690D.91/11–2751
Memorandum by the Deputy Director of the Office of South Asian Affairs (Weil)
Memorandum for the Files
Subject: Proposed Corporation for Development of Kashmir’s Economic Resources.
Reference is made to Mr. Pawley’s memorandum of September 24, 1951, in which was discussed the possibility of forming a corporation through which the US, the UK, India, Pakistan, and the World Bank would cooperate in an effort to develop the mineral resources, hydroelectric power and other economic assets of Kashmir with a view to reducing tension between India and Pakistan and paving the way for a settlement of the Kashmir dispute.
SOA continues to believe that as long as there is any prospect of a political settlement of the Kashmir dispute through the efforts of the UN, our Government and that of the UK should concentrate their energies officially on supporting the UN and on doing everything possible through diplomatic channels to establish a basis for settlement. Thus the plan for economic development of Kashmir under UN auspices formulated in SOA in June is being held in reserve as a possible last resort in the event of Dr. Graham’s failure in his current effort at mediation. Both SOA officers, including the author, and UK officials, with whom this plan has been discussed informally, have serious doubts as to whether such a plan would work—even though it would combine economic development and the presence in Kashmir of a UN observer whose job it would be to protect the interests of India and Pakistan in Kashmir during a “cooling-off period.”
We have approved on an informal basis Mr. Eugene Black’s efforts to sound out Mr. Nehru and the late Prime Minister of Pakistan, Liaquat Ali Khan, on the subject of an Indus Valley Authority organized along the lines proposed by Mr. Lilienthal some months ago. If the World Bank can interest the two governments in such a project, a step in the direction of Indo-Pakistan cooperation may be achieved, but there is still no evidence to support the theory that this would take the place of a political settlement. The present government in Pakistan may well stand or fall on the success of the UN in holding a plebiscite in Kashmir; and the dispute has become a major issue in Indian politics.
Nevertheless, the time limit placed on Dr. Graham’s mediation by the Security Council’s resolution of November 10 necessitates reconsideration of plans which might be proposed in the unhappy event [Page 1907] that Dr. Graham fails to bring about agreement on demilitarization in preparation for a plebiscite. In the light of current developments I offer the following comment on the reference memorandum:
1. If mineral resources exist in the Indian-occupied portion of Kashmir which are capable of exploitation, and the presence of these resources influences Mr. Nehru to hold on to the Indian-occupied area at any cost, is it likely that the Indian Government would be willing to share profits of such exploitation with the US, the UK, and Pakistan?
In view of the fact that the state is disputed territory, India and Pakistan would presumably be entitled to share equally the proceeds of exploitation in either the Indian-controlled or Pakistan-controlled portion of the state. So long as the political status of the territory remains unsettled, it is difficult to see how either the Indian or the Pakistan Government could justify to its people payment to the other government of proceeds from exploitation of lands fought for and held by its troops.
2. Would it be politically feasible for the Pakistan and Indian Governments to commit funds for the development of the state as a whole?
Since each government accuses the other of being the aggressor in Kashmir, it is difficult to believe that either would dare appropriate funds part of which, at least, would presumably be used for the benefit of areas occupied by troops of the other country.
3. Would the governments of India or Pakistan, or the people of Kashmir, welcome an Anglo-American plan to exploit such resources as Kashmir may possess?
In view of widespread fear of “American economic imperialism,” and of “Anglo-American” perfidy in general—effectively encouraged by Communist propaganda—the question arises as to whether the benefits of the project under reference would outweigh the disadvantages deriving from suspicion and fear which would be created, and stimulated by both Communist and nationalist elements. Virtually the only effective means of counteracting such fears would be to demonstrate almost immediately that the scheme was raising the standard of living in Kashmir, and that the profits were not all flowing into the pockets of US and British bankers. It is not likely that the mining of sulphur which Dr. D. N. Wadia1 has said would “cost its weight in gold” by the time it reached India, or the construction of hydroelectric units, would have any immediate effect on the living standards of the poverty-stricken Kashmiris: and both the Indian and Pakistan Governments would probably be widely accused of having turned the resources of Kashmir over to Wall Street and London capitalists.
4. Would a corporation formed by the World Bank with the participation of Indian and Pakistan capital, but not of US or UK capital, be able to create conditions which would make India and Pakistan forget their political and military struggle for control of Kashmir?
While such an arrangement might reduce suspicions of Anglo-American “economic imperialism,” it would probably face the obstacles [Page 1908] referred to in (1) and (2) above; and if the World Bank were willing to finance the program wholly, without the direct participation of the Indian or Pakistan Governments, the question still arises as to how the operation of mines or the construction of hydroelectric plants in Kashmir would benefit either the people of India or the people of Pakistan sufficiently to remove the political passions which the dispute has generated. On the contrary, if a corporation financed by the World Bank succeeded in exploiting resources in the Indian-held portion of Kashmir, Pakistan’s insistence on an equitable settlement of the dispute would probably be intensified, and India’s determination to hold the territory it now occupies would be proportionately increased. By the same token, successful exploitation in the Pakistan-held area would whet India’s appetite for annexing the whole state, and concurrently strengthen Pakistan’s determination to hold the territory it now controls.
In view of the fact that NEA has been working on possible solutions of the Kashmir dispute for four years, and the fact that other governments and the UN have tried without success to find the answer, I wish I could summon more optimism regarding the practical possibilities of the plan discussed in the reference memorandum. One of our chief concerns regarding the plan drawn up in SOA in June (UNDOAK) has been the question of financing economic development in Kashmir during a “cooling-off period” (to which we believe it would be difficult to obtain agreement). The suggestion of World Bank financing of economic development in Kashmir is one which may be kept in mind, and may prove useful if we reach the conclusion that all possibilities for a political settlement have been exhausted. On the other hand, Indian representatives in the World Bank might object to the use of World Bank funds on the ground that portions of the funds would be used in the Pakistan-occupied part of the state, and Pakistan representatives might object on the ground that they would be used in Indian-occupied territory.
SOA is currently re-examining its various plans for future action in Kashmir and expects to renew informal discussions with the British within ten days.
- Mineral Adviser, Government of India.↩