Foreign Direct Investment In Construction Development Sector In India

It is safe to say that the construction/ real estate sector of India is one of the most significant sectors of the country’s economy given its huge multiplier effect on the economy. Any change or impact witnessed by the real estate sector has a direct bearing on economic growth.

Naturally, the sector has plenty of opportunities and has attracted substantial foreign direct investments over the years.

The Reserve Bank of India (RBI) in 2005 notified that the township, housing construction development project sector and built up infrastructure was opened for 100 per cent foreign direct investment with specific terms and conditions.

More recently the RBI further relaxed FDI norms and policies on end-use of funds that are raised through external commercial borrowings. This relaxation granted makes it more attractive for foreign entities including corporates, non-banking finance companies, or individuals to raise comparatively cheaper offshore funds.

In order to further liberalize the ECB framework, it has been decided to relax the end-use restrictions and allow the use of funds for working capital requirements, general corporate purposes and repayment of rupee loans. ECBs which have a minimum average maturity period of 10 years can now be used for working capital purposes and general corporate purposes.

These changes will improve the ease of doing business within the country.

Currently, a 100 per cent foreign direct investment is allowed in construction-development projects, which includes development of townships, construction of commercial and residential premises, roads, or bridges, hotels, hospitals, resorts, educational institutions, recreational facilities, are allowed under the automatic route for approval.

However, foreign direct investment is now permitted