No roundabout entry for FDI in barred sectors

Foreign investment cannot enter India through a circuitous route in sectors like multi-brand retail, atomic energy and the lottery business and will need to operate within the sectoral caps, according to new guidelines.

Foreign investment will "have to comply with the relevant sectoral conditions on entry route, conditionalities and caps with regard to the sectors in which such companies are operating," the Department of Industrial Policy and Promotion (DIPP) said.

Even a domestic firm in which investment is made by another Indian company (that has an FDI component) will be subject to the "sectoral conditions on entry route". This will prevent circumventing of rules though indirect investment.

India prohibits FDI in multi-brand retail, atomic energy, the lottery business, gambling and betting, chit funds and nidhi firms. Besides, an FDI ceiling has been put on sectors like insurance, aviation, asset reconstruction, private sector banking, FM radio, cable network and commodity exchanges.

The government on February 11 changed FDI policy and excluded indirect investment through domestic companies from overall sectoral ceilings, which led to the criticism that the new policy allows FDI through the "back door" in sectors where it is banned. It also made FDI caps meaningless.