The Union Cabinet has recently announced 100 per cent FDI under automatic route in construction development. Speaking on the impact of the decision on the construction industry, Indranil Pan, Chief Economist, IDFC Bank, says, 'There is no dearth of demand for residential and commercial projects in India. Although certain cities have been facing an excess supply scenario, on a broader scale it is a supply-deficit market. Given this scenario, additional funding is an attempt to clean the economy. Earlier, the sources of the construction industry were not clean. In the efforts to clean up the economy, there has certainly been a gap in terms of funding. This is where FDI can step in.'
Pan adds that the focus in not on urban, but rural infrastructure. He also states that in case there is no separation in the location of the projects, the government plans to focus on affordable housing. 'A global company is not likely to invest in affordable housing projects or similar projects where ticket sizes are small,' he explains. 'This means that having one's feet on the ground is much more important when you look at the Indian society and culture. In case of other projects, the ticket sizes are larger.'
Asked if 100 per cent FDI is a boon to the construction industry, Pan responds that the construction sector brings a positive outlook to the market. 'It depends on the incremental interest of global construction companies to come to India.
They will probably set up urban and integrated townships, bringing in a lot of growth in urban housing. In case they are willing to add to rural housing, there are chances of tremendous growth.' He also believes that with the construction of housing and other infrastructure projects, FDI will generate significant employment.
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