Real Estate Intelligence Service, Tuesday, December 01, 2009

ALMOST AN EIGHTH WONDER

ALMOST AN EIGHTH WONDER
The Economic Times, December 1, 2009, Page 1

7.9% India’s GDP beat all forecasts, showing that the economy is in fine fettle. The big govt dilemma now is when to end stimulus & raise rates. And even as global mkts fluctuated to the impact of the Dubai crisis, Sensex cheered the growth show

Our Bureau NEW DELHI

INDIA’S economy gave yet another indication of its rapidly improving health, prompting greater ambition from policymakers still chary of withdrawing the stimulus medicine responsible for the recovery.

Gross domestic product (GDP) expanded by a surprisingly strong 7.9% during the July-September second quarter, its fastest pace in a year and a half. The growth was driven largely by a pickup in manufacturing, increased government expenditure, robust investments and modest growth in farm output despite the drought, data released on Monday show.

“I am hopeful that if this trend continues, we will have higher GDP growth than anticipated. I hope it will be around 7%,” finance minister Pranab Mukherjee said.

The economy had expanded 6.1% in the first quarter. The growth in the first half of the year is now a respectable 7% as against 7.8% during the same period a year ago. In the fiscal year ended March 2009, the economy grew by 6.7%, its weakest in six years and way below rates of 9% or more in the previous three years.

While the stock market cheered the news with a 294-point rise in the BSE’s benchmark Sensex index, yields firmed up in the bond market on heightened expectations of the RBI hiking interest rates sooner than expected.

But Montek Singh Ahluwalia, deputy chairman of the Planning Commission, was of the view that the troubles that could be induced by high inflation were not a worry now.

“I don’t believe there are serious worries on inflation except food prices. Food prices are a matter of concern, but I don’t think conventional monetary policy will take care of that problem,” he said.

The central bank, too, was guarded in its opinion. Reserve Bank of India (RBI) deputy governor Subir Gokarn said he would not be surprised if growth slowed in the December quarter.

“While it is a recovery and it seems to be gaining strength, we should not ignore the fact that it is still being driven substantially by public spending,” Mr Gokarn told reporters.

In late October, the RBI began its exit from its expansionary monetary policy by withdrawing some liquidity support measures and restoring the proportion of deposits that banks should invest in government bonds to 25% from 24%.

“Surprises in agriculture and industrial output, and our view that the services industry will gradually benefit from the industrial recovery suggests a more broadbased expansion in the current financial year,” said Sonal Varma of Nomura Financial Services, which raised growth projection by one percentage point to 7% after the second-quarter numbers were unveiled.

GDP at 7.9% beats mkt expectation

GDP at 7.9% beats mkt expectation
Business Standard, December 1, 2009, Page 1

BSe Reporters / New Delhi

Stimulus exit looms as Pranab waits for third quarter.

India’s gross domestic product (GDP) grew 7.9 per cent in July-September 2009, up from 6.1 per cent the previous quarter, beating expectations and fuelling speculation that the government might look at exiting stimulus measures.

A revival in domestic demand, especially an increase in private consumption on the back of stimulus measures, saw GDP rising the highest in a quarter since January-March 2008 when it stood at 8.6 per cent. The figure was highest even by the government’s estimates with Finance Minister Pranab Mukherjee raising his own growth prediction for the current year to 7 per cent from 6.5.

“I do hope it will be possible for us to achieve 7 per cent-plus (growth rate), but still it is too early to predict. I will wait for the third quarter figures,” Mukherjee told reporters. Analysts had predicted a lower growth of 6-6.5 per cent for the quarter.

Planning Commission Deputy Chairman Montek Singh Ahluwalia said the figures suggested that the economy was back to its normal growth trajectory.

The growth compares well to 7.7 per cent recorded in the pre-slowdown period of July-September 2008. The domestic economy was worth Rs 17.90 lakh crore in the first half ending September 2009, growing 7 per cent. The half yearly growth though was lower compared to 7.8 per cent in the same period last year.

The sectors that showed significant growth in the second quarter of 2009-10 over last year were mining and quarrying at 9.5 per cent, manufacturing at 9.2 per cent, electricity, gas & water supply at 7.4 per cent, construction at 6.5 per cent, trade, hotels, transport and communication at 8.5 per cent, financing, insurance, real estate and business services at 7.7 per cent, and community, social and personal services at 12.7 per cent. They helped in making up for the less than 1 per cent increase in agriculture output.

“The growth in manufacturing is due to the increased unlocking of investment in the sector and, therefore, recovery is in place,” Pronab Sen, chief statistician and secretary, ministry of statistics and programme implementation, told Business Standard.

The impact of drought is likely to tick in the third quarter figures. Though kharif production is expected to be 15 per cent lower compared to last year, it carried a low weightage of 18 per cent in GDP figures for agriculture, forestry and fishing.

“Therefore, bulk of the estimates of GDP of this sector to the extent of 82 per cent in Q2 are based on the anticipated production of fruits and vegetables, other crops, livestock products, forestry and fisheries, which are estimated to register positive growth rates in the range of 3-4 per cent,” said a government press note.

Sen said the third quarter would be critical as the agriculture GDP would turn negative. Analysts doubt whether the show would be repeated in the third and fourth quarters. Ramaya Suryanarayanan, economist, DBS Bank, expressed doubts on the agriculture GDP. “If it is this good, why are food prices rising so fast? It is not clear if it is a sign of aggregate demand pressures or a sign that the GDP data may have to be revised lower. The data appears unsustainable,” she said, adding that 2009-10 could clock 6.7 per cent growth with year-on-year growth slowing to 6.4 per cent in the next two quarters.”

Improved growth and rising inflation have led to concerns among industry whether the Reserve Bank of India (RBI) and the government would start withdrawing stimulus measures undertaken to combat global downturn. Ahluwalia said traditional monetary tools of RBI might not be effective in curbing food inflation. Food inflation had already crossed 15 per cent during the second week of November.

Experts are not sure whether the growth in demand could be sustained without the stimulus. “The timing of the rollback of stimulus measure would be crucial. I think RBI will consider raising rates and gradually start the rollback process,” said DK Joshi, principal economist, CRISIL. According to J Moses Harding, head of global markets, IndusInd Bank, external pressures called for delay in unwinding of stimulus and a status quo on interest rates for some more time.

Even within the government, a wait-and-watch approach is preferred. “I do not think it is the right time to withdraw stimulus measures because the third quarter GDP will be the deciding factor,” said Sen.

Tax cuts and increased liquidity had improved consumer confidence and pushed up demand. “The composition of demand-side GDP, which rose 6.7 per cent in the July-September quarter suggests that private demand bottomed out in the previous quarter and is picking up,” said Sonal Verma, economist, Nomura Financial Advisory and Securities. Government consumption rose 26.9 per cent, largely due to the pay arrears, contributing 2.2 percentage points (pp) to real GDP growth.

Fixed investment rose 7.3 per cent from 4.2 per cent in the previous quarter, which Verma said reflected increased traction in ongoing investment projects due to better availability of financing. Private consumption and fixed investment together contributed 5.6 percentage points to 6.7 per cent real GDP growth, compared to 2.3 percentage points in the previous quarter, suggesting that a recovery in private demand is well underway.

“Finally, net exports contributed a hefty 6.1 percentage points to real GDP growth, as imports dropped more than exports, while the change in inventories surprisingly fell by 45.4 per cent year-on-year in the July-September quarter versus a 3.2 per cent rise in the previous quarter on destocking,” Verma added.

Stimulus-fed Q2 growth nears 8%

Stimulus-fed Q2 growth nears 8%
The Financial Express, December 01, 2009, Page 1

fe Bureau, New Delhi

India’s economy grew at a healthy 7.9% in the second quarter of this fiscal on the back of government stimulus spending, sturdy manufacturing and services sectors and better-than-expected farm output. The faster GDP expansion caught all forecasters by surprise, but some warned that growth could moderate in the current quarter, reflecting a decline in farm output due to the weak monsoon.

The UPA's economy managers reacted optimistically, setting their sights on achieving 7% growth for the entire year. Even as there was no official word on the withdrawal of fiscal and monetary expansion, analysts expect RBI to tighten cash conditions in the coming months, with some predicting a hike in policy rates as early as in January.

July-September growth over the year earlier is also the fastest rise in the last six quarters, and much above the 6.3% market forecast, data released by the Central Statistical Organisation showed on Monday.

This takes first-half GDP growth to 7%, brightening the prospects of a stronger and quicker recovery. The government and RBI on Monday indicated that an upward revision of the entire year’s growth projections might be warranted. RBI projected 6% growth this year; the Planning Commission pegged it at 6.3%, while the Prime Minister’s Economic Advisory Council anticipated 6.5%.

“Taken together—the two quarters—I do hope it will be possible for us to achieve 7%. But it is still too early to predict. I will wait for the third-quarter figures,” finance minister Pranab Mukherjee said. Mukherjee could articulate his fiscal policy exit plan in the upcoming Union Budget, with a renewed focus on expenditure cuts, analysts said.

“This performance does suggest that there may well have to be an upward revision in GDP growth from the 6.5% projected so far,” Planning Commission deputy chairman Montek Singh Ahluwalia said.

Equity markets reacted positively to the GDP data. The BSE Sensex ended 1.77% up at 16,926.22 points in a broad rally that saw Asian indices gaining over 3% on Monday, rebounding from the impact of the Dubai debt crisis.

“Clearly, this is better than we could have expected and we will have to review the forecast for the year as a whole,” RBI deputy governor Subir Gokarn said of the Q2 growth figures. He, however, hastened to add, “We shouldn't ignore that it is still being driven substantially by public spending. A recovery will only be sustained if private sector investment and exports start to stabilise,” he said.

EAC chairman C Rangarajan projected the fiscal policy stance to continue in the current fiscal, while RBI would turn its focus on inflation. WPI-based inflation stood at 1.34% in October, even as food inflation crossed 15% in the second week of November.
A significant factor in the Q2 growth figures is the smart pick-up in consumption and investment growth. Consumption in Q2 FY10 grew at 8.4%, up from 2.8% the previous quarter, with private consumption growing at 5.6% from 1.6%. Public consumption was up 27%, as the government continued its large spending. Growth in fixed capital formation--a proxy for investment growth--rose to 7.3% in Q2 FY10 from 4.2% in the previous quarter.

This corroborates the fact that the stimulus measures are actually translating into consumption and investment growth--the two main drivers that pushed India’s growth to above 9% in the three years ended March 2008. However, it also highlights a danger that an early rollback of expansionary policies could potentially derail the recovery.

The services sectors lead the chart with second-quarter growth of 9.3%, followed by industry at 8.3% and agriculture & allied activities at 0.9%. Within industry, manufacturing was up 9.2%, mining & quarrying up 9.5%, electricity up 7.4% and construction up 6.5%. The mining and electricity components jumped mainly due to the commencement of the Cairn India facilities, as well as Reliance Industries’ K-G gas basin, Citi India economist Rohini Malkani said. “The most encouraging data point is the 9% rise in non-farm GDP,” Malkani said.

Among services, trade, transport & communications was up 8.5%, while community services was up 12.7%, largely on account of the pay arrears. Financing & insurance was the only component that posted moderate growth in the current quarter.

The stronger growth numbers raised concerns RBI could hike policy rates, even as industry expects continuation of the benign interest rate regime. “We believe the recovery in activity will make the rupee stronger and expect RBI to start hiking rates in January,” said Goldman Sachs India VP & chief economist Tushar Poddar.

“It would be important for RBI to maintain policy rates at the current levels in order to prevent the growth momentum from slackening,” said CII director-general Chandrajit Banerjee.

Markets up on GDP numbers, easing Dubai debt concerns

Markets up on GDP numbers, easing Dubai debt concerns
Business Standard, December 1, 2009, Section II, Page 1

BS Reporter / Mumbai

The stock markets rose sharply on Monday on the back of strong gross domestic product (GDP) numbers and firm global cues. The Sensex closed at 16,926, higher by 294 points, and the Nifty re-gained the 5,000 mark to close at 5,026, up 84 points, on a steady day of trade. The Sensex had surpassed the 17,000 mark (17,096) in intra-day trades.

The gain helped Sensex end November up 6.5 per cent, erasing most of a 7.2 per cent fall in October, which was its weakest monthly performance in 2009.

The economy grew 7.9 per cent in the second quarter of this financial year, up from 6.1 per cent in the previous quarter, due to good show by industry and services.

The manufacturing sector grew 9.2 per cent as against 5.1 per cent a year earlier. Financing, insurance, real estate and business services rose 7.7 per cent as against 6.4 per cent a year ago.

The Planning Commission said the GDP projections for 2009-10 might have to be revised upward. And Finance Minister Pranab Mukherjee expressed confidence that the economy would grow over 7 per cent in this financial year.

Global markets were rattled last week after the government in Dubai, part of the UAE, sought a debt rescheduling for flagship conglomerate Dubai World. Banks around the world issued denials about being heavily exposed to Dubai debt.

Banks climbed as most of them were not likely to see a material impact from Dubai’s debt woes. Top private lender ICICI Bank climbed 1.5 per cent while smaller rival HDFC Bank rose 0.5 per cent.

“The GDP data positively surprised the market. Also, the realisation that we will not be really hurt by the Dubai crisis helped,” said Rajen Shah, chief investment officer at Angel Broking.

World equities generally steadied on Monday as the United Arab Emirates shored up its banks after last week’s shock.

“Though the market is more than fairly priced, liquidity flow will continue to help the market,” said Shah.

The main index has rallied more than 75 per cent in 2009, fuelled by foreign funds in excess of $15 billion.

IT bellwether Infosys Technologies rose 2.4 per cent after falling 4.3 per cent in the past two sessions, and larger rival Tata Consultancy climbed 2.3 per cent, after declining 4.5 per cent over Thursday and Friday.

“IT stocks had fallen a lot last last week. Since the sector outlook is positive, it led to some bottom-fishing in counters like Infosys and TCS,” said KK Mital, head of portfolio management services at Globe Capital.

Dealers said there was also fund buying in the telecom sector, whose shares have fallen sharply in recent months due to a pricing war.

Other leading Sensex gainers were Bharti Airtel (up 5.6 per cent to Rs 2,990, Tata Steel (up 5.6 per cent to Rs 575) and Jaiprakash Associates (up 5.2 per cent to Rs 225). Tata Motors and Hindalco gained between 3 per cent and 4 per cent each.

The top losers were Hero Honda (down 1.4 per cent to Rs 1,720), Maruti (down 0.5 per cent to Rs 1,555) and SBI (down 0.1 per cent at Rs 2,238).

The market breath was strong. Of the 2,824 stocks traded on the BSE, there were 2,017 advances as against 733 declines.

Deven Choksey, managing director, KR Choksey, said, “Monday’s upmove was a result of various factors, including short-covering, new money, easing Dubai fears and good GDP numbers. The possibility of a weaker dollar, post the Dubai turmoil, should attract more money into the Indian markets. The Nifty is likely to trade in the range of 4,800-5,155 in December.”

Dubai ruins to hurt rich NRIs

Dubai ruins to hurt rich NRIs
The Economic Times, December 1, 2009, Page 1

Shailesh Menon MUMBAI

THE leveraged asset purchases of Dubai-based wealthy non-resident Indians (NRIs) in the last few years may begin to haunt them as the collapse of real estate prices in the emirate prompts calls for additional funds as margins, which may force them to sell some Indian assets too, according to experts.

“Indian HNIs (high net worth individuals) made good use of easy credit lines in the past two years,” said Dubai-based JRG International Brokerage CEO PK Sajitkumar.

“They even made investments using leveraged money, investing in India-focused funds, buying freehold property and buying into Indian shares through participatory notes,” he said.

“The situation is now so bad that many of these people will have to sell their leveraged assets, maybe at a loss, to meet margin calls or retire debt,” added Mr Sajitkumar.

The slide of real estate and other asset prices in the Middle East has begun to accelerate after Dubai World, the government-backed conglomerate, last week sought a moratorium on debts of about $59 billion.

This has led to lenders seeking additional collateral for assets funded till date. Those who are unable to deposit more funds with the banks are forced to sell assets, including Indian stocks, or even think of selling Indian real estate assets.

The fall in Dubai real estate prices has gained momentum over the past two weeks, with rates going back to pre-2006 rates.

Dubai won’t back World debt

Dubai won’t back World debt
The Economic Times, December 1, 2009, Page 8

Big Setback For Group’s Creditors

DEBT TRAP: WITH ITS DREAM OF BECOMING A GLOBAL FINANCIAL HUB ON HOLD, THE ‘UPSTART’ EMIRATE MAY HAVE TO GIVE UP A LOT OF ITS ‘INDEPENDENCE’ TO GET ABU DHABI TO BAIL IT OUT

Rania Oteify and Tamara Walid DUBAI

THE Dubai government disclaimed responsibility for the debts of Dubai World on Monday, dealing a blow to creditors’ assumptions that the Arab emirate would guarantee the conglomerate’s liabilities. “Creditors need to take part of the responsibility for their decision to lend to the companies,” said Abdulrahman al-Saleh, director general of Dubai’s department of finance. “They think Dubai World is part of the government, which is not correct.”

United Arab Emirates stocks plunged on Monday as investors waited for clarity on Dubai’s request for a delay until May 2010 on repaying billions of dollars in debt issued by Dubai World and its Nakheel unit, developer of three distinctive palmshaped islands in the emirate.

Saleh’s remarks in an Arabic-language interview to Dubai TV, a station owned by the ruler of Dubai, came after UAE markets closed.

“They have confirmed there is going to be a restructuring and are doing what they can to differentiate between the government and companies,” said Mohieddine Kronfol, managing director at Algebra Capital.

“It doesn’t take away from the fact that you have a major potential event that is unravelling. People’s expectations aren’t going to be met with this announcement.”

Pledges of financial support have come from the UAE’s central bank, helping to steady global markets.

The central bank promised additional liquidity to local banks and an official in Dubai’s oil-exporting neighbour Abu Dhabi said on Sunday it would offer selective support to Dubai firms.

But Michael Ganske, head of emerging market research at Commerzbank in London, said a default, which could ultimately benefit the region, “is becoming more likely”.

“At the end of the day it should be positive for Dubai, Dubai’s sovereign risk should go down,” he said.

Dubai World — which had $59 billion of liabilities as of August — shocked investors last week with news of the standstill request while it restructures, along with its property developer Nakheel. The agreement would affect about $5.7 billion of debt due to mature before the end of May.

Nakheel earlier on Monday asked for three of its Islamic bonds, worth a total of $5.25 billion, to be suspended on Nasdaq Dubai until it was in a position to “fully inform the market”.

Saleh made clear on Monday that while the government owned Dubai World, the conglomerate had long operated as a standalone entity and was never guaranteed by the emirate’s government.

“It deals with all parties on this basis and it borrows based on...its projects and not the guarantee of the government,” Saleh said. When contacted by Reuters and asked whether Dubai could still repay its Nakheel bond, Saleh declined to comment.

Dubai World Chairman Sultan Ahmed Bin Sulayem also declined to comment on Monday.

Other Dubai World officials could not immediately be reached. John Sfakianakis, chief economist at Banque Saudi Fransi-Credit Agricole Group, said the distinction between the Dubai government and the flagship company appeared minimal. — Reuters

Nakheel seeks suspension of trading its bonds

Nakheel seeks suspension of trading its bonds
The Hindu Business Line, December 1, 2009, Page 2

Gujarat appoints consultant for HCC's water front city project

Gujarat appoints consultant for HCC's water front city project
The Hindu Business Line, December 1, 2009, Page 17

--------------------------------------------------------------------------------
HCC had shortlisted three foreign-based town planners for the project after the company signed an MoU with the State Government at the Vibrant Gujarat Global Investors' Summit in January.
--------------------------------------------------------------------------------

Virendra Pandit, Ahmedabad

The Gujarat Government has appointed a consultant for the preparation of a development plan for the Rs 40,000-crore water front city project proposed by infrastructure and engineering major Hindustan Construction Company Ltd (HCC) at Dholera in Ahmedabad district.

Earlier this year, HCC had shortlisted three foreign-based town planners for the project after the company signed an MoU with the State Government at the Vibrant Gujarat Global Investors' Summit in January 2009. HCC was in the process of finalising a Concept Development Report for the water front city and have requested details of location and infrastructure being proposed in Dholera Special Investment Region (SIR), a company official told Business Line.

The State Government, through its nodal agency, Gujarat Industrial Development Board (GIDB), has appointed Halcrow Consulting India Pvt Ltd for the development plan preparation for the project off the Gulf of Cambay.

GIDB has also appointed various consultants for water, power and seismological studies necessary for finalisation of the development plan which is likely to be completed in the next three to four months.GIDB would conduct a final presentation of the development plan for the anchor tenants in the first or second quarter of 2010 and would propose alternatives for locations. The nodal agency is also finalising the land acquisition strategy.

Three projects

HCC is in the process of finalising strategy for one of the three water pipeline projects for which it had signed MoU during the Vibrant Gujarat, with a total investment of Rs 1,500 crore.

Recently, HCC had been awarded a Rs 167.67 crore contract for water supply scheme by Gujarat Water Infrastructure Ltd.

It is an EPC contract for pumped water supply scheme and will be completed in 18 months. In this scheme, water will be drawn from Narmada Main Canal and carried through a 62.28-km-long pipeline for supplying water to over 100 villages in Amreli and Junagarh districts.

Slum rehab: DDA jumps gun on 2nd scheme

Slum rehab: DDA jumps gun on 2nd scheme
The Times of India, December 1, 2009, Page 5

Rumu Banerjee, TNN

NEW DELHI: Barely a month after problems erupted over rehabilitation of slum-dwellers as part of the in-situ development scheme of the Delhi Development Authority, the land agency is planning to launch yet another such cluster deal. It has already identified slum clusters in Rohini, Keshopur and Ashok Nagar where it wants the next project to take off.

Interestingly, the first such project in Katputli colony near Shadipur depot in west Delhi, has been in the eye of a storm, with locals opposing the temporary relocation of slum dwellers from the colony to their area. Earlier, DDA had proposed relocating the residents of Katputli colony to Swatantra Bharat Mills, an area near the colony, but later decided to shift them to Basai Darapur. The residents of nearby colonies had objected to the move, forcing the land agency to defer the relocation barely a month after the decision was taken. The project was awarded to Raheja Builders earlier in October for a bid amount of Rs 6.11 crore.

However, its experiences with the Katputli colony project doesn't seem to have fazed the land agency. DDA is now proposing to go ahead with its next group of slum clusters. Sources said either of the clusters identified Keshopur, Rohini or Ashok Nagar, would be set up for in-situ development "soon''. Said a senior DDA official, "Though the first project took some time to take off, we are hoping that finding bidders for the second one will not take time.''

The site includes Keshopur, where 500-odd units are set to come up. Followed by Block E and F, Sector 18, Rohini. Here, over 1,200 dwelling units will be built. In the last site, sources say the DDA may not relocate residents during construction. There is a vacant DDA land next to the slum cluster, and the towers would be constructed on this land, the official said. The fourth colony is proposed in Jailorwala Bagh, near Ashok Vihar in northwest Delhi.

Under the in-situ development project, DDA hopes to rehabilitate 50,000 slum units at 21 sites all over the city. In the scheme, the successful bidder and builder would be allowed to dispose off a percentage of the building area for commercial purposes for remuneration. Fifty per cent of the site is to be used to rehabilitate the slum dwellers.

Free real estate FDI from lock-in periods

Free real estate FDI from lock-in periods
The Financial Express, December 1, 2009, Page 7

Satvik Varma

Foreign investment in the real estate sector may potentially no longer be subject to the statutory three year lock-in period. It is believed that the department of industrial policy & promotion, ministry of commerce & industry, recently circulated a draft note for consideration of the Cabinet Committee on Economic Affairs, where it has proposed to remove the condition of minimum period for repatriation of the original foreign investment.

Under FDI policy as on date, 100% foreign investment, without government approval (automatic route), is permitted in townships, housing, built-up infrastructure and construction-development projects. Regulated by Press Note 2 (2005), these investments are subject to certain minimum capitalisation norms and conditions prescribing the minimum area to be developed. Press Note 2 also stipulates that the original investment cannot be repatriated before a period of three years from completion of the minimum capitalisation, except with prior government approval. It is pertinent to highlight that investments in SEZs, hotels and hospitals are exempt from all, including inter alia, the investment conditions, as stipulated in Press Note 2.

The instant recommendation appears to be in keeping with the government’s ongoing process to liberalise the FDI regime in India. The original restrictions on repatriation must have been a cautionary measure, intended to prevent speculative investments in the real estate sector. However, this sector has, for some time now, been feeling the pressures of the global economic crisis and has desperately been in need of greater capital and liquidity to fund its existing projects and growth. Thus, the change, if it were approved and eventually implemented, will undoubtedly be a positive development for the realty sector. But what should also be noted is that, greater foreign investments in this sector will also enhance overall employment opportunities and generate greater domestic economic activity.

Some debate appears to be already doing the rounds on whether these norms will be eased with retrospective effect or whether they will only be prospective. Although it would be highly unlikely for them to be retrospective, if and when the government finally decides to do away with the lock-in, it would be helpful that the policy clearly detail the government’s intention vis-à-vis existing investments. Discussions are also ongoing on whether the proposed relaxation will result in a fluctuation of realty stocks and thus lead to market volatility. While some of this may be true in the short term, in the long term it is safe to assume that market dynamics will take over.

Additionally, typically greenfield real estate projects have a time horizon of three to five years from start to finish. Hence, if concerns are raised that the three year lock-in was in fact beneficial for the realty sector, then the foreign investor and domestic realtor are always at liberty to contractually agree with one another to a lock-in. Further, if Indian real estate companies fear that removing the lock-in may lead to the foreign investors jumping from one real estate investment to another, then again the parties can contractually agree to certain limited non-compete obligations with one another.

In conclusion, less restrictions on foreign investments always help investor sentiment, a fact that finds support from economic data. The UPA-II government appears to be taking note of such evidence and it is heartening that Prime Minister Manmohan Singh, while interacting with Indo-American businessmen in Washington last week, affirmed his government’s commitment to facilitate foreign investment in India and to pursue keen reform measures. In a similar vein, it would be helpful if the government also clarified the ambiguity (whether justified or otherwise) around some other Press Notes released earlier this year since that would provide greater fillip to foreign direct investments in India.

—The author is a partner-designate at Amarchand Mangaldas, New Delhi. Views are personal