“I think it’s interesting that India has been remarkably effective at extending the reach of the financial sector to people living outside the formal economy,” U.S. Treasury Secretary Tim Geithner said, on the eve of a key visit to India.

Touching on some of the lessons that he hoped he could bring back from India to the United States, he said that close to 40 million Americans do not have bank accounts and “it would be nice for us… to understand how they’ve been so effective, starting from a much lower base, at substantially increasing access to the banking sector.”

Mr. Geithner’s comments came at a select press gathering at the Treasury this week, ahead of his departure. He will be in India on April 6-7. In New Delhi he will launch the U.S.-India Economic and Financial Partnership with Finance Minister Pranab Mukherjee. In Mumbai he will meet with Indian and American business leaders.

The newly-formed Partnership aims to strengthen bilateral engagement and understanding on macroeconomic, financial sector and infrastructure-related issues, a statement from the Treasury said. After the Partnership’s Cabinet-level meetings between Mr. Geithner and Mr. Mukherjee, Working Groups will meet through the year to advance discussions on specific economic areas.

Mr. Geithner touched on a range of issues relevant to his upcoming interactions in India. Besides the basic agenda for financial reform and cooperation to be discussed in India, he commented on President Obama’s plan to aim for tax neutrality but not for penalising outsourcing companies, India and multilaterals such as the International Monetary Fund (IMF), the question of deepening capital markets access, curtailing the financing of terrorism, and confidence in the dollar as a reserve currency.

Taxing outsourcers

On India’s concern’s over the U.S. administration’s moves towards raising taxes on companies engaged in outsourcing operations overseas, Mr. Geithner said: “What we have in the U.S. is a tax code where if you have two companies operating the same business in the same State, [the] same part of the country, and one decides it is going to build its next plant outside the U.S. and another decides it is going to build its next plant in that State — the first one, the one that puts its plant outside has a substantially lower tax treatment on its local income.”

On this basis, Mr. Geithner argued, the incentives were “not neutral to the location of the investment. “We’re just trying to get reform that achieves neutrality; it is pretty good policy to be neutral on these kinds of things.”

Multilateral engagement

To a question on the U.S. view on India’s pitch for more rights at the IMF, the Secretary responded: “As part of the reforms we agreed to in the G20 process in London, we initiated and committed to support a substantial rebalancing of the basic voting rights in the institutions, not just in the IMF but in the multilateral development banks.”

The U.S. was negotiating a series of agreements across those institutions and that might come to closure later this year, he added, confirming that such reform that could affect India’s role was “absolutely” on the table and moving forward.

As an example, he said, the U.S. had reached a conditional agreement around the Inter-American Development Bank and IDB reform agenda where voting shares were not central to it but there was a parallel process similar to the World Bank and the IMF.

The issues under consideration at the multilateral institutions are three, Mr. Geithner said: the financial structure of the institution; the governance structure of the institutions and the broad programme priorities, instruments; and the question of what the focus of these institutions should be.

Financial regulation

Among the issues that the Secretary will discuss in India a few stand out. These include deepening capital markets access by foreign entities and measures to curb terrorism financing – an issue that Mr. Geithner confirmed he would take up with Indian officials.

On the issue of capital markets access, Mr. Geithner denied that there was any tension between India and the U.S. given that India might desire to keep its financial system protected from some types of capital market flows. He said that political leaders in India recognised that “they are not at the end of the process of reform in the financial sector; and there is a range of things that will be in India's interest to manage through going forward.”

Mr. Geithner responded to questions on overly restrictive export controls, saying, “We have in the U.S. an export control regime designed in a different period, different time strategically and the President has done the consequential thing of setting in process a broader review [and] reform plan to update and modernise that regime.”

Strength of the dollar

On the dollar’s role in the financial system over time, Mr. Geithner said: “The future is going to depend primarily on how well the U.S. manages our economic challenges and I think that it is very encouraging and good and reassuring for the system as a whole and the U.S. in this financial crisis, [that] at times where there was the greatest concern about the basic stability of the financial system, about the risk of a great depression, deflation, in that period of time people generally still sought the safety of U.S. financial assets…”

Nevertheless, he said: “We’re going to make sure that we are working very hard to demonstrate that we are going to manage are economic challenges as carefully and wisely as we can.”

Childhood memories

The Secretary expressed some fond memories he had of his early years in India, where he lived during 1968-1973, when his father was the Deputy Resident Representative for the Ford foundation in New Delhi.

“I went to the American International School; I lived in Friends’ Colony,” he recalled. He valued being exposed to India at an early age “to learn to see as much as [possible] of Indian lives, not just extreme poverty but… a country with India's great opened dynamism tradition.”