Foreign Relations of the United States, 1952–1954, Africa and South Asia, Volume XI, Part 2

891.00 TA/5–1952

Memorandum by the Deputy Director of the Office of South Asian Affairs ( Weil ) to the Deputy Assistant Secretary of State for Near Eastern, South Asian, and African Affairs ( Berry )¹

secret

[ Washington ,] May 19, 1952.

Subject:

• Embassy New Delhi’s Proposal for an Additional $125 Million of United States Aid to India in FY 1953

In the early part of 1952 Ambassador Bowles assessed our position in India in the light of most recent developments. Subsequently he proposed that the Executive Branch request the Congress to authorize an additional $125 million in US aid to India for 1953. He pointed to the internal political situation in India and the basic requirement for immediate additional economic assistance in order to maintain and strengthen India’s ability to remain a part of the Free World.

In Deptel 1806, March 3, the Secretary informed Ambassador Bowles that we were proposing to the Congress a program of $115 million of US aid to India in fiscal 1953, but would keep under constant examination the Ambassador’s proposals for additional aid. In a later communication Ambassador Bowles stated that “once we agree on the facts I believe we have a clear, unrelenting responsibility to recommend to the Congress”² this additional program.

An informal intra-departmental Working Group³ was established to study the facts of the situation. The Working Group reached agreement on the first four points summarized below. These and other points following are covered more fully in the attachment to this memorandum prepared by SOA.⁴

1. The current political situation in India heavily underscores previous statements made by the Department regarding the interrelationship of economic development and political stability, the importance of India in the containment of communist aggression in Asia and the need for early improvement of the Indian standard of living. It is generally agreed that, since general elections must be held by 1956–57 at the latest, the present Government of India must produce that improvement within five years. The present low standard of living among the people of India is being fully exploited by the Communist Party in India, whose gains in the recent elections clearly placed the present Government of India and the whole of the West on warning.

2. The United States program aims at reaching the people of India directly. The most important way of reaching the people is by aiding the Government of India to increase food production in the very near future. The community development projects in the United States program will make an important contribution to the solution of the food problem while dealing directly with the people at the village level through a democratic organization which will go far to demonstrate to the people of India the relationship between material benefits and the democratic approach.

3. India must establish by 1954 the concrete pattern of economic development necessary for achievement of the goals set for 1956–57. Recent developments raise grave doubts regarding India’s ability to do this.

4. It has become increasingly clear that the original estimates of the Indian Five-Year Program were inadequate at least with respect to the goals established for increased food output and the efforts needed to reach such goals. Moreover, the calculations themselves were in terms of prices which were more favorable to Indian development than are present prices. Since the original Five-Year Plan estimates did weigh heavily in determining the level of aid requested from the Congress for fiscal 1953, higher levels of assistance will be needed from abroad if our political objectives in India are to be accomplished by 1956–57. The Working Group did not come to an agreement regarding the immediacy of the need for supplementary funds. However, if there is general agreement in the Department that this is a propitious time for approaching the Congress for such expanded assistance, the Working Group recommends such an approach.

SOA believes that the above points and conclusions representing the maximum complete agreement reached in the Working Group do not present clearly the problems involved, and do not reflect adequate consideration of the best economic data available to the Group. SOA notes some inconsistency in the Group’s acceptance of the first three points and its unwillingness to come to the conclusion that a request to the Congress for additional funds is warranted now on the basis of those points and the realization that United States aims are more likely to be achieved by earlier rather than later action. The following broad facts, elaborated upon in the attachment, are deemed by SOA to be basic to any analysis of the proposed additional program:

5. While it is apparent that some statistical details of the economic data are not presently available, it is equally apparent that the crucial nature and general orders of magnitude of the problems facing the Government of India are fairly represented in the best information available in the Department and supplied us by the Embassy at New Delhi. SOA believes that these data show clearly that:

A. The most significant aspect of the present problem is India’s inability to mobilize sufficient savings to support the rate of investment necessary to carry on its economic development program. Total investment planned for fiscal year 1953 is $1,320 million (excluding the additional amounts required for community development) as compared with estimated savings of $900 million. The short-fall of savings in relation to the essential level of investment must be met. The Indian budget estimate for 1952–53 shows a real deficit of over $300 million or about one-fourth of the total budget. Savings inherent in the public accounts are already included in the estimated $900 million of total savings.

B. India’s balance of payments has taken a very unfavorable turn since India incurred a small surplus on current account in 1950, culminating in a deficit estimated at $420 million in fiscal year 1953. The estimated deficit for fiscal year 1953 takes into account neither recent price developments nor the total amount of imports required for the community development projects. With sterling balance availabilities of no more than $155 million for this fiscal year, it is obvious that this deficit can be met only through outside aid.

6. SOA is aware of the broad range of considerations related to a decision to approach the Congress at this time. These considerations include the possible views of Pakistan, the apparent growing United States public sentiment in favor of the proposal, and the matter of form and procedures of an approach to the Congress for an additional $125 million for India in fiscal year 1953. On balance, SOA believes that an approach to the Congress on this matter stands a reasonably good chance of being received favorably.

7. Ambassador Bowles’ proposal would utilize the $125 million for commodity imports—e.g., grain and cotton, which would create immediate benefits for the people of India and would also provide additional local currency for the community development projects. While SOA recognizes the validity of that proposal, it also recognizes the tactical and real advantages of extending aid for developmental imports only (capital goods and materials directly related to the development program). It is SOA’s considered opinion that in order to be prepared to deal with the changing situation in India, United States interests can best be served by an approach to the Congress now on the basis of a program intended for developmental imports but which permits a degree of flexibility in the ultimate apportionment of funds between developmental and consumers’ goods.

Recommendations

That you authorize discussions with the Administrator of the Technical Cooperation Administration, the Assistant Secretary for Economic Affairs, the Assistant Secretary for Congressional Relations and the Special Assistant to the Secretary for Mutual Security Affairs, with a view to approaching the Secretary in order to formulate a Departmental position on $125 million in additional assistance for India in fiscal year 1953.

1. This memorandum was drafted by J. Robert Fluker, Acting Officer in Charge, Economic Affairs, Office of South Asian Affairs, and by Peter H. Delaney of the Office of South Asian Affairs.
2. The quotation is from New Delhi telegram 3921, Apr. 24, not printed (891.10/4–2452).
3. This Working Group was composed of representatives of the Investment Development Staff of the Bureau of Economic Affairs; the Division of Research for Near East, South Asia, and Africa of the Office of the Special Assistant to the Secretary of State for Intelligence; the Technical Cooperation Administration; and the Office of South Asian Affairs of the Bureau of Near Eastern, South Asian, and African Affairs.
4. The attachment to this memorandum, “Aid to India”, is not printed.