Being a developing country, India is a hub for various sectors and, thereby, attracts many foreign entities to explore potential markets. The government has been on a spree of issuing various amendments in regulating laws to bring about ease of doing businesses in the country. Such amendments in regulating laws are a major catalyst for the surge of mergers and acquisitions (M&As) in India.
The regulatory frameworks that govern M&As in India include the Companies Act, 2013; the Income Tax Act 1961; the Foreign Exchange and Management Act, 1999; the Indian Stamp Act, 1899; the Competition Act, 2002; and various other regulations.
Among the above specified laws, the Foreign Exchange Management Act (FEMA) regulates foreign investments in India; in pursuance, the Foreign Direct Investment (FDI) Policy is formulated by the Government of India. Foreign investments in India can be made either through the 'automatic route' or the 'specific approval route' as specified by the government with regard to various sectors.
In this article, we are specifically dealing with the real-estate sector. In its endeavour to augment FDI in India, the government has brought noteworthy relaxations to the consolidated foreign direct policy of India.
Amendments in FDI
Accordingly, significant changes via amendments have been issued by the government from time to time to attract foreign investments via M&As in the construction-development sector. One major relaxation in the construction development sector was issued on January 10, 2018, wherein it has been clarified that 100 per cent FDI in real-estate brokerage services has been brought under the automatic route. The aforesaid clarification has been shared via a release from the Press Information Bureau, wherein liberalisation of FDI policy in key sectors has been discussed.
The amendment, via modification of the existing provisions under the regulatory frameworks, is still awaited to be issued by the authorities.
The underlining aim of liberalising FDI policy is to provide ease of doing business, which will result in increasing FDI inflow into the construction-development sector, leading to attraction of foreign entities via the M&A mode.
Earlier, real-estate broking services were considered under the real-estate business, wherein 49 per cent FDI was allowed under the automatic route. However, it has now been clarified that real-estate brokerage services do not fall under the real-estate business. The term 'real-estate business' means dealing in land and immovable property with a view to earning profit and does not include development of townships, construction of residential or commercial premises, roads and bridges, educational institutions, recreational facilities, city and regional level infrastructure, and townships. Therefore, real-estate broking services are eligible for 100 per cent FDI under the automatic route.
Previously, 100 per cent FDI was permitted in construction-development projects with the following conditions: