Backlash over India-US diplomat row fuels investment fears

Backlash over India-US diplomat row fuels investment fears

NEW DELHI - A furious anti-US backlash in India over the arrest and strip-search of one of its diplomats threatens to further scare off foreign investors already baulking at what they see as a hostile climate, analysts say.

The economic fallout from the spat, which led to the unprecedented sight of India bulldozing security barricades outside the US embassy in New Delhi last week, will only become evident in months to come.

But "it is clear this is not a PR victory that will help attract investors to India", Rajiv Kumar, director of the Indian Council for Research on International Economic Relations, told AFP.

The diplomat, Devyani Khobragade, arrested on charges of lying on a US visa application about how much she paid her Indian maid, said she had been strip-searched and "cavity-searched" and was detained with "common criminals and drug addicts".

The diplomat's detention in New York has prompted outrage in the emerging global economic power which sees her treatment as a blow to its national sovereignty and pride.

One of the most startling reactions came from Yashwant Sinha, a former foreign and finance minister, who said India should now arrest the same-sex partners of American expats in the wake of a court ruling which upheld a colonial era ban on homosexuality.

Sinha's nationalist Bharitaya Janata Party (BJP) is favourite to win next year's Indian elections.

The surge of anti-US sentiment comes at a time when some American businesses appear to be getting cold feet about investing in India.

The government unveiled a raft of measures late last year aimed at attracting more foreign investment, including reforms to allow foreign supermarkets chains to operate in India.

But citing restrictive foreign investment rules, Walmart - the world's biggest retailer - suspended plans to open stores in India and scrapped a partnership deal in October with local telecom giant Bharti Enterprises.

International firms which are trying to break into the Indian market have also found themselves falling foul of the country's often labyrinthine tax laws as well as red tape.

The local unit of US technology services giant IBM is among those to have been caught up in a tax battle, vowing last month to "aggressively defend itself" against a demand for a reported US$865 million (S$1.1 billion).

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