Q: How do you see the economic agenda unfolding in India, and how well is the BJP holding the economy together.
A: The basic problem of India is to deal with the very large backlog of mass poverty, ignorance, and disease. That requires a sharp improvement in the overall growth rate because we can find meaningful solutions to the problems of mass poverty only in the framework of a rapidly expanding economy. So we need strong, resurgent, labor-friendly growth, which in the process creates enough jobs to absorb the many entrants to India's labor force. About 10 million young people enter the job market every year.

Q: What kind of growth rate would that require?
A: We need a growth rate of 7%-8% sustained over a period of, say, the next 15-20 years to get rid of the hard edges of extreme poverty. We are still a very poor country by international standards. But to soften the harsh edges of poverty, we need that kind of growth. And growth by itself won't solve the problem. We'll need social action in the basic social services -- education, health, environment protection. And without strong, resurgent growth, the state would not have the wherewithal to tackle the social part.

Q: To get 7%-8% growth, you really have to have consensus on a much more aggressive economic platform. I'd think that India would have to have a doubling of the growth rate...
A: That's not true. I think India in the last several years, the average growth rate would be 6%-6.5%, so increasing it by 1%-1.5% is not such a big thing.

Q: As an outsider, one gets the impression that India is groping from crisis to crisis, going from one coalition to the next...
A: That's absolutely true. We have rather fragile political structures. But you must take a longer perspective. Until 1991, there was one broad view of economic management -- central planning, inward looking, development strategy, public-sector-centered growth strategy. We have tried to reverse that direction. Now, we had in the last seven to eight years three governments. The Congress from 1991 to May, 1996, for five years; then a government for one year led by the regional parties and left parties, the two communist parties; then we had a right-wing coalition led by the BJP. Three political experiments. But the broad direction of economic policy set out by the Congress Party has remained intact. Today there is no basic difference about the direction in which India has to move. Greater liberalization, greater openness, less reliance on state enterprises, more reliance on market forces. Plus strengthening the state where the state needs strengthening, by strengthening its role in judicial infrastructure, the provision of social structure and services. That is a remarkable achievement, from right wing to extreme left, all have had a chance to govern India in the last eight years. And out of this experimentation has emerged a remarkable, broad consensus.

But that's not to say that India does not need a strong, purposeful government. We need strong leadership by the governments both at the center and by the states. The states cannot wither away.

Q: If you -- the Congress Party -- were to get back into power, would the economic agenda be that much different?
A: First of all, India's fiscal system is overburdened with unsustainable deficits. We have unsustainable revenue deficits, therefore we have to reform the public finances of the country, reduce the fiscal deficit to no more than, say, 4%-5% of GDP, the center and the states taken together. At present, it's 10% of our GDP, which requires reform of public expenditure, cutting expenditure where we didn't cut it, focusing it more sharply on social services, infrastructure. Part of it would come out of many hidden subsidies which are built into our system; part of it will come from the improved efficiency of the system; part will come out of privatization, disinvestment, i.e., selling of public-sector enterprises. Interim, we will have to experiment, toss all the balls. Tax reform, public-sector reform, financial-sector reform, expenditure reforms.

Q: But you don't get the sense that all those reforms are taking place now. Because of the political...
A: Not political, but because the legislative system in a democracy such as India tends to be very time-consuming. And if you have governments that are short-lived, they cannot concentrate their minds on something that is long-term. When we were in government, we talked of insurance-sector reform; the next government also talked of that but wasn't able to implement it. It takes eight to nine months to pass a bill through various stages of the parliamentary process. So where governments are not strong or secure, legislation becomes the casualty even though everybody agrees that these are areas of priority.

Q: Do you see hope for anything but coalition governments in the future?
A: I have not given up hope our country will recognize that coalitions have their limitations. But even then, India will have learnt that coalitions have come to stay, and we will need to operationalize the mechanisms for viable coalitions. We need to learn from the last two to three years.

Q: In terms of globalization, has the Asia crisis made you rethink any of your assumptions, which seem market-friendly?
A: We should not be drawing the wrong lessons from the Asian crisis. What I think is more remarkable is the massive restructuring that countries like Korea are engaged in. I have no doubt that in a year or two, Korea will be up again as a fiercely competitive economy. If that is the sort of world environment we have to live in, then I think India has to push ahead with reform. We should not be drawing the wrong lessons that India was better off remaining a relatively cloistered government. We have to open up foreign trade in our country -- imports and exports still are only about 22%-23% of our GDP. We are not at the optimum level of openness in terms of trade or inward flow of investment.

Q: You said mass poverty is India's biggest issue. How about the corporate sector: What's the biggest issue?
A: Corporate governance. India's industrial system has done reasonably well, but in a highly protected economy. Corporate governance, greater transparency, accounting standards that are up to international levels, fair business practices, so that enterprises have no difficulty in raising capital in the markets. Corporate governance must get our attention and from our enterprises. It is happening, it is happening.

Q: What's the burning issue in the economy today?
A: The fiscal problem is to be tackled on a priority basis. Our balance-of-payments situation is reasonably comfortable, but our exports do not do as well as when our government was in power, we will have to worry about the balance of payments. I hope it will not be another 1991 crisis, but we will have to do much better on the balance-of-payments problem.

Q: What do you expect from the budget?
A: Finance ministers make a great deal of song and dance. The bulk of expenditure is already committed. So it's only playing at the margin. The best thing a budget can do is restore a sense of confidence to investors and consumers both at home and abroad...Now if we have a budget like last year's, that does not inspire confidence. The people of India would appreciate a hard budget, a credible budget. I do hope the Finance Minister lives up to the challenge that the situation demands.

Q: Explain how India lures back foreign investment.
A: We have to improve the climate of investment. It means introducing a sense of relevance, coherence...I do agree we have a problem. This political uncertainty is not good for enterprise, both domestic and foreign. I do hope the people of India will recognize it when the time comes. In a democracy, there is no other way.

Q: Are you comfortable with the Pakistan overture?
A: It is essentially an updating of the Simla Agreement of 1972, building an atmosphere or creating a climate where the two countries can deal with the problems that exist between them. There is no precise operational element in it, except confidence building, and we welcome that. It's a process we are comfortable with, and we welcome normalization of relations with India and Pakistan.

Q: What is the Congress strategy, to sit tight until there is enough dissension or dissatisfaction with the BJP? Or do you want to call elections immediately?
A: We don't have the majority, so our calling the election doesn't arise. But Mrs. [Sonia] Gandhi [leader of the Congress Party] has often said that only when we are in a position to form a government will we decide whether to form one or go for elections. One thing has to be recognized: This Parliament was elected only one year ago, and very few members of Parliament want to go back to an election right now.

Q: What are your personal ambitions? Do you see yourself as a key player in the next Congress government?
A: Well, I am a member of the Congress Party, but who can predict the future. As Prime Minister Harold Wilson used to say: A week in politics is a very long period of time. I'm not an astrologer. I fell into politics accidentally. I was a senior civil servant, I've held all the important economic portfolios: Secretary of the Treasury, Governor of the Reserve Bank of India, chairman of the Planning Commission, member-secretary of the planning commission, chairman of the University Grants Commission. I was happy to retire, when suddenly one fine morning Prime Minister Narasimha Rao rang me up and asked me to become Finance Minister. I had not planned it...Let me say, though, that there are many more able people in our party. Mrs. Gandhi is the undisputed leader of our party.

Q: Is Mrs. Gandhi palatable to most Indians?
A: She has done a brilliant job of restoring people's faith in the Congress Party. She would make a very good Prime Minister. She's very rational, straightforward, humane. She's a good president of the All India Congress.