US warns India about investment, tax changes

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US Treasury Secretary Timothy Geithner told his Indian counterpart Thursday that US businesses have become worried about changes in India's tax regime for foreign companies.

In a meeting ahead of the IMF-G20 gathering in Washington, Geithner told Pranab Mukherjee that Washington is examining India's proposed tax provisions to determine how they will impact on the US-India bilateral income tax treaty and overall economic relations.

"The secretary encouraged Finance Minister Mukherjee to reassure foreign investors that India will continue to welcome foreign capital," a statement from the US Treasury said.

India needs to advance economic reforms that will improve the trade and investment atmosphere, 'and strengthen India's business climate through greater transparency and predictability'.

"In this regard, the secretary noted that certain tax provisions in India's fiscal year 2013 budget have raised significant concern amongst US industry and dampened enthusiasm about India's investment climate."

In recent months foreign investors have begun to sour on India due to major policy swings.

The latest, and for many investors most egregious government measure, was the March budget that included provisions allowing India to tax foreign takeovers retroactively to 1962.

In a letter to Premier Manmohan Singh earlier this month, seven global business groups, including the Confederation of British Industry and the US Business Roundtable, warned of a 'widespread reconsideration of the costs and benefits of investing in India'.