India Will Allow 100% Foreign Investment in Construction

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Earlier this week, the Indian Government made a major announcement that will definitely boost not only the Indian economy but its steel and aluminum sectors – permitting 100% Foreign Direct Investment (FDI) in the construction sector, which includes housing.

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The government`s reckoning is the move would create demand for a number of related industries, including those in the manufacturing sector such as steel, cement, aluminum, and others. Construction is right behind automobile manufacturing when it comes to use of steel and its products.

What has sweetened the deal is that the government has also inserted a clause wherein Indian companies with foreign funding can only sell “developed plots,” which means a piece of land with all accompanying infrastructure including roads, water supply, street lighting, and drainage.

This is great news for India’s steel sector, right? Wrong. In a strange twist of fate, guess who’s celebrating the 100% FDI in construction announcement? Steelmakers in China.

That’s right, India’s steel manufacturers are currently trying to cope with cheap steel and steel product imports from mills operating in their neighboring country, also reported by MetalMiner.

Ever since the new BJP government led by Prime Minister Narendra Modi came to power in India this year, it has set into motion many of its electoral promises in order to kickstart an otherwise moribund economy. Yet, even as India embarks on its 2020 plan of producing 300 metric tons of steel a year, the Chinese have been rubbing their hands with glee. China’s economic growth has currently hit a hurdle, and the pickup of steel production there has slowed down as a consequence. So, they are doing the next best thing – exporting their steel to India at cheaper rates, much to the consternation of Indian steel majors.

The domestic Indian producers have been complaining bitterly about this to the new government. What is worrisome, claims the Indian side, is that a bulk of the Chinese imports are targeted for the real estate sector.

According to some media reports, the Chinese producers have slashed prices on exports to such an extent that Indian buyers have no choice but to go in for these vis-à-vis Indian steel products. For example, an Indian company produced steel rebar costs about $244 (US) per ton more than the rebar shipped in from China, claimed this news report.

A report in China Daily quoted a senior officer of India’s Tata Steel as saying, for Chinese steel companies facing overcapacity problems, it might be a good idea to invest in India.

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