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The construction industry in India is one of the dominant sectors that offer lucrative investment opportunities for foreign companies. The government's initiatives such as infrastructure modernization, smart city developments, an affordable housing program for all, and improvement in logistics & transportation routes are uplifting the investment opportunities.
Foreign Direct Investment (FDI) can be made through automatic and government routes. In the automatic route, the Indian company and non-resident investors do not require approval from the government for FDIs. India's FDI policy allows 100% FDI under an automatic route in the construction sector for the following:
The Indian construction industry has been continuously upgrading for the past several decades. Around US$ 26.08 billion in FDI equity flows in construction development from April 2000 to March 2021. As per FDI India data, the Indian construction development sector has received around US$ 420 million in foreign direct investment equity inflow in 2021. The construction sector is emerged as the second largest sector in terms of FDI inflows and accounts for almost 13% of total FDI inflows to India. Increasing demand for infrastructure and real estate and government policies are key growth drivers for investment in the construction sector. The government projects in the pipeline are 100 smart cities, 11 industrial corridors, 14 Coastal Economic Zones (CEZs), six ports, three mega ports, and the redevelopment of 600 railway stations.
In addition, India has a planned investment budget of US$ 1.4 trillion under the National Infrastructure Pipeline (NIP), of which 19% is allocated to roads and highways, 16% to urban infrastructure, and 13% to railways. The Ministry of Urban Development (MoUD) is implementing a central North Eastern Region Urban Development Programme (NERUDP) for infrastructure development in northeastern cities. A new scheme worth around US$ 2.31 billion is planned to expand public bus transport services under the public-private partnership model. This scheme aims to increase the participation of private players to finance, acquire, maintain, and operate over 20,000 busses.
The Indian construction industry is likely to emerge as the third largest market globally by 2025 and register an annual growth rate of 7.1%. Moreover, the Indian real estate sector's market is expected to reach US$ 1 trillion by 2030. During Q1 2022, private equity investments in real estate were around US$ 1 billion, almost five times the recorded value in Q4 2021. Commercial office spaces are dominant in attracting investments by accounting for a two-third share of total foreign investments. These investments are mainly from foreign institutional investors and are concentrated in commercial offices in Bengaluru.
The continuous interest from global investors in Indian infrastructure and real estate sectors is expected to upsurge FDIs in the coming years. Government can seek the help of technology while designing different schemes that will design, deliver, construct, and maintain public infrastructure projects efficiently. The need for new infrastructure and redevelopment projects in both urban and rural areas of India is driving growth opportunities for foreign direct investments.
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