India’s Central Bank Seeks Lock-in Period for Hotel, Tourism FDI
Oct. 26 – The Reserve Bank of India has asked the Indian government to impose new regulations to prevent a domestic real estate bubble.
The central bank fears that funds being brought into India under the pretext of hotel and tourism investments are not being adequately monitored and are being used to purchase immovable property – a violation of the nation’s FDI rules which is causing asset prices to rise.
Currently, investments in the hotel and tourism sector can be wholly owned by foreign entities without prior government approval. The new rules would impose a lock-in period for such investments, and are aimed at preventing foreign investors from immediately selling off their assets and diverting their money elsewhere, such as into domestic real estate.
The RBI is concerned that such practices would create a domestic real estate bubble and may have a destabilizing effect on India’s economy. As a solution, the central bank has sought for post-investment monitoring of FDI or a change to the existing rules. The current legal architecture, based on the Foreign Exchange Management Act of 2000 (FEMA), is insufficient because intentional violations do not fall under the law’s purview, the central bank claims.
The bank has also suggested a quarterly or annual reporting on the receipt and usage of foreign inward remittance, granting permission or license for running a hotel under which construction of the hotel should be completed within a stimulated period, and clauses under which the investor or the investee company would not be allowed to sell undeveloped plots, reports the Business Standard.
In addition to a lock-in period, the central bank proposes that a violation of FEMA could be resolved by exacting a fee from the violating party, adding that such powers should be granted to the Department of Economic Affairs as well as various administrative ministries and state organs, as the RBI itself only looks at cases brought forth to its attention.
Both non-resident Indians (NRIs) and foreign nationals of non-Indian origin alike already face restrictions on the buying and selling of property in the country. If NRIs are creating an office that is not merely for liaison purposes, they are allowed to purchase immovable property, though a declaration must be filed with the RBI within 90 days of acquiring the property. Foreign nationals who are not of Indian origin cannot transfer acquired property at all without the central bank’s permission.
- Previous Article Indian Gov’t Turns Down Proposal to Reduce Foreign Bank Holdings
- Next Article India May Soon Allow 100% FDI in Single-Brand Retail