CONSTRUCTION

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SUMMARY
  • USD 1 Trillion investments for infrastructure sector projected during 2012-17
  • USD 650 Billion investments in urban infrastructure estimated over next 20 years.
  • 100% Foreign Direct Investment (FDI) permitted through the automatic route for townships, cities.
  • Construction sector contributes towards 8% of the Indian GDP (at constant prices). Last five year estimates (2006-07 to 2010-11).
  • Additional Fact: increased to 3.85 lakh crore (7.9% of the total GDP) in 2010-11 from 284798 crore (8% of the total GDP) in 2006-07.
  • Additional Facts: Growth rate for GDP in construction 8.1%
  • 100 Smart Cities and 500 AMRUT Cities will invite investment of 2 Trillion Rupees in the next five years.
  • INR 62,009 Crore. would be invested under Swachh Bharat Mission (SBM) in urban areas.
REASONS TO INVEST
  • Construction sector in India will remain buoyant due to increased demand from real estate and infrastructure projects.
  • An investment of USD 1 Trillion has been projected for the infrastructure sector until 2017, 40% of which is to be funded by the private sector. 45% of infrastructure investment will be funnelled into construction activity and 20% set to modernise the construction industry.
  • Construction activities contribute more than 8% of India’s GDP.
  • USD 650 Billion will be required for urban infrastructure over the next 20 years.
  • Some of the large government projects offer significant up-side thrust.
  • 70% of the funding under SBM will be mobilised largely from private sector.
STATISTICS
  • Second largest employer and contributor to economic activity, after agriculture sector. The construction sector accounts for second highest inflow of FDI after the services sector and employs more than 35 Million people.
  • 50% of the demand for construction activity in India comes from the infrastructure sector, the rest comes from industrial activities, residential and commercial development etc. The Indian construction industry is valued at over USD 126 Billion.
  • Indian cities contribute significantly to India’s GDP. As per a mid-term appraisal in 2012, the urban share of the GDP was 62% – 63% in 2009-10. This was further projected to increase to 70% – 75% in 2030.
  • In 2001, about 286 Million were living in urban areas across India. It had the second largest urban population in the world. As per the Indian Census, 2011, the urban population had increased to 377 Million, thereby registering a growth of around 32%. As per recent estimates, nearly 590 Million people will live in Indian cities by 2030.
  • Between 2005-08, the real estate sector grew by about 30% annually before slowing down significantly due to a 2008 global financial crisis. It grew by about 8% between 2009-11 and 6.5% in 2012-13.
  • As per industry estimates, the Indian real estate market is estimated to be approximately USD 78.5 Billion in 2013 and is expected to grow to approximately USD 140 Billion by 2017.
  • According to FICCI-EY Real Estate Report 2013, India’s real estate requires about USD 42 Billion (excluding housing for economically weaker sections) in investments by 2015. Residential real estate alone will require an investment of USD 29 Billion.
  • Nearly half the additions to the Indian labour force over the period 2011-30 will be in the age group 30-49, adding to the demographic dividend.
  • The share of output and employment from manufacturing in India had hardly changed in the past 30 years. In contrast, the share of output from aggregate services rose dramatically over the last 30 years, from about 35% to more than 50% of GDP.
GROWTH DRIVERS
  • India has an estimated urban housing shortage of 18.8 Million dwelling units. The housing shortage in rural India is estimated at 47.4 Million units, in 2012.
  • Present levels of urban infrastructure are inadequate to meet the demands of the existing urban population. There is need for re-generation of urban areas in existing cities and the creation of new, inclusive smart cities to meet the demands of increasing population and migration from rural to urban areas. Future cities of India will require smart real estate and urban infrastructure.
  • The Government of India is in the process of launching a new urban development mission. This will help develop 500 cities, which include cities with a population of more than 100,000 and some cities of religious and tourist importance. These cities will be supported and encouraged to harness private capital and expertise through Public Private Partnerships (PPPs), to holster their infrastructure and services in the next 10 years.
  • To provide quality urban services on a sustainable basis in Indian cities, the need of the hour is that urban local bodies (ULBs) enter into partnership agreements with foreign players, either through joint ventures, private sector partners or through other models.
FDI POLICY

Construction - Development projects (which include development of townships, construction of residential/commercial premises, road or bridges, hotels, resorts, hospitals, educational institutes, recreational facilities, city and regional level infrastructure, townships) - 100% FDI through automatic route is permitted. The conditions under this sector are:

  • No minimum land area requirement in case of development of serviced plots.
  • In case of construction-development projects, minimum floor area of 20,000 sq. mts.
  • The investee company should bring in a minimum FDI of USD 5 Million within six months of commencement of the project. The commencement of the project will be the date of approval of the building plan/layout plan by the relevant statuary authority. Subsequent tranches of FDI can be brought within the period of 10 years from the commencement of the project or before the completion of project, which ever expires earlier.
  • The investor will be permitted to exit on completion of the project or after the development of trunk infrastructure i.e., roads, water supply, street lighting, drainage and sewerage.
  • The government may, in view of facts and circumstances of a case permit repatriation FDI or transfer of stake by one Non-Resident investor to another Non-Resident investor before the completion of project. These proposals will be considered by FIPB on case to case basis.
  • The Indian investee company will be permitted to sell only developed plots. (plots where trunk infrastructure is available).
  • It is clarified that 100% FDI under automatic route is permitted in completed projects for operations and management of townships, malls/shopping complexes and business constructions.
  • FDI is not allowed in the real estate business or construction of a farmhouse and trading in transferable development rights (TDR).
  • 100% FDI is allowed under the automatic route for urban infrastructure areas like urban transport, water supply, sewerage and sewage treatment subject to relevant rules and regulations.

FDI Policy for Industrial Parks:

100% FDI is allowed under the automatic route. ‘Industrial Park’ is a project in which quality infrastructure in the form of plots of developed land or built-up space or a combination with common facilities is developed and made available to all the allottee units for the purposes of industrial activity.

  • FDI in industrial parks is not subject to the conditionalities applicable for construction development projects etc., provided the industrial parks meet with the under-mentioned conditions.
  • It should comprise a minimum of 10 units and no single unit should occupy more than 50% of the allocable area.
  • The minimum percentage of the area to be allocated for industrial activity will not be less than 66% of the total allocable area.
SECTOR POLICY

Smart Cities Mission; and Atal Mission for Rejuvenation and Urban Transformation (AMRUT)

  • Under 100 Smart Cities Mission, Smart Cities will be selected through a ‘City Challenge Competition,’ linking financing and ability to achieve multidimensional objectives of urban infrastructure development like adequate and clean water supply, sanitation and solid waste management, efficient urban mobility and public transportation, affordable housing for the poor, power supply, robust IT connectivity, governance, especially e-governance and citizen participation, safety and security of citizens, health and education and sustainable urban environment. Smart City mission will be implemented through Special purpose Vehicles (SPV) to be managed by the state government.
  • AMRUT will inculcate a project approach to ensure basic infra services such as water supply, sewerage, septage management, storm water drains, transport and development of green spaces and parks with special provision for meeting the needs of children. A minimum investment of over INR 2 lakh crore would flow into urban areas over the next five years (2015-16 – 2019-20) since States and ULBs would mobilise matching resources ranging from 50% to 66%.

“The Smart Cities Mission guidelines are available on the Ministry of Urban Development’s website (www.moud.nic.in). The States/UTs have been requested to submit the names of potential Smart Cities in accordance with the stipulated Guidelines. Based on the recommendations sent by the States/UTs and due deliberations by the Apex Committee, the Competent Authority has approved the names of shortlisted 98 potential Smart Cities for Stage-2 Challenge. The State Governments have been requested to start making preparation for Stage 2 of the Challenge as given in the Smart Cities Mission Statement and Guidelines.

Swachh Bharat Mission (SBM):

  • SBM aims at elimination of open defecation, eradication of manual scavenging, scientific Municipal Solid Waste Management, to effect behavioural change regarding healthy sanitation practices, generate awareness about sanitation and its linkage with public health, capacity augmentation for ULBs to create an enabling environment for private sector participation in Capex (capital expenditure) and Opex (operation and maintenance). The mission outlay is INR 62,009 crores. It covers all 4041 statutory towns.

Heritage City Development and Augmentation Yojana (HRIDAY):

  • HRIDAY aims to preserve and revitalise the soul of an Indian heritage city and reflect its unique character by encouraging aesthetically appealing, accessible, informative and secured environment and to undertaking strategic and planned development of heritage cities aimed at the overall improvement in quality of life with special focus on sanitation, security, tourism, heritage revitalisation and livelihoods retaining the city’s cultural. It is a central sector scheme with 100% funding coming from Central Government. Initial Phase of the HRIDAY Scheme was launched in January, 2015 for a period of 27 months in twelve identified cities viz. 1) Ajmer 2) Amritsar 3) Amaravati 4) Badami 5) Dwarka 6) Gaya 7) Kanchipuram 8) Mathura 9) Puri 10) Varanasi 11) Velankanni 12) Warangal for development of the towns under the scheme with a total outlay of Rs. 500 crores.
FINANCIAL SUPPORT

Provisions in the Union Budget, 2015-16:

SMART CITIES:

  • The Government of India in the Union Budget 2014-15, has announced a project to develop ‘One Hundred Smart Cities’ as satellite towns of larger cities by modernising the existing mid-sized cities in the country. INR 70.6 Billion has been allocated in the current fiscal year for the same. The following has also been announced in the budget in relation to smart cities:
  • To encourage development of ‘Smart Cities’, which will also provide habitation for the neo-middle class, requirement of the built-up area and capital conditions for FDI is being reduced from 50,000 sq mts to 20,000 sq mts, from USD 10 Million to USD 5 Million respectively. To further encourage this, projects that commit at least 30% of the total project cost for low cost affordable housing will be exempted from minimum built-up area and capitalisation requirements.
  • A National Industrial Corridor Authority, with its headquarters in Pune is being set up to coordinate the development of Industrial Corridors with emphasis on Smart Cities linked to transport connectivity to spur growth in manufacturing and urbanisation.
  • Master Planning of the Amritsar-Kolkata Industrial Corridor will be completed expeditiously for the development of Industrial Smart Cities in seven states of the country. The seven states to be covered in this project are Punjab, Haryana, Uttar Pradesh, Uttarakhand, Bihar, Jharkhand and West Bengal.
  • Master planning of three new smart cities in the Chennai-Bengaluru Industrial Corridor region, viz., Ponneri in Tamil Nadu, Krishnapatnam in Andhra Pradesh and Tumkur in Karnataka are to be completed.
  • A Perspective Plan for the Bengaluru Mumbai Economic Corridor and Vizag-Chennai Corridor is to be completed with provision for 20 new industrial clusters.
  • A proposed allocation of INR 40 Billion, to set up a mission on low cost affordable housing, will be anchored in the National Housing Bank (NHB).
  • A proposed allocation of INR 1 Billion, to develop metro projects in Lucknow & Ahmedabad.
  • INR 80 Billion has been allocated for the NHB with a view to expand and continue to support rural housing in the country.
  • State governments concerned are purposed to be notified as sponsoring authority for metro rail projects covered under project import regulations, 1986.

Real Estate Investment Trust And Infrastructure Investment Trust:

  • A new tax structure for real estate and infrastructure investments trusts. Both of them have been given pass-through status.

State Incentives:

  • Apart from the above, each state in India offers additional incentives for investments and special incentive packages for mega projects.

Incentives for developing SEZ/EMC's/Other Sectoral Clusters:

The major incentives and facilities available to SEZ developers include:

  • Exemption from customs/excise duties for development of SEZs for authorised operations approved by the BOA.
  • Income Tax exemption on income derived from the business of development of the SEZ in a block of 10 years, in 15 years under Section 80-IAB of the Income Tax Act.
  • Exemption from Central Sales Tax (CST).
  • Exemption from Service Tax (Section 7, 26 and the Second Schedule of the SEZ Act).

Incentives for developing electronic manufacturing clusters:

  • Brownfield EMC: The assistance will be restricted to 75% of project costs, subject to the ceiling of INR 0.5 Billion. The remaining project cost will be financed by other stakeholders of the EMC with a minimum industry contribution of 15% of the project cost.
  • Greenfield EMC: The assistance will be restricted to 50% of the project cost subject to ceiling of INR 0.5 Billion for every 100 acres of land. The remaining project cost shall be financed by other stakeholders of EMC with a minimum industry contribution of 25% of the project cost.
  • The administrative expenses are to be restricted to 3% of the central assistance in the project. Expenses towards the preparation of a detailed project report will also be considered a part of project cost.

Area based Incentives:

  • Incentives for units in SEZ/NIMZ as specified in respective acts or the setting up of projects in special areas such as the North-east, Jammu & Kashmir, Himachal Pradesh & Uttarakhand.
INVESTMENT OPPORTUNITIES
  • Construction development in residential, retail, commercial and hospitality sectors.
  • Technologies and solutions for smart sustainable cities and integrated townships.
  • Technologies for the promotion of low cost and affordable housing.
  • Green building solutions.
  • Sustainable and environmentally friendly building materials.
  • Training and skill development of construction sector workers.
  • Smart cities.
  • Urban water supply, urban sewerage and sewage treatment.
FOREIGN INVESTORS
  • Hines (USA)
  • Veolia (France)
  • Ascendas (Singapore)
  • Aqualyng AS (Norway)
  • Tishman Speyer (USA)
  • Emaar Properties (UAE)
  • The Trump Organization (USA)
  • Alstom (France)
  • Hydro-Comp Enterprises (Cyprus)
  • GIZ (Germany)
AGENCIES
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