DELHI: The urban development ministry is pushing for retrospective application of a significant change proposed in the foreign direct investment (FDI) policy for construction sector, which will allow foreign investors to purchase farm land in India.
The Department of Industrial Policy and Promotion (DIPP) has proposed to relax the FDI rules for construction and housing.
It has recommended a company owned and controlled by an Indian and having foreign investment could directly buy agricultural land from farmers. However, a company controlled by a non-resident will be able to buy such land only after it is converted to non-agricultural land.
The urban development ministry wants this provision to be available retrospectively. The DIPP is in the process of floating a note for the consideration of the cabinet.
DIPP, the nodal body for FDI policy, feels changes under the Foreign Exchanges Management Act (FEMA) can only be done on a prospective basis.
DIPP says it is up to the finance ministry to decide whether to consider the urban development ministry's suggestion.
"FDI in land as such is not a part of FDI policy; it is purely a FEMA issue. If it has to be done retrospectively, then the provision has to be built into the law. It will be a call of the finance ministry," said a senior DIPP official.
A retrospective application will benefit real estate major Emaar MGF, which was issued a Rs 8,600-crore showcause notice last year by the Enforcement Directorate (ED) for alleged diversion of FDI funds to buy agricultural land in violation of FEMA.
Emaar MGF is a joint venture between Emaar Properties of the UAE and MGF Developments Limited of India.
As per the ED investigations, almost 70% of Emaar MGF's land bank was agricultural land, which is about 8,500 acre, which is said to be allegedly bought by FDI money.
The retrospective change will essentially regularise purchase of agriculture land using foreign investment.
The urban development ministry wants the policy to read as, "company incorporated in India, can 'continue to' enter into memorandum of understanding to sell as well as advance money to purchase agriculture land".
As per the proposal for FDI in housing, the minimum floor area for construction development will be cut to 20,000 sq mt from 50,000 sq mt in cities having a population of more than 100,000 as per the 2011 census.
Under current rules, 100% FDI is allowed through the automatic route in development of townships, housing and built-up infrastructure, subject to stringent conditions.
Between April 2000 and October 2013, construction development, including townships, housing and built-up infrastructure in the country, received FDI worth $22.77 billion, or 11% of the total FDI attracted by India during the period.