Special Correspondent

Even a domestic firm will be subject to the ‘sectoral conditions on entry route.’

NEW DELHI: Days after the Union Cabinet approved a liberal foreign direct investment (FDI) policy, the Central Government on Friday made it clear that FDI cannot enter India through a circuitous route in sectors such as multi-brand retail, atomic energy and lottery business and will need to operate within the sectoral caps.

According to the new guidelines issued by the Department of Industrial Policy and Promotion (DIPP) here, foreign investment will have to comply with the relevant sectoral conditions on entry route, conditions and caps with regard to the sectors in which such companies are operating.

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 through indirect investment, it said.

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 such as insurance, aviation, asset reconstruction, private sector banking, FM radio, cable network and commodity exchanges.

The Government on February 11 changed the 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 backdoor in sectors where it is banned.

With the government subjecting the FDI through indirect route to the overall sectoral entry and ceiling norms, the ‘Press Notes 2/3’ of February 11 get turned upside down.

These press notes had said that if a parent firm with less than 50 per cent FDI invested in another company, the overseas investment would not be counted; thereby allowing firms to exceed sectoral caps. Even the sectors where FDI was not allowed could have been considered thrown open since less than 50 per cent overseas investment was treated as domestic money.

The policy changes came under sharp criticism from the Left parties which raised the issue of ‘allowing backdoor’ entry in Parliament as well. India received $19.79 billion FDI between April and November this fiscal.