791.56/2–1753
The Chargé in India (Mills) to the Department of State
confidential
No. 1797
New
Delhi, February 17, 1953.
Ref:
- Deptel 1854, Dec. 31, 1952;
Embtel 2687, Jan. 6,
1953; Deptel 1916, Jan. 9,
1953.1
Subject:
- Government of India Requested to Make Final Settlement on
Surplus Property.
On February 17, 1953, I handed to the Secretary General of the
Ministry of External Affairs of India, Sir N.R. Pillai, a third person Note (No. 271, dated
February 17, 1953) which requests a final settlement on surplus
property turned over to the Government of India for
[Page 1685]
disposal at the end of World War II
under an Agreement dated May 16, 1946.2 A copy of the Third Person Note is
enclosed.
I pointed out to the Secretary General that most surplus property
arrangements with other countries had been brought to a successful
conclusion and that it would be most helpful if this could be done
in the case of the Agreement with India. I also outlined the reasons
why the Government of the United States considers that renegotiation
regarding the cut-off date for the sharing of proceeds would be
equitable.
The Secretary General himself realized the importance of concluding
this matter when I hinted that it would be natural for the United
States Congress to enquire into compliance with prior agreements
when considering new economic relations with various countries.
The Secretary General promised to have the question examined without
delay.
There is also enclosed a copy of a memorandum dated January 28, 1953
prepared by Lewis M. Lind,
Economic Attaché, entitled “Background Memorandum on Status of
Surplus War Property Agreement of 1946”.
Enclosure 1
Third Person Note
No. 271
The Embassy of the United States of America presents its
compliments to the Ministry of External Affairs and has the
honor to refer to the “Agreement Between the Government of the
United States of America and the Government of India on
Settlement for Lend-Lease, Reciprocal Aid, Surplus War Property,
and Claims,” signed and made effective by the two Governments on
May 16, 1946.
Many similar military surplus disposal agreements were made by
the Government of the United States with other countries
following termination of the late war, and action on most of
these agreements has been completed. Negotiations are nearly
ended for achieving the same objective in regard to the
remainder of the agreements.
Implementation of the Agreement of May 16, 1946, between the
Government of India and the United States Government, on the
other hand, as the Ministry is aware, was delayed in
fulfillment, in large measure due to unforeseeable circumstances
which developed subsequent to the signing of the Agreement, as
discussed below. It is believed by the Government of the United
States that in view of the progress which has been made by
Government of India disposal agencies in recent years and up to
the present, however, and because sufficient data has by this
time undoubtedly accumulated, that it will
[Page 1686]
now be possible to arrive at an
early settlement and to prepare the Final Report which was
contemplated in the Agreement.
The Embassy is instructed to explain to the Government of India
that the Congress of the United States is scheduled to review
the status of all surplus property disposal agreements during
the present Session of the Congress, and that the Department of
State and the Embassy believe it would be most desirable to be
in position to report to the Congress during the opening months
of the Session that substantial progress has been made toward
achievement of a final surplus property settlement with the
Government of India.
Analysis of records available to the Embassy indicates that sales
of United States surplus materials to June 30, 1948, netted
25.122 crores of rupees, which, if 16.5 crores (the rupee
equivalent of fifty million United States dollars, at the agreed
rate of 3.3 rupees per dollar) are subtracted as a prior
allocation to the Indian Government, leaves 8.622 crores from
sales proceeds to be divided equally between the two Governments
in accordance with the terms of the 1946 Agreement.
The share of the Government of the United States from the
8.622-crore balance is thus 4.311 crores. Embassy records
indicate, however, that the United States Government has
received only 7,495,000 rupees to date out of its
43,110,000-rupee share of proceeds from sales made up to June
30, 1948. In connection with the submission to the present
Congress of the status report on implementation of the Agreement
with India, it will be appreciated if the Government of India
will indicate whether its records are in accord with the amounts
cited above.
A careful review of Embassy records on the surplus property
disposal program reveals that because of internal Indian
dislocations connected with the aftermath of partition, which
could not have been predicted when the Agreement was reached in
May 1946, it was not possible to sell all United States surplus
property by mid-1948 as had been hoped and expected; and that on
the contrary, sales declined from 6.03 crores in the last
quarter of 1946 to approximately one-half crore per quarter in
the last three months of 1947 and the first quarter of 1948.
Since net realizations from sales, after deductions for normal
import customs duties, amounted to 36 crores up to the end of
May 1949, on surplus United States materials with an original
book value of 176.5 crores, the net over-all yield for the total
amount involved to the date mentioned was thus 20.4-percent of
the book value.
If this 20.4-percent realization factor be applied to the 25.122
crores of surplus material sold up to June 30, 1948, it would
indicate an original book value of 123 crores for the surplus
sold by that date, out of 240 crores’ worth, original book
value, of all United States surplus available for disposal under
the program. In other words, it appears that the disposal
program, so far as it concerned United States materials, was
only half completed, because of unforeseen, unsettled conditions
in
[Page 1687]
India, by the
date upon which full disposal was expected, in the May 1946
Agreement, to have been achieved.
It seems consequently apparent that, because of abnormal
conditions, sales of a significant portion of the aggregate
United States surplus property, which when the 1946 Agreement
was signed might have been expected to have been achieved before
June 30, 1948, actually were not accomplished until after that
date; and judging from the June 1949 Report of the Standing
Advisory Committee, Ministry of Industry and Supply, a
considerable disposal took place in the next following months in
the period July 1948–May 1949 which resulted in total
realizations of 36 crores by May 31, 1949, compared with the
25.122-crore total of June 30, 1948.
As of May 31, 1949, the book value of the unsold balance of
United States surplus materials was 63.5 crores, which would
have an hypothetical value of 12.954 crores if the 20.4-percent
realization factor is again applied.
In view of the anticipated need for prompt submission of
information regarding progress in implementing the 1946
Agreement and of the Final Report to the Congress, the Embassy
would appreciate an early verification by the Government of
India of the 43,110,000-rupee United States share for sales up
to June 30, 1948, less the 7,495,000-rupee payment already
received by the United States Government.
Since (a) United States surplus sold by
June 30, 1948, apparently was only 123 crores in book value,
about half of the 240-crore total, (b)
10.878 crores in addition were sold in the first eleven months
after June 30, 1948, and (c) the book
value of United States surplus property remaining on May 31,
1949, was 63.5 crores, the Government of the United States would
like to enter negotiations with the Government of India at an
early date to determine as accurately as possible the final
figures to date and to conclude a mutually-satisfactory and
equitable arrangement for the sharing of proceeds from sales
(unexpected at the time of the 1946 Agreement) made after June
30, 1948.
Enclosure 2
Memorandum by the Counselor of Embassy for
Economic Affairs in India (Loftus) to the Ambassador in India (Bowles)3
confidential
[New Delhi,] January 28,
1953.
Subject:
- Background Memorandum on Status of Surplus War Property
Agreement of 1946
As part of the United States Government program to have all
stipulated action taken in the various American war surplus
disposal agreements which were made shortly after the last war,
the Embassy is under instructions to open negotiations with the
Government of India to
[Page 1688]
arrange for complete implementation of the Indo-U.S. Surplus
Property Agreement of May 16, 1946.
Present Instructions from the
Department:
We have been instructed (a) to press the
GOI for a Final Report and
for payment of 35,615,000 rupees still unpaid from the U.S.
share of American surplus property sold prior to June 30,
1948—we have been paid only 7,495,000 rupees so far,
altogether—and (a) to try to obtain an
extension beyond June 30, 1948, of the period during which the
United States shares 50–50 with the Government of India on all
proceeds from sales of American surplus.
Background:
In May 1946 United States surplus property in India, with an
original book value of about 240 crores, was selling briskly
through Indian and American efforts. At the time of signature of
the Agreement, on May 16, 1946, it looked as though all
materials would be sold within two years. The Agreement
provided:
- (a)
- That the Government of India would receive all of the first
$50,000,000-worth of rupees from such sales.
- (b)
- That proceeds from subsequent sales, after amounts
equal to “normal customs duties” had been taken by the
GOI, would be shared
equally by India and the United States.
- (c)
- That all proceeds from sales made after June 30, 1948,
would revert to the Government of India; and
- (d)
- That all of the American share of such proceeds would
be spent in India in rupees, for housing and
administrative expenses of the Embassy and our other
posts in India, and for educational purposes in this
country.
Due to participation dislocations, instead of all surplus being
sold by the end of June, 1948, only 51 percent was, with an
original book value which we estimate at 123 crores. During the
winter months of 1947–48, for example, sales had slowed to a
trickle—about one-half crore per quarter.
After the cut-off date, however, when all receipts became
exclusively Indian, sales rose quickly to the extent that in the
next 11 months, by May 31, 1949, sales proceeds were 11,878
crores.
Surplus materials with a book value of 63.5 crores were stated to
be on hand for disposal on May 31, 1949, and the Embassy has no
information on sales made or proceeds received by the Indian
Government since that time.
Comment:
Embassy records on this subject were quite bulky, but are
nevertheless incomplete—we believe mainly because the Indian
Government has been somewhat remiss in submitting regular data
in the spirit intended in the 1946 Agreement.
Mr. Lind has had to
reconstruct the fairly complete picture we
[Page 1689]
now have from fragmentary
records, and we fully expect that new and more accurate
information will be disclosed by the Government of India as
negotiations proceed. On the other hand, the Department has
approved all the figures and the reasoning process shown in the
Note, by cable within the last three weeks; and thus we do at
least have a starting point for the negotiations.
A summary of the amounts involved is below:
|
Original Book Value in
Crores |
Proceeds from Sales, in Crores, at
Over-all Realization Rate of 20.4% |
| A. Sold to June 30, 1948 |
123.0 |
*25. 122 |
| B. Sold July 1, 1948 to May 31, 1949 |
53.5 |
*10. 878 |
| C. On hand May 31, 1949 |
63.5 |
*12. 954 |
|
240.0 |
48. 954 |
Possible United States shares of the proceeds are as follows,
depending on the concessions, if any, that the GOI may be willing to make (dollar
equivalents at the approximate rate of 21¢ to the rupee are also
given, even though the American share must be kept in rupees and
spent in India):
|
|
Actual and Prospective U.S.
Shares |
|
Crores |
Crores of Rupees |
U.S. Dollars @ 21¢ |
| A. Pre-cut-off date sales were |
25.122 |
|
|
|
GOI prior allocation $50
million @ 3.3 Rs/$ |
16.500 |
|
|
| Remainder for sharing |
8.622 |
|
|
| Of which half for U.S. |
4.311 |
|
|
| U.S. has been paid |
0.7495 |
|
|
| Therefore still owed U.S. |
|
3.5615 |
$7,479,150 |
| What We Can Aim for in
Negotiations: |
|
|
|
| B. Sold July 1948—May 1949 |
10.878 |
|
|
| Of which U.S. half would be |
|
5.439 |
11,421,900 |
| C. Book value of surplus on hand at time of last
report was 63. 5 crores; at 20.4% rate of return,
proceeds might be |
12.954 |
|
|
| Of which U.S. half would be |
|
6.477 |
13,601,700 |
| Totals |
|
15.4775 |
$32,502,750 |
An interesting point of which you should be advised is that,
after the Embassy had pressed the Indian Government for the
final accounting
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as
of June 30, 1948, the Ministry of External Affairs eventually
sent a note in the summer of 1949 which said that the estimated
realizable value of U.S. surplus on hand at the end of June 1948
was five and one-half crores, which would probably just cover
the expense of storing and selling it—with the inference that
our share of sales up to the cut-off date was all we could
expect. As you will observe from the above tables, however, only
51 percent had been sold by June 30, 1948, and proceeds
(disregarding receipts of the GOI from import duties levied) were 10.878 crores
in the 11 months immediately thereafter. The MEA note seems to have been so
seriously in error that it seems wiser not to mention it in our
proposed new Note on the subject.
The United States has received only 0.7495 crores to date from
the Government of India on materials with an original value of
240 crores, which represents a cash return of 0.315 percent. In
the event the GOI remits the
remainder of our share for sales before June 30, 1948, this
percentage will rise to 1.83 percent. If our share is extended
to include known sales through May 1949, our percentage would be
4.09; if the GOI conceded all
the way and our assumptions on rate of return are correct, the
United States share of the proceeds would represent 6.75 percent
of the original book value.
The Government of India has come off better in the program.
Disregarding our share that they have kept thus far, their own
portion has included (a) the prior
$50,000,000 allotment, or 16.5 crores, (b) the GOI share of the
remainder for sales before the cut-off date, which was 4.311
crores, (c) their own share of sales in
the following 11 months, or 5.439 crores, (d) their part of the goods unsold on May 31, 1949,
which has been estimated on the 20.4%-return basis as 6.477
crores, and (e) whatever the GOI received as “normal customs
duties” on all sales.
The files suggest that there may have been some deliberate delay
in making sales aggressively while the cut-off date was drawing
near, but there is really no clear evidence on the point. It is
somewhat more certain that in addition to partition disorders
there were disorganization, inefficiency, and doubtless some
corruption in the Indian disposals program; these seem to have
been at least part of the reason for Indian reticence and
defensive attitudes from time to time in the past. From the
viewpoint of ethics some of this was indeed not good; but we
should remember that many hundred million dollars’ worth of Army
equipment was suddenly put in their hands for disposition when
it was actually scattered at 40-odd depots and airfields, many
of them far out in the jungles, and apparently no one could have
been prepared for the expenditures which would have been needed
to care for the materials properly. The GOI, with the backing of the British,
[Page 1691]
did insist that we
let them handle the whole program, and perhaps the best that can
be said in summary is that they didn’t know what they were
getting into.
From 1949 to 1951 the Embassy and the Department agreed that
conditions were not propitious for negotiating an amendment of
the cut-off date, due to Indian resentment over our delay in
granting the wheat loan and for other reasons. In 1952, however,
the Department began to suggest that action would be timely. We
felt that the subject was complex and that none of us were
surplus disposal experts, and asked several times that one or
two specialists in the field be assigned to the Embassy from
Washington to carry on the negotiations. The Department did not
agree to this proposal and insisted we start at once in order
that some evidence of progress can be demonstrated to Congress
soon, and so that the 1946 Agreement can finally be brought to
some reasonable conclusion.
