Realtors may divert surplus FDI via makeshift window
The Economic Times, February 19, 2009, Page 7
PROPOSED NORM IGNORES END-USE RESTRICTIONS, NULLIFIES FDI CONDITIONS
Rajat Guha NEW DELHI
IN A move to help the cash-strapped real estate sector, the commerce and industry ministry is likely to waive enduse restrictions and allow realty developers to divert surplus foreign direct investment to real estate projects where it was not allowed so far. According to the norms, FDI is allowed only in projects with a minimum investment of $10 million (in wholly-owned subsidiaries) or $5 million in joint ventures, and which has a minimum area of 10 hectares.
As per the proposal, which will require a Cabinet approval before being implemented, a real estate company which has brought in FDI in a project meeting the mandated conditions can now use the surplus funds in another project which may not meet the prescribed conditions. For example, a realty company that has raised FDI for a township in Faridabad which meets the minimum capitalisation and minimum area norms may now use a part of the surplus funds for a project in Gurgaon which may not have got a clearance from Foreign Investment Promotion Board (FIPB). Put simply, while the new norm does away with the end-use restrictions, it also nullifies the mandatory meeting of conditions for using FDI.
In the last FIPB meeting, the board deliberated that in view of the difficulties being faced by the real estate sector, some leeway is required, even if for a temporary period.
“We will soon issue the guidelines to be followed in case of requests for receiving FDI by realty companies engaged in various projects, not all of which are FDI-compliant as per Press Note 2 of 2005,” a senior official directly dealing with the new policy told ET. He asked not to be identified. The official added that the relief would be extended to the realty sector for a temporary period with an in-built sunset clause.
Interestingly, this comes even as the government had recently stepped up vigilance against companies channelling FDI money to projects that had not received FIPB clearance. While examining real estate company Keystone’s proposal in a meeting held in January, the board had asked the department of industrial policy and promotion (Dipp) to set up a monitoring cell to track FDI inflows into non-FDI compliant projects under the veil of FDI. The board was apprehensive that in such cases, there could be a possibility of funds getting diverted to projects that had not been cleared by FIPB.
In fact, Dipp has prepared a draft Press Note on guidelines on induction of FDI into Indian real estate companies with both FDI-compliant and non-FDI-compliant projects, where FDI is required to flow into FDI compliant projects only. Officials say this would be the fourth PN to be issued by the present government before the polls.
The Economic Times, February 19, 2009, Page 7
PROPOSED NORM IGNORES END-USE RESTRICTIONS, NULLIFIES FDI CONDITIONS
Rajat Guha NEW DELHI
IN A move to help the cash-strapped real estate sector, the commerce and industry ministry is likely to waive enduse restrictions and allow realty developers to divert surplus foreign direct investment to real estate projects where it was not allowed so far. According to the norms, FDI is allowed only in projects with a minimum investment of $10 million (in wholly-owned subsidiaries) or $5 million in joint ventures, and which has a minimum area of 10 hectares.
As per the proposal, which will require a Cabinet approval before being implemented, a real estate company which has brought in FDI in a project meeting the mandated conditions can now use the surplus funds in another project which may not meet the prescribed conditions. For example, a realty company that has raised FDI for a township in Faridabad which meets the minimum capitalisation and minimum area norms may now use a part of the surplus funds for a project in Gurgaon which may not have got a clearance from Foreign Investment Promotion Board (FIPB). Put simply, while the new norm does away with the end-use restrictions, it also nullifies the mandatory meeting of conditions for using FDI.
In the last FIPB meeting, the board deliberated that in view of the difficulties being faced by the real estate sector, some leeway is required, even if for a temporary period.
“We will soon issue the guidelines to be followed in case of requests for receiving FDI by realty companies engaged in various projects, not all of which are FDI-compliant as per Press Note 2 of 2005,” a senior official directly dealing with the new policy told ET. He asked not to be identified. The official added that the relief would be extended to the realty sector for a temporary period with an in-built sunset clause.
Interestingly, this comes even as the government had recently stepped up vigilance against companies channelling FDI money to projects that had not received FIPB clearance. While examining real estate company Keystone’s proposal in a meeting held in January, the board had asked the department of industrial policy and promotion (Dipp) to set up a monitoring cell to track FDI inflows into non-FDI compliant projects under the veil of FDI. The board was apprehensive that in such cases, there could be a possibility of funds getting diverted to projects that had not been cleared by FIPB.
In fact, Dipp has prepared a draft Press Note on guidelines on induction of FDI into Indian real estate companies with both FDI-compliant and non-FDI-compliant projects, where FDI is required to flow into FDI compliant projects only. Officials say this would be the fourth PN to be issued by the present government before the polls.
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