What are the immediate challenges that we face? To my mind, the foremost among these would be (a) to cope with the rise of China; (b) maintenance of a peaceful periphery; and (c) managing our relations with the major powers.

China as India's largest neighbour and as an emerging power is both a challenge and a priority.

As a result of our engagement with China over the last 30 years we have now reached a somewhat normalised relationship.

Of course, there are some unresolved issues between us.

However, we need to factor in the fact that as a result of our engagement we have today a completely different situation than when we started.

Further the economic developments in this period have given both our countries new capabilities.

We are today faced with a new China.

Today's China seeks to further her interests more aggressively than in the past, thanks to the phenomenal increase of her capacities after 30 years of reforms.

There are also a new set of challenges that China poses such as the strategic challenge as China develops its capabilities in outer space; the geopolitical challenge as it reaches out to various parts of the globe in search of raw materials and resources.

We would need to develop more sophisticated ways of dealing with these new challenges posed by China. We cannot change our neighbours.

It is important, therefore, for us to recognise and work with the reality. Our belief is that there is sufficient space for both of us to grow together and build a cooperative relationship in the new architecture.

We need to ensure a peaceful periphery and an environment of peace and stability in our region and in the world, which will facilitate maintenance of socio-economic development and safeguarding of our national security.

India is already engaged in establishing strategic partnerships and expanding the scope and depth of our economic and strategic interaction with different countries, groupings and regions -- whether it is Russia, a long-standing partner, South East Asia, Japan, Central Asia, IBSA or many others with whom we are developing a fruitful and active dialogue.

The underlying rationale is that in a globalised world, challenges, be they financial or security, can no longer be tackled by countries acting alone.

The biggest threat to peace and security in our region and to the world at large comes from terrorism which emanates from our neighbourhood.

This is compounded by the danger posed by terrorists' accessing weapons of mass destruction or related technologies. The series of terrorist attacks in Pakistan shows the fragile internal situation of that country, a situation we continue to monitor closely and which we hope will not deteriorate.

The situation in Afghanistan remains of grave concern and a resurgent Taliban poses a threat beyond Afghanistan.

Our challenge has been to try and work with both countries, to stabilise the situation.

With Pakistan, India has called for removing bilateral impediments to trade and economic relations, which should not be predicated on resolving contentious political issues. Some progress has been achieved in this regard, notably along the Line of Control.

We are, however, continuing to persuade Pakistan to grant overland transit to our goods as this can speed up stabilisation in Afghanistan.

We believe this can also lead to greater commerce and benefit all the countries in the region.

Our goal of a peaceful, stable and prosperous neighbourhood is predicated on enabling each of our neighbours to pursue the shared objective of the development of our peoples.

Our economic growth is having an impact on the region and there are increased opportunities for others to benefit by partnering with India.

The challenge will, however, be to persuade our neighbours to set aside past mistrust and suspicions, which have undermined the development of harmonious relations and restricted the space for expression of our natural sentiments of affinity, based on a shared history.

We continue to put forward proposals,  multilaterally through the Saarc and bilaterally, to our neighbours, by making unilateral gestures and extending economic concessions.

The facility of extending duty-free access to imports from Bangladesh, Nepal, Bhutan and Sri Lanka demonstrates India's readiness to assume asymmetric responsibilities.

I have just concluded a visit to Iran, a country with whom we have had a long history of cultural interaction.

Today, a sizeable portion of India's energy requirements is met by Iran. Discussions on an India-Iran-Pakistan gas pipeline are ongoing.

We are also exploring possibilities of transit for our goods to central Asia and Afghanistan through Iran, since Pakistan does not permit transit to us.

On the nuclear issue, we have conveyed that Iran must fulfil all its international commitments including those it has undertaken under the NPT.

Excerpt from External Affairs Minister  Pranab Mukherjee address to the National Defence College on November 3, 2008