Talks to modernize India's financial sector and allow major retailers like Wal-Mart into the country's vast consumer market opened on Tuesday between top U.S. and Indian financial officials.

U.S. Treasury Secretary Timothy Geithner and Indian Finance Minister Pranab Mukherjee will discuss ways to ease India's barriers to U.S. banks, insurance companies, and multi-brand retailers, including caps on foreign ownership, said Lael Brainard, the U.S. Treasury's undersecretary for international affairs.

Wal-Mart and other major retailers have tried in vain for years to enter the Indian market which is dominated by individual shopkeepers and small-scale firms.

Both Indian and U.S. officials say the improved cold storage and distribution facilities large-scale international retailers could bring would ease supply bottlenecks in India's economy and bring down food price inflation.

There are a host of benefits for opening up the retail sector, ranging from more variety to cheaper cost to faster delivery of food products, Brainard told Indian reporters on Monday ahead of the one-day round of annual economic talks between the countries.

She said barriers have diverted some foreign investment away from India to other fast-growing economies in Asia.

The discussions are the second round of annual consultations between the United States and India launched last year in New Delhi. The effort seeks to foster closer ties between the world's largest economy and one of the world's fastest growing emerging markets.

Mukherjee and Geithner are scheduled to hold a joint news conference at about 12:15 p.m. (1615 GMT).

Geithner told a business forum on Monday he believed India's economy had outgrown its financial system. He said deeper and more liquid capital markets were needed for India to finance its $1 trillion worth of infrastructure needs over the next five years.

Geithner would like U.S. financial firms to have more access to what is likely to be a rapidly growing financial services sector, and believes they can bring needed expertise.

REWRITING LAWS

Mukherjee said at the same forum that India had set up a commission to rewrite the country's financial sector laws to bring them in harmony with the new liberalized environment in the country and in keeping with global best practices.

He said India's central bank was in the process of issuing additional banking licenses to private sector firms, and discussions were underway to build consensus on further liberalization of the (foreign direct investment) policy in the retail and defense sector.

The two ministers also are expected to discuss their cooperation in the Group of 20 bloc of major advanced and emerging economies, where they share common goals of limiting trade imbalances and promoting market-driven currencies.

The United States wants to make India one of its top 10 trading partners in the next years.

Currently, bilateral trade between the two countries is about $49 billion annually, just over a tenth of the $456 billion U.S. bilateral trade with China, the United States' second-largest trade partner after Canada.

(Editing by Andrew Hay)

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