(AFP) Indian Prime Minister Atal Behari Vajpayee received a red-carpet welcome today as officials signed an initial deal to swap palmoil for a huge railway contract.

Vajpayee, who heads a 135-member delegation including 75 top corporate leaders on a business-oriented visit, was welcomed by Prime Minister Dr Mahathir Mohamad and a military honour guard at the new administrative capital of Putrajaya.

They held private talks before witnessing the signing of several agreements and memoranda of understanding (MOU), including an MOU on the railway deal worth between RM4.1 billion and RM4.8 billion.

The contract is for the double-tracking and electrification of 300 kilometres of line from Ipoh, Perak up to the Thai border.

Malaysia hopes to pay for the five-year project through annual Indian imports of up to 1.6 million tonnes of its palmoil.

Visa-free

Foreign Minister Syed Hamid Albar told reporters payment details were still being worked out.

"Both sides agreed it would be on counter-trade basis. We are looking at the configuration on how palmoil should be traded, whether in raw or crude form, and how we could collaborate on the refinery side," he said.

The MOU between Malaysia's transport ministry and Indian Railway Construction (Ircon) was signed by ministry secretary-general Zaharah Shaari and Arun Prasada, Ircon's managing director.

Four other MOUs cover cooperation in construction and management of Indian ports, on information technology, on the civil service, and between the Securities Commission of Malaysia and the Securities and Exchange Board of India.

Two firm agreements were signed, on visa-free travel for diplomats and officials and on avoidance of double taxation.

Aid to victims

Earlier, Mahathir presented donations totalling RM1.49 million to Vajpayee for earthquake victims in Gujarat.

Indian officials see the visit to Malaysia, Vajpayee's first as prime minister, as an opportunity to open a trade gateway to Southeast Asia.

Syed Hamid said another nine MOUs would be signed between businessmen. The pacts were a "clear signal that both leaders are very interested to see bilateral ties being strengthened," he said.

Mahathir and Vajpayee held "very frank, constructive and productive" discussions on bilateral issues, globalisation and defence, he said.

India agreed to consider Malaysia's request to cut high import duties on its palmoil but wanted the "one-sided" trade balance to be corrected.

India last year exported goods to Malaysia worth RM1.3 billion and imported products, mainly palmoil, worth RM6.4 billion.

Syed Hamid said the two leaders agreed on the need to coordinate on World Trade Organisations (WTO) issues especially on investment, labour and the environment to ensure that the interests of developing countries were protected.

No to arms race

He said Mahathir asked about India's position on the proposed US missile defence system and voiced Malaysia's opposition to it.

"India's response is that they are willing to discuss and look at it. Malaysia's position is that there should be a reduction of arms and any form of arms race. We want a total ban on nuclear weapons," he said.

The Malaysian leader also urged India not to lose focus on the need for continued reforms to the global financial system to prevent future crises.

Mahathir accepted an invitation to visit India, with the date to be decided later.

Primary Industries Minister Lim Keng Yaik met Vajpayee later and said he (Vajpayee) was "very sympathetic" to requests to cut palmoil duty.

Malaysia wants India to cut its effective duty level of around 92 percent on imports of palmoil to the level of duty imposed on soyabean oil which is around 51 percent.

"He had given us a sympathetic hearing and promised us that they will review the situation at an appropriate time," Lim told reporters.

Tomorrow Vajpayee will visit the Petronas Twin Towers, the world's tallest buildings, and tour Kuala Lumpur before attending a high-powered business forum.

He will deliver a lecture on Wednesday before leaving that afternoon.