A senior official of the rating agency ICRA has said that the proposals linked to the General Anti Avoidance Rule (GAAR) is impacting confidence and investment climate in India.

ICRA Vice-Chairman and group CEO, P K Choudhury said that GAAR has added anxiety to the lack of confidence in investment climate. He was speaking at on the sidelines of a ICSI Capital Markets Week seminar.

Experts say that foreign investors are concerned over GAAR issues and indirect transfer norms in the proposed Finance Bill 2012. India’s union Finance Minister Pranab Mukherjee had said that the proposed GAAR is not aimed at troubling honest taxpayers in the country and allow the authorities to check tax evaders. Gopalan reiterated these claims to calm FIIs, who appear concerned over the new regulation.

The FII inflow has fallen into the country since the proposal was announced as part of the union budget. FIIs net bought Rs 8000 crore of shares in March, compared to Rs 25,000 crore in February.

GAAR is not likely to hurt honest taxpayers in the country and the government will not punish genuine foreign investors who invest in domestic shares through participatory notes. According to market analysts, the central government will soon start taxing the inflow of anonymous foreign funds in to the stock market. They expect the investments through participatory notes into the Indian stocks to slowdown if the government introduces the GAAR.