Govt may okay FDI in malls, hotels

NEW DELHI: The Cabinet is likely to clear FDI in construction of commercial properties such as shopping malls and hotels on Thursday. The completion of the last phase of polling in Bihar and Jharkhand on Wednesday and commerce and industry minister Kamal Nath''s successful consultations with Left party leaders have paved the way for the cabinet nod.
FDI of up to 100 per cent is proposed to be allowed in construction of commercial properties of 50,000 sq metre or more, without giving the foreign investor entry into buying and selling of land.At present, FDI is prohibited in real estate and it would continue to remain banned.
The cabinet had last week put off a decision on the commerce and industry ministry''s proposal to allow time for consultations with the Left parties which had criticised the proposal, saying it would push up real estate costs. Sources said Nath has since convinced them that FDI in construction would in fact result in incremental economic activity and create jobs. Officials said expansion of construction will have to be synchronised with the expansion in retail trade as the cost and quality of commercial space would determine retail sector growth. But the proposal to allow FDI in construction should not be confused with the any move to permit FDI in retail trade.
FDI in construction of commercial properties would in no way displace existing investment or jobs. On the contrary, FDI in commercial property construction could boost the growth of the retail sector.
Officials said the present restricted policy allowing FDI only in development of integrated township, that too covering a minimum area of 100 acres and envisaging an investment of at least $ 100 million, has not been able to attract much inflows. So far, the foreign investment promotion board has cleared only one such proposal envisaging development of an integrated township near Bangalore.
Insofar as allowing FDI in retail sector is concerned, Nath made it clear at a Ficci meeting on Wednesday that the government has an open mind and would like to do what is best for the country. He said the government would like the encourage the debate over FDI in retail.
"We are very clear that if at all FDI is permitted in retail trade, it should lead to incremental economic benefits and not substitute ongoing activities. There is no question of replacing or displacing what we have; it must add to economic activity. Any strategy in the direction of FDI should ensure that domestic players are not unduly displaced and sufficient opportunities are available for the growth of domestic players", Nath said.
The minister said: "When we speak of the retail sector an important policy objective is also the agriculture sector. It is only when food processing and packaging takes off in a big way that we can hope to give the agriculturist his due".