DG: What accounts for the upshifting in growth?

MSA: I think the upward shift, if you like, in the underlying growth rate is the result of economic reforms. And a very important part of the economic reforms was a much greater reliance on the market economy and the private sector. I think what the reforms have done is recognize that private sector has a greater role to play.

DG: What would it take to move from eight percent growth on a sustained basis to a higher level?

MSA: One of the critical constraints which holds back our growth rate is really the quality of infrastructure. If you compare infrastructure in India with infrastructure in East Asia, in our view, both the private sector capability, the entrepreneurial capability, the human skills, all that kind of energy, is fully competitive and comparable. Infrastructure is poorer, and that reflects the fact that we haven't invested nearly as much as we should have in the past several years. So a major expansion in infrastructure investment, in the policy framework within which infrastructure develops, the quality of infrastructure -- all of this must be very high on the agenda and it is.

I think a second important issue really is that, for the last several years, we seem to have hit a bit of a wall on agricultural productivity, much below the level that is technologically feasible. There's a lot of talk in India that we need a second green revolution. We're talking about agricultural growth being say four percent, when the economy is growing at nine. Whereas actually, the last seven or eight years, agriculture has grown at only two percent.

I think the quality of more rapid agricultural growth in terms of what it would do for a broader spread of benefits is the other very special factor. You know India has done extremely well in the last several years -- high growth rates, people perceive that the economy is changing -- but there's also a perception that the rural areas haven't really benefited from it as much as they should have, and this is correct. 60% of the population derives the majority of their income, not all of their income, but the majority of their income from agriculture, so a doubling of the growth rate in agriculture would make a big difference.

DG: What is the government doing about India's water problems?

MSA: The short answer is we are not doing everything we should be doing. In many ways, if you ask me, I think the water crisis in India is somehow more serious than the energy crisis. I think the reason is we've known about the energy crisis for a long time, people are rational about energy pricing, people recognize that energy is expensive. we import the energy from outside. We know what it costs abroad, so while there is some feeling that energy for certain targeted groups needs to be subsidized, in general people realize that you got to pay for energy. I don't think people feel that way about water. There's a sort of presumption that water is a gift of god and therefore it should be available, although it's very scarce, be freely available and so on. Now we don't for example charge very much for water in agriculture, yet water is very scarce and you want to conserve it. So if you're not going to charge for it and you want to conserve it, it's not going to be very easy to do that.

There's no doubt whatsoever that it's a major problem. I mean many of our rivers are getting polluted, it's difficult to provide water in many of the cities. The quality of water in rural areas is getting affected, because of salts in soil, and arsenic levels are going up. In one-third of the area that uses ground water, water levels are depleting seriously, which means we are drawing out more water than the recharge of the aquifer. This is simply not sustainable, and I think we now recognize that and what we need to do is act on a very large number of fronts through public action to correct that.

DG: Is that happening?

MSA: I'm hoping in 11th Plan which we are just about to put out in a few months, we will put the issue of water at a much higher level of awareness, give it more priority. Everything that I am talking about -- groundwater recharge, conservation, improving the efficiency of the irrigation system, building water supply systems -- all this is happening even today, but I just think it needs to happen on a much larger scale. People are much more aware that there is a problem, but it's only seen as a problem, we haven't yet gotten around to working out what's a practical way of solving the problem, basically.

DG: Can India grow at nine, ten percent on a sustained basis, if it doesn't address the water issue?

MSA: Not at all. In my view, the projected growth at nine percent assumes that both in terms of the efficiency of policy relating to energy and the efficiency of policies relating to water, we will see major improvements, but I'm quite hopeful that we will. in a democracy, the first stage of solving a problem is a good understanding that it is a problem and a reasonable public debate that it won't be solved by itself. So we are now getting to the stage where we are at the border of being called a water-stressed country.

DG: Another challenge for India is education. Do you think the [poor quality and small capacity of the] Indian educational system is going to hold India back?

MSA: Higher education has to expand so it can cater to twice the proportion of the country that it currently caters to. In addition to that, the quality has to be improved. I mean, the Indian university system I think is one where the best parts of it are very comparable with good universities elsewhere. But the bulk of it needs very significant improvement in quality, so we have to both expand quality and expand quantitites.

But it is something that is one of the major things we want to do in the next five years, so this would be seen to be a period where, when you look back on it, it will be said that India really looked at this problem and did something substantial about it. It's a major next generation reform.

DG: Are China and India, because they have large populations and pools of low-cost labor, naturally competitors?

MSA: Everybody in a market economy competes, so they are in that sense natural competitors. We regard China economically as a very successful country. They have achieved nine, ten percent growth over the last 20 years. We're trading with each other. There are Indian investors investing in China. Chinese investors investing in India. Frankly, in an integrating, global economy, two large opening up -- one admittedly opening up a little later than the other -- is good for them both and good for the world economy it seems to me.

DG: The risk in China is that there will be a peasant backlash. Is there a risk of that kind of backlash here in India?

MSA: I think the openness of the political system pretty much insures that there will be no suprises in India. For the last several years, the Indian government has been very aware that, while a high growth of strength is a sign of strength and very large numbers of people are benefiting from it -- even the extend of poverty is going down. Nevertheless, modern communications and television presents a picture where every individual case of success is promptly beamed across the television to every part of the country which may not be experiencing, as yet, anything comparable. That sense that success is not sustainable unless it is widely shared is very much a part of the Indian consciousness. I don't there fore expect a backlash. But it is a tempering factor. Politicians are continually reminded that it is not good enough to talk about growth, unless you can say, well and you know what I mean by growth because your life is getting better.

DG: Thank you very much for your time.