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US to lobby for lower tariff, easier FDI rules

New Delhi, Oct. 27: The US is expected to use the visit of its treasury secretary Henry Paulson to persuade India to lower tariff walls and relax foreign direct investment limits.

North Block thinks Paulson will discuss market access, especially in manufactured goods, during his stay in New Delhi.

The US considers this to be the key to resolving the stalled Doha round of international trade talks.

Besides arguing for relaxation of FDI limits in banking, insurance and retail, Paulson may seek assurance from India that it will not place barriers to capital flows.

Indian officials, who are preparing for the high-level visit, said they would be willing to give greater access to the US and other developed nations, provided similar duty cuts were offered to Indian goods.

“The problem is that they will reduce farm subsidy only if we agree to cut duty on imports,” officials said.

India does not want to link farm subsidy cut to lower levy on imports. Instead it wants quid pro quo deals on goods and market access.

During Paulson’s visit, the Indian government is expected to quietly promise that FDI caps will be relaxed in key sectors. It will, however, not make any policy statement, keeping the Left opposition in mind.

“We are not going to make specific promises. However, a review of FDI in all sectors is being carried out,” the officials said.

The US treasury secretary will also be briefed about the ongoing consolidation in domestic banking, which will open up the industry to greater foreign competition.

India is likely to increase the foreign voting stake in Indian banks beyond the 10 per cent limit before 2009.

The 10 per cent cap has been a major stumbling block for foreign banks keen on picking up controlling stake in Indian entities.

North Block officials said the US and certain European countries felt that India was considering barriers to capital inflows after it announced steps to curb use of participatory notes (P-notes) in investments in stock exchanges.

Market regulator Sebi had announced measures to phase out participatory notes in derivatives trading.

“We know they fear that to check the rise of the rupee we may place barriers to capital inflows. We don’t intend to do that and we will say that,” they said.

“Our steps on P-notes were to ensure greater transparency so that the wrong kind of money does not flow in, while ensuring that rules for entering the Indian stock market as a foreign investor is simplified and the time taken for registration is cut down,” they added.

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