capital requirement has been done away with. In this case affordable housing projects are those residential projects which have 405 of the units with a carpet area of less than 140sqm and a further 25% of these have less than 60sqm carpet area.
Impact On Real Estate And Infrastructure Sector
The stringent FDI norms that were followed before the government took this strategic decision, have been largely responsible for the poor infrastructure growth and slow pace of real estate development in the country. However, with the recent changes in FDI policy, the government as well as the real estate developers is expecting to see rapid reversal in this trend. With the new norms paving the way for easy inflow of money into the cash strapped construction industry, a sense of new found hope and energy seems to be surging through the entire industry.
It is believed that this step will prove critical in fulfilling the well propagated dream of Prime Minister Narendra Modi to build smart cities and provide affordable housing solutions to the citizens of the country. Moreover, it will also help overcome issues such as paucity of funds and regulatory bottlenecks which have responsible for the stagnant growth of the real estate sector in the past couple of years. Most importantly, the enhanced FDI in the construction industry is expected to raise the level of quality of construction while also providing a great impetus to key manufacturing industries related to this sector, including cement and steel industries.
Benefits For Common People
The one dream cherished by millions of people across the length and breadth of this vast nation is to have home they can call their own. However, over the past couple of years, the crumbling infrastructure along with skyrocketing property prices and minimal to zero real estate development, many people lost hope of ever being able to realize this dream. But with the new changes in the FDI policy, the hope of these very people has been revived as the new norms make it possible for foreign developer to invest even in small projects aimed at providing affordable living solutions.
Apart from reviving the real estate industry from its slump, the policy new policy will also prove helpful in creating countless new jobs. There will also be a scope for improved development in the urban centers where unavailability of large vacant lands for developing new projects has always been a primary concern. Furthermore, it is expected to raise the standard of living of the common citizens by providing means of offering basic infrastructure facilities to them in a developed environment.
Projecting A Better Image of India On The Global Front
The proposed infrastructure and real estate growth that the new FDI policy is expected to bring, will also help in projecting India in a new light on the global front. This is because the quality of real estate and infrastructure development in a nation plays a critical role in creating its image as a strong and powerful nation in the international arena. There is no denying the fact that the current state of the construction Industry in India does not present a very pleasant picture for people outside the country. Once this view is rectified, attracting investors for other sectors will become a lot easier and this in turn will help enhance the overall growth and prosperity of the nation as a whole.
With this single step the government has already started moving in the direction of making India a force to reckon with in the near future. However, both the builders and the local investors need to understand exercise a little patience as like every good policy, these new norms will take some time to show their benefits. But once that happens, the construction industry in India is sure to proceed on the path of unrestricted and consistent growth.