891.00 TA/11–1952
The Ambassador in India (Bowles) to the Secretary of State
official–informal
Dear Dean: In my letter of October 28, 1952,1 I urged the need for a fundamental policy decision that would govern for the next three years our attitude towards Indian affairs, and serve as a basis for determining the size of our aid efforts in India. I expressed the need for some sort of a commitment to India that we would not allow her Five Year Plan to fail for lack of resources.
As you know, I have consistently argued in behalf of a program that not only faces up to India’s foreign exchange problems, but also to the urgent need of finding adequate local finance without resorting to inflation. I originally suggested that this phase of our program should include the importation of consumer goods such as wheat and cotton that India would have to import in any case. The rupee proceeds could then be made available to the Government of India for the internal financing of essential development projects under the Five Year Plan.
The Department, however, in its telegram 1322 of November 1,2 while accepting the need for rupee financing, said that for various reasons it was opposed to grants for wheat and cotton, and that salable goods to develop rupee funds should be largely fertilizer, iron and steel and industrial raw materials. In a previous telegram (4257 of May 16)3 I had agreed to this kind of a program as a second choice, and in my telegram 1961 of November 74 I agreed again, subject to [Page 1680] certain qualifications that were inherent in my earlier assent. The Department’s desire to construct the India aid program for fiscal 1954 along these lines calls, however, for certain administrative and operational changes which I should like briefly to explore with you.
Although industrial raw materials from abroad are consumed in quite large quantities by private industrial firms in India, a large demand remains unsatisfied. This demand is matched by rupee finance in the form of idle balances of Indian industrial enterprises which cannot be used to purchase foreign raw materials because of their inability to obtain corresponding amounts of foreign exchange.
Any effort to bring in such industrial raw materials under public purchase (but with the United States Government picking up the check) would, in the present state of Indian administrative procedure, result in numerous delays and frictions.
It seems to me, therefore, that the logic of the Department’s viewpoint as recorded in its telegram 1322 requires that we shift, in India, to a type of program much more along the lines of the programs developed under ECA in Europe.
Under the modified type of program as I visualize it, part of our Indian aid budget would be made available (subject to very great flexibility in operation) for the purchase in America or elsewhere of goods in the general category of industrial raw materials as well as some industrial machinery and equipment, without any effort to specify in advance fixed quantities of specific commodities or items. Applications under specific headings would be made by individual private concerns here in India.
Such applications would be examined and coordinated by the present Indo-American consultative machinery, and modified as might be necessary. Applicants whose import proposals were approved would deposit into Fund B, rupees of an equivalent value to the imports which have been requested. These rupees would be available for use in financing urgently needed development projects under the Five Year Plan.
A program of this type would have certain very definite advantages.
- First, by providing assistance fairly directly to the private sector of the Indian economy, it would meet criticisms of our present program that have arisen both here and in the United States to the fact that not enough attention is being paid to the growth and promotion of private enterprise.
- Second, it would tap, for investment purposes, private rupee funds which are now idle because of lack of access to foreign exchange resources.
- Third, it would utilize the local entrepreneurial skills which are willing and able to plan and administer efficient operations, but which are now necessarily neglected in favor of public projects.
- Fourth, it would make possible some initial progress toward a solution of India’s fundamental long-term problem, namely, the employment [Page 1681] of India’s enormous labor potential, much of which is now largely idle.
This is a most important point which I did not emphasize sufficiently in my letter of October 28. We have properly concentrated on India’s food problem which must receive top priority in terms of India’s immediate needs. However, as I have maintained all along, the food problem can be licked within three or four years provided India gets sufficient help from the United States. But the ultimate test of the Indian economy will be to find the means of absorbing India’s idle manpower and applying it to constructive purposes.
I have tried in the preceding paragraphs to sketch briefly the changes in emphasis and in operational procedure which are necessary if our program here is to be carried out along the lines of the Department’s telegram 1322. In addition, I have been giving a great deal of thought to the ways in which our efforts here can and should be integrated with a broader approach to the achievement of economic and political strength and stability in the free countries of Asia, including Japan.
My thoughts are still in the formative stage. For the moment I say that I have been convinced, ever since my visit earlier this year through Southeast Asia, that in operating a number of separate and essentially unrelated programs in different countries from here to Japan, we are not getting full value from our investment. I realize, however, that a solution will not be easy.
With warm personal regards,
Sincerely,