India is one of the world's poorest countries although its gross national product (GNP) (measured in purchasing power parity terms) is the fifth largest. Vast sections of the populace remain impoverished even after substantial progress towards reducing malnutrition and mortality rates. Vajpayee's government has set out its plan to deal with the country's endemic social and economic ills in its "Agenda for a Proud, Prosperous India." The main thrust of this program lies in speeding up economic reforms. Vajpayee's economic initiatives include privatization, financial reforms, encouraging foreign investment, and liberalizing trade restrictions. Unpopular measures have been taken, including increasing the price of diesel fuel by 35% to bring it in line with international levels. The May 2000 budget included reductions in food and fertilizer subsidies, leading to protest marches by the opposition. By 2003, Vajpayee's privatization plans were being stalled by opponents within his own government, as both leftist progressives and the Hindu right-wing objected to selling off state assets to foreign buyers.
Environmental issues continued to cause serious problems in India during Vajpayee's administration, with particular controversy over dam projects and water rights. In February 2003, Vajpayee ordered Karnataka state to release water from the Cauvery River to the neighboring state of Tamil Nadu, in an attempt to ease agricultural irrigation shortages. A subway system was inaugurated in New Delhi, as a means to mitigate severe urban air pollution.
In March 2002, Vajpayee's government approved an antiterrorism bill, which it called a response to both the post-September 11 US War on Terror and December 2001 Parliament attacks by Muslim militants. The bill allowed Indian police to detain suspected terrorists for up to three months without charges, and permitted terrorism charges to be brought against anyone suspected of giving support to terrorists. Critics have deemed the law a reactionary violation of individual rights.
Religious tensions continually simmered under the surface throughout India, and then exploded in Gujarat State in February 2002. After a Muslim mob set fire to a train carrying Hindu pilgrims, over 1,000 people died in the retaliatory rampages that followed, with Muslims the great majority of victims. Mutilation, rape, and arson occurred on a large scale in Gujarat. Human rights organizations documented the involvement of right-wing Hindu political groups, as well as elements of local government and police, in planning and carrying out concerted attacks on Muslim neighborhoods. Vajpayee's government was perceived as slow to condemn the anti-Muslim violence, and negligent in providing relief or compensation to those affected. When the BJP won a landslide victory in Gujarat state elections in December 2002, the Congress Party accused it of continuing to stir up anti-Muslim hatred to gain votes.