The Indian government led by the Prime Minister, Narendra Modi, has amended the existing foreign direct investment (FDI) policy for the construction development sector in line with the Budget announcement of the government. The amendments approved by Union Cabinet on Wednesday, allows 100% FDI under automatic route in the construction development sector.

The government has also eased the requirements on the amount of land, built-up areas and certain capital requirements for foreign investment in the construction sector. It will now also allow investors to exit on completion of the project or after three years from the date of final investment.

Investors can now bring in minimum FDI of USD 5 million within six months of the project's commencement and the investor can provide the remaining amount of investment committed over 10 years. Further in the case of an investor committing 30% of the capital for low cost housing, the requirements on minimum built-up areas and on exiting the project have been relaxed further.

Also, the government may in certain cases permit repatriation of the investment or transfer a stake from one non-resident investor to another before completion of the project. 

"In our view, the measures are intended to lower the threshold for new investment and facilitate larger FDI inflows in the construction sector, which accounted for about 10% of total FDI inflows in India over the last decade," said Sonal Varma, economist at Nomura Financial Advisory and Securities.

"The measure will aid developers and boost the government's longer-term reform on affordable housing and smart cities. Additionally, this should boost growth in the construction sector, which is critical for India's infrastructure development plans," Varma added.

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