New Guidelines for FDI Miss out on the Real Estate Sector

The government on Wednesday issued guidelines on big-ticket changes
to the foreign direct investment norms in the country that were approved
by the Union Cabinet on January 30. It, however, remained silent on
clarifying a change in norms for FDI in real estate, possibly due to
fear of greater capital inflows.

Government sources said the clarification was not mentioned in the
minutes of the Cabinet meeting sent to the Department of Industrial
Policy and Promotion recently. As a consequence, a press note could
not be issued. "It is not clear why the Cabinet has not cleared
the proposal to de-link FDI and FII norms (in real estate)," said
the official.

Interestingly, on the day the Cabinet met to approve the changes, a
plain-paper background note distributed by the government said the Cabinet
had approved a clarification that FII investments would be distinct
from FDI and be outside the purview of press note 2 (2005).

The de-linking provisions were proposed by the DIPP. The DIPP issued
six different press notes (policy notifications by the government) covering
civil aviation and petroleum and gas, besides a few other sectors but
missed out the real estate sector.

The Press Notes Issued so far

The first press note of the 2008 series deals with guidelines for allowing
49 per cent FDI in credit information companies and taking out credit
reference agencies from the list of the NBFC activities where FDI is
allowed.

The second press note deals with guidelines allowing FDI up to 26 per
cent and FII up to 23 per cent in commodity exchanges, subject to no
single investor holding more than 5 per cent.

The third press note in the series is on doing away with the limiting
conditions of press note 2 of 2005 on industrial parks.

The fourth press note is on the relaxation of the FDI cap in the civil
aviation sector, which includes 74 per cent FDI in non-scheduled airlines,
chartered airlines and cargo airlines, 100 per cent FDI in maintenance
and repair organizations, flying training institutes, technical training
institutions, and helicopter services/seaplane services.

The fifth press note is on rationalization of the FDI policy in the
petroleum and natural gas sector.

The new guidelines do away with the condition of compulsory divestment
of up to 26 per cent equity in favor of Indian partner(s)/public within
five years for actual trading and marketing of petroleum products as
well as increases equity cap from 26 per cent to 49 per cent in petroleum
refining by public sector units.

The sixth press note specifies guidelines allowing FDI up to 100 per
cent (with prior government approval) in mining and mineral separation
of titanium-bearing minerals and ores, its value addition, and integrated
activities.

Photo: Howrah Bridge, Calcutta-Kolkata by bWlrZQ==, licensed under CC BY 2.0, via Wikimedia Commons.