Please could you outline the 'Gujral Doctrine' as it applies to foreign policy?

We have started to reshape India's relations with its immediate neighbours. The relationship is now based on three basic dimensions which have come to be referred to as the 'Gujral Doctrine'.

The Doctrine basically is that India will have mutually beneficial relationships with all these countries. The second dimension of the Doctrine rests on the logic that India is a larger country and a larger economy. India's economy is growing much faster. Hence, we must accept the principle of asymmetry in relations with our immediate neighbours and India should be ready to do more for these neighbours than what she should expect from them. Economic space in South Asia is large enough for all the countries to share it. This economic space has to be perceived as 'economic opportunity' and not as 'economic threat'.

Lastly, promotion of peace, stability and mutual confidence in the region are necessary for all-round prosperity and for taking care of many of the irritants like illegal migrations and social and political tension.

We have also for the first time extended our hands of cooperation in the neighbourhoods outside South Asia to ASEAN, the Pacific community, the Indian Ocean Rim, Central Asia and the Gulf. As many as 30 countries now come more or less directly within the ambit of what you call the Gujral Doctine. A significant volume of South-South cooperation has been generated by our policies and this will benefit not only the regions concerned but the entire global economy.

Are you optimistic that your commitment with Pakistan's prime minister Nawaz Sharif to improve bilateral relations will bear fruit?

It has been our desire to establish a relationship of trust, friendship and cooperation with Pakistan and my government has worked to this end. Our foreign secretary along with his Pakistani counterpart has succeeded in creating a basis for a comprehensive constructive and sustained dialogue between the two countries which would resolve issues and enable collaborative activity across a broad front of identified areas.

My meeting with prime minister Nawaz Sharif in Male was positive. I believe he shares my desire to improve relations between India and Pakistan and, like us, he is also interested in moving ahead with our bilateral relationship in a positive manner.

You have said that India should make unrequited concessions to its neighbours to resolve long-standing disputes and improve relations. Can and should India make any such unrequited concessions to Pakistan to resolve the long-standing confrontation over Jammu and Kashmir?

We have always been willing to address all subjects of concern in our dialogue with Pakistan. It is in this light that Jammu and Kashmir finds a place in the list of subjects to be discussed as set-out in the joint statement issued by the foreign secretaries on 23 June 1997 in Islamabad. The legal and constitutional status of Jammu and Kashmir remains in tact. This status is backed by the national will as reflected in the Parliamentary Resolution of 1994. We have a number of issues such as infiltration, terrorism, flow of arms as well as Pakistani occupation of portions of territory in Jammu and Kashmir which are of continuous concern to us. I conveyed these concerns to prime minister Nawaz Sharif when we met in Male and they were reiterated by our foreign secretary during his visit to Islamabad last month. May I make it clear that there can be no compromise with India's secular unity and sovereignty.

Would you consider reducing India's expenditure on arms to prioritise other needs in your country such as health and education?

India's defence expenditure has been declining in real terms over the past few years. Our defence forces are merely commensurate with the requirement of defending our large borders, both land and coast. Government has made constant efforts to increase allocations to health, education and other social sectors, despite resource constraints. Allocation of funds for health and education has indeed gone up. There is much higher GNP percentage-wise allocated to them than is allocated for defence.

India has attracted about $2bn in foreign direct investment in the last year, whereas China last year attracted around $40bn. What do you intend to do to make India more attractive to foreign investors?

India's Foreign Investment Policy today is quite liberal when compared with other economies in Asia and the Pacific. We allow automatic approval of Foreign Direct Investment up to 50 per cent of total equity in 48 priority industries and up to 74 per cent foreign equity in nine high-priority industries in metallurgical and infrastructure sectors. Foreign equity up to 100 per cent of total equity is automatically approved for non-resident Indians in all these sectors, and for all foreign investors in 100 per cent export-oriented units and units in the free-trade zone, export-processing zone, and software and hardware technology parks. Foreign investment is also allowed in mining, telecommunications, medical clinics and hospitals, domestic air transport, courier services, cable TV and financial services. Portfolio investment by foreign institutional investors are allowed up to 30 per cent of total paid up capital of any listed or unlisted company through both primary and secondary markets in India.

Both the central government and the state governments provide various fiscal incentives including a five year tax holiday for infrastructure development and for industries in backward areas for both domestic and foreign investors. The incentive package by the state governments generally includes an investment subsidy, tax break for excise duties, supply of industrial land under easy conditions, concessionary rates for utilities and special incentives to industries involved in modernisation, technology upgrades and quality control.

As a consequence of these liberalisation policies, total foreign investment to India increased from an annual average inflow of only $150 million during the 1980s to an annual inflow of about $5bn since 1994-95. The inflow of Foreign Direct Investment has also improved from $150m in 1991-92 to $2.1bn in 1995-96 and further to $2.7bn in 1996-97. More than $25bn in direct foreign investment is in the pipeline. These trends do indicate that India has been successful in attracting foreign investment within a relatively brief period of economic liberalisation. India started much later than China to seek foreign investment, and we haven't done badly and we hope to do much better in the future.

How committed are you to keeping up the pace of economic reform?

The present government is committed to economic reforms and its Common Minimum Programme last year clearly indicated that the ongoing economic reforms will be consolidated and expanded to other sectors of the economy. In fact, budgets for 1996-97 and 1997-98 have continued rationalisation and reduction of both direct and indirect taxes, and announced various reforms in agriculture, industry, infrastructure and financial sectors to improve the efficiency and competitiveness of Indian industry and agriculture and to impart dynamism to the overall growth process. As for myself, I remain fully committed to economic reforms and to increase the pace of them in areas beneficial to our economy.

India earlier this year experienced strikes by truckers and air controllers. Problems in industrial relations seem to be another factor damaging India's economic credibility. How do you hope to contain this problem in the future?

I cannot agree with the view that our industrial relations have damaged our economic credibility. Industrial relations in India have generally been more peaceful in recent years. Man days lost to strike and lockouts have declined significantly, from 23 million in 1992-93 to 13 million in 1996-97. Except for some strike action in the service sectors like transport, industrial relations in major industries have been very peaceful.

My government is committed to labour-friendly policy. Ours is a developing economy with a massive number of jobless people and, therefore, government has always framed policies which generate jobs directly or indirectly. Our policies have helped in reducing tension on the labour-relations front. Both labour and the employees have understood the dynamics of our situation and have cooperated. Government has always adopted a pro-active role for timely and effective resolution of industrial disputes and harmonisation of interests between employers and worker, partners in our development process.

You are the fourth Prime Minister in less than a year. How much damage has been caused to India by this level of political instability and can it be overcome?

Our society, policy and culture are characterised by a continuity born of our shared cultural ethos and, more importantly, our thinking and our national superstructures based on our constitution. These remain unaffected by changes in leadership at the centre. Our system of government, our laws and regulations and our policies are guided by our constitution, which is the cornerstone of our national outlook.

In addition to this, a coherent national consensus exists in India on many specific fundamental issues of economic, social and foreign policy, which is expressed time and again, regardless of a change in political leadership. I do admit that frequent changes in government at the federal level do create problems. However, we are the largest coalitional democracy in the world - three time the size of Europe and more diverse that the European continent. Our democracy is going through a leavening process. I am sure that the coalitional process will stabilise in the near future.