Controversial plans to force visitors from so-called "high risk" countries to pay a £3,000 security bond have ditched after a revolt from the Lib Dems.
The government wanted to demand the payments to prevent people from staying in the UK once their visas expired.
But it didn't go down with the Lib Dems, with Nick Clegg threatening to block the plans.
And Indian business leaders described the scheme as "highly discriminatory".
Home Secretary Theresa May's project was due to be piloted from this month.
It had been suggested that visitors from India, Pakistan, Sri Lanka, Bangladesh, Ghana and Nigeria would be required to pay the deposit for a six-month visa, but it is understood the scheme has now been scrapped.
A Government spokesman told The Sunday Times: "The Government has been considering whether we pilot a bond scheme that would deter people from overstaying the visa. We have decided not to proceed."
Earlier this year, the scheme was condemned as ''highly discriminatory'' by Indian business leaders and Nick Clegg indicated he would block the plans if they were applied in an "indiscriminate way".
Clegg told BBC1's Andrew Marr Show: ''Of course in a coalition I can stop things'', and added: ''I am absolutely not interested in a bond which becomes an indiscriminate way of clobbering people who want to come to this country, and in many respects bring great prosperity and benefits to this country, of course not."
The scheme was part of the Government's drive to cut net migration into the UK to the ''tens of thousands'' by the time of the next general election in 2015.
Their complaints were echoed by the chairman of the Commons home affairs select committee, Labour MP Keith Vaz, who described the scheme as ''unfair and discriminatory''.
''This flies in the face of the Prime Minister's intention to attract the brightest and best to Britain and sends out the wrong message to the countries concerned," he said.
Vaz added: "The Home Secretary is right to shelve the bond proposals. At the time she announced the pilot I warned her that bonds would not work.
"During this shambolic process the Home Office has managed to upset a number of foreign governments and confuse millions of potential visitors.
"This is not the way to fashion a strong and effective immigration policy."
The bonds were dropped because they had no support from the Liberal Democrats or within a number of government departments, it was claimed.
Among the departments understood to be opposed to the plans are the Foreign Office, Department for Business, Innovation and Skills, and the Department for Communities and Local Government.
"The Home Office version of the policy was not acceptable to the Liberal Democrats and was not support by other government departments," Lib Dem sources said.
"They have seen the writing on the wall and binned it off.
"We have been clear from the start that the version was just not acceptable to us."