We use cookies to give you the best possible experience on our website. By continuing to browse this site or by choosing to close this message, you give consent for cookies to be used. For more details please read our Cookie Policy.

Has India's FDI rule relaxation had an immediate impact?

The Indian government's decision to relax foreign direct investment (FDI) rules in the construction sector was well received by domestic and international firms alike last year, with much optimism that it would open up the country to new trade and opportunity.

By easing the restrictions around minimum built-up areas, as well as capital requirement and exit norms, it was anticipated it would result in more overseas players participating in the development of malls, office spaces and other commercial developments, and now the first signs of this happening are evident.

Moving ahead

Both furniture giant IKEA and property investor Taurus Investment Holdings are moving ahead with plans to expand their presence in India, with all signs pointing toward it being a direct result of the country easing its FDI rules.

Taurus intends to invest around $200 million over a three-year period, which will involve developing offices, shops and a hotel on 20 acres of land in the state of Kerala.

Known as the Taurus Downtown Technopark, the new project will provide a significant expansion to the existing business park, which is currently home to 300 businesses employing more than 40,000 people.

A key factor in Taurus's decision has been the fact that it will not incur some of the costs that were previously associated with investing in India and a common gripe among foreign companies.

The FDI easing had been mooted for some time as a means of "sweetening up" foreign investment, but an added bonus has been the relaxing of the rules enabling investors to exit the project and repatriate profits.

By far the most significant change is the overall reduction in construction and development requirements, with the minimum floor area requirement falling from 50,000 square metres to 20,000 square meters, while for serviced plots there is now no minimum land requirement, compared to the previous 100,000 square metres.

Added investment

This has proven particularly attractive to Ikea, which has added to a memorandum of understanding signed with the Karnataka and Telangana states in September, regarding infrastructure required to open new stores.

In December, it announced that it would double the amount of goods and materials purchased from India, which has further strengthened the relationship between the Asian country and the Swedish furniture giant and opened the door to other, future arrangements.

A key facet of this deal is the door that has been opened to other major organisations willing to invest in India and build new property required to house operations in the country.

It is a trend that has risen exponentially in recent times, with $1.6 billion in real estate deals involving foreign investors being completed in 2014, compared to just $575 million the previous year, with further growth expected over the next 12 months.
As major organisations turn their eye towards India and the effect of the government's measures to ease FDI restrictions continue to be felt, the country looks set to become a hotbed of investment in the years to come.

Related Events

Want news like this in your inbox?