Prime Minister Manmohan Singh has instructed Finance Minister P Chidambaram to focus on tax reform in his next Budget.

In addition, he would like Chidambaram to look at improving the tax administration. The prime minister said his government had very little time before presenting the Budget in July to address these issues in any substantive manner.

In his pre-Budget interactions with the finance minister in June and July, Singh said he had focused on addressing some of the goals outlined in his government's Common Minimum Programme.

Describing himself as someone who has always been a "cautious reformer", Singh said he had to ensure there was wealth creation in order to pay for the programmes his government was committed to.

He said he would go into the aspects of some of the spending proposals currently under consideration. These include the employment guarantee programme as well as the tapping of accumulated foreign exchange reserves for infrastructure building.

Recognising that a new employment guarantee law would take a year or more to get through Parliament, he said he had already announced some interim measures through the expansion or re-jigging of existing Plan schemes.

In relation to some of the large numbers that have been discussed in this context, he said a limitation was the ability of various governments to implement on a huge scale across the country.

He said the programme could not be an open-ended one involving unaffordable outlays, and there would be a spending cap. All these statements suggest moderation in approach.

On using foreign exchange reserves to fund infrastructure development, and whether this would increase the fiscal deficit, Singh said there was scope for financial engineering to achieve some of the objectives.

Questioned on the wisdom of such a move, Singh laughed and said he did not want to prove Joseph Schumpeter right that economists made the worst finance ministers. He added that a team comprising himself, Chidambaram and the Planning Commission's Montek Singh Ahluwalia should be able to deliver results.

The prime minister felt his government was settling down to business after a slightly rocky start. He clarified that the primary obstacle to more foreign direct investment (FDI) in telecom was not opposition from the Left parties but some telecom companies themselves.

Also, the security establishment had raised objections. He said he was trying to deal with these concerns. On allowing more FDI in insurance, he said he would try and persuade those opposed to it after showing results on some of the goals outlined in the CMP.

Singh did not agree that the Left parties were coming in the way of the government's programmes. He said senior Left leaders had a great deal of goodwill for him, and what they wanted was to be heard and understood. He expressed confidence in being able to carry out his government's programmes, and to carry the Left with him.

Recognising that his government had to show results in agricultural development and farm relief, the prime minister said he had a discussion with Agriculture Minister Sharad Pawar on Wednesday and some ideas would be developed.

As for infrastructure development, he had asked Railway Minister Laloo Prasad Yadav to think in terms of giving the country a world-class railway system.

On security issues, the prime minister recognised there were areas of concern with some neighbouring countries, but saw Myanmar President Than  Shwe's recent visit as a positive step. He said further talks had been scheduled with the Naga rebels, and an agreement was within the realm of possibility.

Singh pointed out this issue was at the root of the many problems in the north-eastern region. Questioned on the wisdom of talking to naxalite groups elsewhere in the country, Singh said there was nothing wrong in talks.