Sinha said defence will continue to get the "highest priority" in the budgetespecially in the light of Kargil experience last year and this sector canexpect a "higher outlay".

He said the Government was left only with "hard options" to address the"difficult" fiscal situation.

"The fiscal situation has become difficult not only this year. It has beendifficult for almost two decades and nothing much has been done to bringfiscal situation under control either at the Central level or states", Sinhasaid in an interview shortly before he left for home after participating inthe 30th annual meeting of the prestigious World Economic Forum at thispicturesque Alpine ski resort.

"It is quite clear that we cannot live with that kind of fiscal deficit yearafter year," Sinha said adding, "therefore we have to take some very strongsteps to bring the fiscal deficit under control, especially the revenuedeficit".

Sinha said revenue deficit was in fact the "only major problem area" at themoment. "The Indian economy was doing well and there was an increase inexperts," he said.

The finance minister added all other indices suggested that Government was"in control" of the situation.

Sinha did not speculate on the fiscal deficit for 1999-2000 that would beoutlined in the budget.

The fiscal deficit target was pegged at 4.5 per cent of the GDP in the lastbudget.

Sinha said there was no question of fiscal deficit slipping out of his handssince Government was keeping a strict control over expenditure and wastrying to push up revenue collections.

"It must be noted that there are certain structural factors which areresponsible for the country's difficult fiscal deficit situation, it isthese structural problems which have to be tackled," he said.

Yashwant Sinha justified the recent cuts in interest rates for savinginstruments like PPF saying it was nothing but "simple logic."

He said world over interest rates are market determined and related to rateof inflation.

"Real interest rates in India is out of touch with inflationary realities,"Sinha said noting that inflation this year was at an all time low of 3 percent.

He said real interest rates was much higher than what was actually paidbecause investments in the funds for which rates have been cut haveGovernment guarantees on one hand and carry attractive tax benefits.