PROHIBITED SECTORS FOR FDI in india

FDI spurs economic growth especially when domestic saving is not enough to generate funds or capital investments. In India, FDI plays an important role when it comes to economic development

Santhosh Kumar Athaluri

Jan 17, 2021 - 07:38

PROHIBITED SECTORS FOR FDI in India

FDI in India is currently not permitted in the following sectors :

Lottery Business including Government/private lottery, online lotteries, etc.*
Gambling and Betting including casinos*
Chit Funds
Nidhi Company
Trading in Transferable Development Rights (TDR)
Real Estate Business or Construction of farmhouses**
Manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes
Sectors not open to private sector investment- atomic energy, railway operations (other than permitted activities mentioned under the Consolidated FDI policy)

*Foreign technology collaboration in any form including licensing for franchise, trademark, brand name, management contract is also prohibited for Lottery Business and Gambling and Betting activities

**Real estate business shall not include the development of town shops, construction of residential/ commercial premises, roads or bridges and Real Estate Investment Trusts (REITs) registered and regulated under the SEBI (REITs) Regulations, 2014

Foreign direct investment or FDI is an investment by an entity based outside the country where the investment is being made. This type of transaction is characterized by controlling ownership in the business of the domestic country. This ‘controlling ownership’ is ensured by giving foreign investors a lasting interest in the company by the means of at least 10 per cent voting rights. Therefore, foreign direct investment is differentiated from foreign portfolio investment on the grounds of lasting interest in the company where the investment is being made.

Even when borrowing from within the country is an option, most businesses tends to look beyond country lines for investments. This is because—1) capital is not readily available within the country, 2) interest rates are much cheaper when borrowing from oversea investors.

There are two ways in which an overseas investor can make an investment in India:

The Automatic Route– 100 per cent foreign direct investment is permitted under the automatic route in many sectors, except the ones where prior government approval is required.
The Government Route– Sectors and activities that are not covered under the automatic route require approval from the Government of India and are considered by the Ministry of Finance and Foreign Investment Promotion Board (FIPB).

While India has relaxed norms when it comes to FDI, there are sectors where no or limited overseas investment is permitted subject to set guidelines. Sectors in the Indian economy where FDI is not allowed are: