Arun Shourie said India was facing a serious economic crisis as it heads into elections in 2009 but the response had been lacklustre.

He criticised the current Congress party-led coalition for irresponsible off-budget spending, populist schemes that did not boost productive capacity and heavy-handedness in tackling supply-side inflation by simply raising interest rates.

"Our reactions would not be as slow or as half-hearted as the reactions of this government have been, whether it is on national security or it is on reforms or on meeting a crisis like the present one," Shourie, 67, said in an interview.

The $1 trillion economy boomed in the past three years, growing at an annual rate of 9 per cent or more. But that boom, twinned with soaring commodity and energy prices, saw inflation spiral to nearly 13 per cent in August.

The Reserve Bank of India (RBI) raised interest rates aggressively earlier in 2008 but has now had to drop them even more aggressively to counterbalance frozen money markets caused by the collapse of investment bank Lehman Brothers.

Now economists see growth at about 7 per cent this fiscal year as airlines, real estate and car-makers cut costs and output.

Shourie said aside from lowering interest rates, relief should be also given to industries such as textiles, construction, handicrafts and light engineering.

FINISH WHAT YOU START

India has a poor track record in completing projects to boost its overloaded infrastructure, seen as vital to promote long-term growth. Shourie said one solution would be to reward state governments that expedited projects.

Investment would come in, even in the current environment, if the government showed it could deliver, he added.

"Money will come forward, the Indian investor will come back. He will certainly come back in government-guaranteed debt provided he is confident that the government will go ahead with the project and execute it efficiently."

India could also tap expatriate investors through a special deposit scheme, as it did in the 1990s, and court the wealth of Middle East states.

"We should approach them, but they will not give it to us, will not deposit with us, if we live up to our reputation of not being able to execute the projects efficiently."

Privatisation has proved almost impossible for the present government due to opposition from its allies and then to a falling stock market, and any future government is likely to face similar coalition pressures.

Shourie said the BJP would not be dogmatic about any specific proposal or make ‘any particular reform a fetish’.

Instead, he was keen on promoting higher education with foreign participation to resolve a massive skills shortage, pursue green technology and private participation in defence production, and improve overloaded city infrastructure.

The current coalition has stressed the need for double-digit economic growth like neighbouring China, to create jobs and reduce poverty in the world's second most populous nation.

But for Shourie the most urgent reform was to ‘salvage the institutions of the state’, including clogged courts, partisan law enforcement agencies and corrupt politicians.

"Governance norms and governance have collapsed," he said. "So if it is a single reform it will be in governance not in the economy."

One problem was the fractious political landscape, with smaller parties with a regional agenda often calling the shots.

"The electorate has been completely splintered. The result is that there is no national election, no national issue," he said.