NEW DELHI: India has liberalised foreign direct investment rules in the construction sector, formalising a decision taken by the Cabinet in October to attract foreign capital and give a fillip to the cash-starved industry.According to a Department of Industrial Policy and Promotion Press Note, which makes the new rules formal, the conditions related to built-up area and minimum capitalisation have been relaxed for projects where overseas investors can put in money. The new rules also make it easier for foreign investors to exit projects.A foreign investor will now be allowed to exit after either the project’s completion or the development of trunk infrastructure such as roads, water supply, street lighting, drainage and sewerage. If an investor wants to leave the project earlier, he can transfer the stake to another foreign investor after getting approval from the Foreign Investment Promotion Board, which vets overseas investments.The Union Cabinet had allowed to reduce the minimum floor area of projects to 20,000 sq metres from the earlier 50,000 sq metres for getting FDI It had also halved the minimum capital requirement of projects where FDI is allowed to $5 million.In the case of joint venture projects with an Indian partner, it had cut the minimum capital requirement is $2.5 million from $5 million previously. However, experts say the government must clarify if the new changes will apply to existing projects where investment has already come in.“What the Press Note does not answer is treatment of existing investments in construction development sector which were made under the erstwhile policy,” said Akash Gupt, partner, regulatory services, at PricewaterhouseCoopers. “If the investment has been made with a commercial understanding with the Indian partner to exit post three years, will that now be locked-in till completion of the project?”Most housing projects have been running one to two years or even more behind schedule because of an economic slowdown and shortage of funds on account of elevated debt levels.The new rules also drop the condition of minimum land of 10 hectares.“This will aid the market in attracting more investments, especially helping in addressing housing shortage within the country. The easier exit on the other hand will ensure faster delivery of projects, reducing cost and time overruns by development firms,” said Sachin Sandhir, global managing director for emerging business and MD South Asia at Royal Institution of Chartered Surveyors.In what could drive affordable housing in the country, developers will be exempt from restrictions in size, minimum capitalisation and exit if they commit 30% of project cost to affordable housing.Looking to boost construction of hotels , tourist resorts, hospitals, special economic zones, educational institutions, old-age homes and investments by non-resident Indians, the government has given free access to investors in these segments.The new rules will also give a boost to Prime Minister Narendra Modi’s vision of creating 100 smart cities by 2020 that will provide modern amenities, education and employment opportunities.Finance Minister Arun Jaitley had allocated Rs 7,060 crore in the Budget for 2014-15 for this purpose.The construction sector attracted $1.2 billion in FDI in 2013-14, down 8% from 2012-13. Between April and August this fiscal year, the sector received investments worth $446 million.Based on the new rules, at least 50% of each project must be developed within a period of five years from the date of obtaining all mandatory clearances. Investors wouldn’t be allowed to sell underdeveloped plots.