FDI Inflows to Construction Activities

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FDI Inflows to Construction Activities has led to a phenomenal growth in the economic life of the country. India has become one of the most prime destinations in terms of construction activities as well as real estate investments.

An Overview of Construction Activities in India-

India has been a major recipient of FDI Inflows in the majority of sectors. There has been an unnerving upsurge in the economic developments of the country. In the post-liberalization era, India is known to have attracted a quantum amount of Foreign Direct Investment, especially after the liberalization of the real estate sector. Real estate is one of the major sectors under construction activities and also it is one of the most booming sectors that has contributed leaps and bounds to the Indian industry.

Openness of Indian Construction Industry to FDI Inflows-

It was during the Union Budget for 2005-06 that the Government of India opened up all gates for foreign direct investment in the construction industry in India. Construction projects which have received the maximum FDI include, housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional level infrastructure. FDI Inflows in the construction industry in India are permissible under automatic route to ensure flexibility in construction activities which will boost the Indian economy. In the real estate sector, the foreign investors are not allowed to sell undeveloped land, such as, lands which do not have proper facilities of roads, water, electricity, drainage and all other basic requirements for inhabitation.

Prerequisites for FDI Inflows in Construction Activities in India-

  • A minimum land area of 10 hectares for the development of services housing plots
  • A minimum built-up area of 50,000 sq. mts for construction-development projects
  • Both the land requirements are applicable for combination projects
  • The wholly owned subsidiaries would have a minimum capitalization of USD 10 million
  • The Joint Venture companies which have Indian collaborations are entitled to USD 5 million
  • The funds should be acquired within six months of commencement of the business of the company
  • A minimum of three years is entitled for repatriation of original investment amount
  • Early exit is permissible only under prior approval of government through Foreign Investment Promotion Board (FIPB)

FDI Inflows to Construction Activities in India-

  • 100 percent Foreign Direct Investment is allowed in the construction industry in India under the Foreign Investment Promotion Board (FIPB)

  • Only non-resident Indians (NRIs) and persons of Indian origin (PIOs) were allowed to invest in the housing and real estate sectors in India

  • Foreign investors other than NRIs were allowed to invest only in the development of integrated townships and settlements. This is done either through a wholly-owned subsidiary or through a joint venture company in India

  • Foreign investors are mandated to construct at least 50,000 square meters within a time frame

  • 50 percent of the project must be accomplished within three years from the date of acquisition of land

Benefits of FDI Inflows in Construction Industry in India-

  • FDI Inflows will improve the quality of construction activities in India which had always been very rough and opaque

  • It will create a property market in India which will be deprived of cash payments

  • Foreign investors prefer to make investments through above-the-board cheques from their clients which has encouraged the economic life of India

  • FDI Inflows has made the financial markets in India fast, transparent, and efficient.

Last Updated on 4/23/2011