“Foreign Direct Investment in India: Sectoral Exceptions and Federal Incoherence Between Centre and States – A Constitutional and Policy Critique”

Abstract India's Foreign Direct Investment (FDI) policy has evolved to attract global investors, yet sectoral exceptions and state-level disparities continue to pose challenges. This study critically examines the inconsistencies between central FDI policies and state-level regulations, focusing on how these discrepancies affect investment inflows.Employing a doctrinal legal research methodology, the paper analyzes constitutional provisions, including Articles 246 and 254, and the Seventh Schedule, to understand the division of legislative powers between the Centre and the States. It also reviews policy documents, such as the Consolidated FDI Policy and the Foreign Exchange Management Act (FEMA), alongside case studies highlighting state-level resistance in sectors like multi-brand retail and e-commerce.Findings indicate that states with robust institutional frameworks, such as Maharashtra and Karnataka, attract higher FDI inflows, while others lag due to factors like inadequate infrastructure and regulatory hurdles. The study underscores the role of institutional quality, as highlighted by Goswami (2024), in influencing FDI distribution across states. Moreover, the research identifies the lack of a harmonized approach between central and state governments as a significant barrier to uniform FDI growth.The paper concludes by recommending the establishment of a federal coordination mechanism to align FDI policies across different government levels. It advocates for policy reforms that consider state-specific needs while maintaining national investment objectives, aiming to create a more cohesive and investor-friendly environment.