ISLAMABAD - Prime Minister Nawaz Sharif said on Friday that his government can frame special laws to grant Gwadar a special status like that of Hong Kong. Declaring Gwadar a free port will bring multiple advantages to the nation and the region, he said.

Chairing a meeting on Kashgar to Gwadar Economic Corridor, the prime minister said, “The location of Gwadar is strategic and it has full potential to become a free port. It is my opinion to give Gwadar a special status and special rules and regulations can be formulated for this purpose.”

Separately in an interview with British daily The Telegraph, Prime Minister Sharif reiterated that he wanted peace with India and even the Taliban through dialogue, though the PM also mentioned in explicit words that India is behind terrorism and unrest in Pakistan.

"Our sources also tell me that there is a hidden hand of India in certain disturbances going on in Pakistan and the acts of terrorism which take place in many parts of Pakistan," he said. The PM said Pakistan is however eager to settle all the disputes with India including Kashmir through dialogue.

"In addition, we want to improve the relationship with the US and want an end to drone strikes which is number one irritant in the US-Pakistan relationship," the prime minister said.

"My responsibility is to restore peace in Pakistan and bring the genuine security that will allow economic development," Nawaz said. "To achieve this goal I need to explore an option of direct dialogue with the Taliban, as Britain negotiated with the Irish Republican Army to resolve the conflict in Northern Ireland," he said.

About Pakistan-India relations, PM Sharif further said, "My mandate from the people of Pakistan is a mandate for peace with India and I want to pursue conflict resolution with New Delhi with far more energy and vigour."

A crippling arms race between Pakistan and India must ‘come to an end’ and the two rivals should settle their conflict over Kashmir, the prime minister said. "We've been in a very unfortunate arms race with India ever since partition and I think we are a very unfortunate country from that point of view," he.

"Both Pakistan and India have wasted so much money on military hardware, building up their defences against each-other. They've been running after MiG-29s, we've been running after F-16s; they've been buying more tanks and we've been buying more military hardware. We've been running after submarines - how expensive they are! - and then of course India was the first one to tread on the nuclear path," he told the Telegraph.

Both neighbours should stop the game of mutual recrimination, he added. "Anything going wrong in India - they blame us; anything going wrong in Pakistan - we blame them. I think this blame game must stop now... The money wasted on defence should have gone into social sectors - it should have gone into education, it should have gone into healthcare."

Last year, defence and debt repayments swallowed 54 per cent of Pakistan's federal budget; education received less than 2 per cent. Sharif said he wanted to cut defence, but added: "This cannot be one-sided - we have to do it together. India would also have to do it."

In New Delhi, Indian government Friday ruled out any meeting between prime ministers of India and Pakistan and bilateral talks between the two countries saying such meeting will not be conducive in the prevailing situation. As per media reports this was said by Indian foreign ministry spokesman Syed Akbaruddin while talking to media men.

Akbaruddin said India was eager to move forward the dialogue process with Pakistan. However, any talks or dialogue stands ruled out in such an environment wherein anti-Indian ‘terrorism’ is being flourished. If Pakistan is serious it will have to create a conducive atmosphere in this respect, besides ensuring that its soil will not be used for activities against India, he added.

Also on Friday, US Secretary of State John Kerry telephoned PM Sharif and apprised him of the concern Washington had conveyed to Indian leadership over killing of Pakistani soldiers and ceasefire violations on the LoC.

Well-placed sources told The Nation that the Secretary of State also informed the premier of Washington's efforts to ensure that New Delhi takes appropriate steps in easing the tension along the LOC, and that prime ministers of the two countries must meet on the sidelines of the UN General Assembly next month.

He appreciated Pakistan's policy of restraint and responsibility and its desire and commitment to resolve all the outstanding disputes with India through dialogue. Reaffirming his resolve to continue Pakistan's help against war on terror and he assured Sharif that the US will not let Pakistan alone in war on terror.

Kerry also informed Sharif that President Obama was keenly waiting to meet him during his upcoming visit to the US. The two leaders, sources maintained, also exchanged views on the regional situation with special reference to the developments in Afghanistan, Pakistan and Afghanistan's relations as well as forthcoming visit of Afghan President Hamid Karzai to Pakistan.

Meanwhile, the prime minister has asked the information minister to investigate how Declan Walsh, the New York Times bureau chief, was unceremoniously bundled out of Pakistan when the previous government was in power.

Walsh, who reported from Pakistan for more than nine years, had previously written a story suggesting that some attacks on extremists attributed to US drone strikes may actually have been carried out by Pakistan's own forces. Two days before the election in May, Walsh received a midnight message from the govt that his visa was being cancelled because of ‘undesirable activities’.

Earlier in the day, chairing the meeting on the Economic Corridor project, Nawaz Sharif said both Pakistan and China were taking keen interest in this mega project. He declared this project ‘future of the country’ and added that out of world's six billion population, this region housed three billion and the project would prove beneficial for the whole region.

The PM recalled his earlier meetings which discussed the Trade Corridor from Kashgar to Khunjerab and Gwadar and in principal, approved the proposed alignment of Pak-China Trade Corridor, with the directions to further evaluate the proposal in terms of time and cost efficiency. He said the Gwadar Port will help reduce the time needed for transportation for Chinese exports from 16 to 4 days, besides reducing the cost considerably.

He said the existing motorways can be handed over to the private sector to generate around Rs250 billion annually that will help fund construction of new roads. The prime minister directed that the existing and the new motorways be linked with the highways to improve connectivity.

During a briefing, Finance Minister Ishaq Dar pointed out that Pakistan Economic Corridor alignment must keep in view the future hydel projects like the Bhasha and Dasu dams, so that there is no need to change their designs in future.

The chairman NHA in his briefing said Pakistan owing to its geo-strategic location could provide linkages with the Central Asian Republics, the Gulf countries and China. He said there was a proposal to have a new alignment of Khunjrab-Gwadar Road so as to create linkages with new areas and generate economic opportunities.

He told that the distances would be reduced by construction of bridges and tunnels along the Karakorum Highway. It was estimated that the distance of the Karakoram Highway could be shortened by 150-km through its improvement. The meeting was also informed that a 15-km long tunnel could be built near Babusar Top at a height of 11,500 feet.

Others who attended the meeting included Planning and Development Minister Ahsan Iqbal, Information Minister Pervaiz Rashid, Railways Minister Khawaja Saad Rafiq, Special Assistant to PM Tariq Fatmi and senior officials. The PM informed the meeting that China had shown interest in establishing an underground railway network in Karachi and Lahore.

Sharif also approved in principal up-gradation of the existing railway track system between Karachi and Peshawar at a cost of $2.7 billion. The two-year project will modernise signalling, communications, locomotives and will enable the trains to run at a speed of 120-km per hour. This will also shorten the time needed to travel between Karachi to Lahore from 18 to 12 hours and between Karachi to Peshawar from 27 to 17 hours.

He said there was a need to address the energy crisis on urgent basis.He added the proposed tunnel through the Margalla Hills to link Islamabad with Haripur would provide a shorter route to the commuters of Gilgit-Baltisatn, Mansehra and Abbottabad. He said the Islamabad Expressway will be extended up to Muzaffarabad and the Lower Topa-Havellian portion will soon be built. He added that the Islamabad-Muzaffarabad Expressway project was his vision and it had been planned in his previous government.

He also pointed that the new airport being constructed near Fatehjang had design faults and there was a need to have a new airport near Rawat that will be linked with Islamabad and Rawalpindi through train links and an expressway. The road between Zero Point and Rawat would be built like Shaikh Zaid Road in Dubai having business and residential centres along it, he added.

The premier said there was no space in the budget for such huge projects, however there was a need to have out-of-the-box solutions to auction the land, along this highway in a transparent manner and generate funds. He said similar projects can be conceived in Lahore and Karachi, including the underground Metro service in the two cities and said China has evinced keen interest to fund these projects. Commenting on the security situation, the prime minister stressed the elimination of terrorism as being the key to peace and progress.