"India has to run a stable policy regime and have a stable taxation and investment regime," he said during his lecture at the Asia Society.
He was responding to a question on what India should be doing to inspire trust and confidence of investors.
"We need to streamline our foreign investment policy and procedures, improve infrastructure, improve our governance," to make the system more friendly for investors, the RBI Governor said.
"Potential foreign investors have to have confidence that India has a stable, predictable, transparent capital sector regime," he said.
The 2012-13 Budget introduced a controversial retrospective tax provision in the wake of Supreme Court judgement quashing the tax demand on Essar-Vodafone deal.
The Finance Bill also had provisions for introduction of General Anti-Avoidance Rules ( GAAR) under which investors rather than tax department have to prove that they do not attract tax provisions.
Subbarao sought to allay concerns that the investment climate in India is losing its attractiveness among foreign investors, saying the country still has an investor friendly environment with the central and state governments anxious to attract investments.