The government may do away with the lock-in period for foreign direct investment (FDI) in the real estate sector that was imposed earlier in wake of worldwide realty rally and concerns of asset price bubble formation. The Department of Industrial Policy and Promotion (DIPP) has proposed the scrapping of the three-year lock-in for FDI in realty. The DIPP has already drafted a cabinet note on the matter which has been circulated to the Cabinet Committee on Economic Affairs (CCEA).
The lock-in period was a cautionary move as real estate, as a space, is generally more prone to speculative trading. The government, therefore, introduced a lock-in for foreign investment after it liberalized FDI in realty in 2005. The restrictions were also supposed to act as an inbuilt buffer in case of a global real estate crash as it would prevent sudden flight of capital. Well we want Foreign Money for Long Term Investments says Finance Minister, then why are you now removing the Lock-in ?
The move, however, would be counter to the intuition of the Reserve Bank of India which had in the latest quarterly review of its monetary policy raised the provisioning on loans meant for the commercial real estate sector to 1% from 0.40% citing potential of an asset price bubble formation. We wish Dr. Reddy was still the Governor of RBI, however, his strict and principled approach likely irked the then FM and was unfortunately shown the door.
I really hate to see this withdrawal happen under Dr. Manmohan Singh, but it is happening. Looting the Hardworking Indian Middle Class and transferring money to Foreign Investors.
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