FDI does not depend on tax laws, asserts Pranab

Seeking once again to allay the widely expressed concern of global investors over the proposed move to tax foreign transactions involving Indian assets with retrospective effect, finance minister Pranab Mukherjee said in Washington on Friday that India remains an attractive place to invest.

Without giving any indication that the move to retrospectively amend tax laws would be reconsidered, Mukherjee said companies did not base investment decisions solely on "tax concessions".

Deciding whether to put money into an economy is "based on what's the size of the market, whether the systems are transparent, and what's the purchasing power of the people," Mukherjee told a think-tank in Washington, where he is attending the spring meeting of the International Monetary Fund and the World Bank.

India, with its increasingly affluent population, remains an attractive country in which to invest, he said. "From all these standpoints, India appears to be a good investment destination."

India's free-spending and thus perpetually cash-strapped government is constantly attempting to raise revenues. Global business does not object to the plugging of loopholes in tax laws; it is the retrospective aspect of the finance bill – mainly aimed at Vodafone for its 2007 buy-out of Hutchinson Whampoa's stake in Hutchinson-Essar – that has raised hackles.

Despite its best efforts, the government has been unable to attract foreign investment in infrastructure projects such as roads. Foreign investors are already shying away from investing projects controlled by a government whose laws are often arbitrary and changeable. Despite his bravado, Mukherjee's latest tax move is unlikely to help promote FDI in key sectors.