The euphoria of the new Government is still out there; but some of the actions of the Government do not seem to be in sync with their stated objectives. If a new policy or regulation is issued to aim for “liberalization” or “relaxation”, then the same should meet the intent in words and spirit, without which it may be counter-productive.

The case in point is Press Note 10 (pn10) issued by the Government of India whereby the Foreign Direct Investment (FDI) policy on the Construction Development Sector has been reviewed and the ‘Consolidated FDI Policy Circular 2014’ has been amended. Although, it was much publicised as a relaxation in respect of “exit” conditions for foreign investors and further “liberalization” of FDI policy in this sector; it has largely left investors lost in unclear legal opinions seeking to interpret the new conditions or new rules of the game, so to say.

Till now, there was a lock-in of 3 years on any FDI made in Construction Development Sector. It will not be out of place to mention that there were some ambiguities under which a self-serving argument was presented, time and again, where such lock-in was also linked to 50% of development to be made within 5 years from the commencement approvals date; nonetheless the thumb rule was a 3 years lock-in.

Now, under the new FDI rules under pn10, an investor is “permitted to exit on completion of the project or after development of “trunk infrastructure” i.e. roads, water supply, street lighting, drainage and sewerage” [emphasis supplied]. So, while the drums were being beaten about no lock-in of 3 years on FDI investments in this sector and the investor will be able to exit prior to such 3 years lock-in, the fine print condition viz., “once trunk infrastructure is in place”.

I will not take up the highly debatable point of whether a Construction Development project can realistically be completed within 3 years, considering the multiplicity of approvals required from different agencies, the size of the project and particularly the red tape(ism) involved in the whole process as it has already been discussed many times.

So hopes were raised high with the suggestion of permitting early exit of FDI investor once the so called “trunk infrastructure” is completed; while totally missing the point that in a construction project no such “trunk” can be created until the project has reached advanced stage of construction (and there again, there are arguments on both sides as to where would one draw a line on such trunking i.e. whether up-to each unit or up-to each building in a project). In case a project is proposed to be constructed on a large (or rather full) podium (which is the flavour of the season in India), then trunk infrastructure like “roads” (and therefore street lighting) will be constructed only upon near completion of the project. As regards water supply and sewerage, linking each unit (in a construction project) to such utilities will not be possible until the project is in advanced stages.

Things are not too rosy for application of “trunk” theory even in a plotted township project; since there is no end to the uncertainties as to the extent to which such trunk needs to be set-up; e.g. up-to each housing plot or each development that will form part of such township (since such township will also have some built-up area to be constructed, some institutions like schools, hospitals to be set-up and some social infrastructure like taxi stand, police station to be set-up).