UK business leaders are concerned that the Indian government could clamp down on the tax havens of Mauritius and Cyprus as it struggles to come to terms with soaring inflation and budget problems.

Yesterday, as published data showed that inflation in India has hit a 13-year high of 11.05%, key British business figures gathered to assess the opportunities and risks of doing business in the Asian country.

Of major concern is the future status of Mauritius and Cyprus, where many UK companies base their Indian operations so they can benefit from the islands' tax treaties with the country. Such is the popularity of this route that Mauritius is the largest source of foreign direct investment into India.

One of the starkest warnings so far about a possible crackdown came from Sanmit Ahuja, director of the India programme at the Commonwealth Business Council.

He said: "The India government feels that a lot of dodgy money is round-tripping (to Mauritius and Cyprus). So it is a concern."

While security worries, particularly the funnelling of cash to extremist groups, are part of the Indian government concern, financial pressures could also play their part.

Sir Thomas Harris, Standard Chartered vice-chairman, warned the meeting: "The tax situation in India is now very serious. They always ran a fiscal deficit. That situation has deteriorated."

He said that the fiscal deficit in India could now be in double digits as programmes such as the waiving of bank loans to small farmers proved costly.

"If I were responsible for tax inside the Indian government I would he looking at any possible ways of raising revenue," he added. "People talk about Gordon Brown's fiscal flexibility and manoeuvrability. Our problems here are nothing like those in India."

Deepak Lalwani, director of stockbroker Astaire & Partners, said inflation hitting 11% means the pressure on the government "has deepened".

He warned that the worsening of the economy and the government's financial position also made liberalisation of its economy less likely.

Among the key movers in attempting to persuade the Indian government to open up its markets is Standard Life chairman Gerry Grimstone. Grimstone sits on the board of the insurer's joint venture in the country and is the India Champion on government body UK Trade & Investment's financial services sector advisory board.

Among the issues being pushed by financial services companies in the country are their role in extending financial inclusion by working with micro-finance initiatives and opening branches in areas where there is no provision.