Foreign Relations of the United States, 1964–1968, Volume XXV, South Asia

304. Memorandum From Secretary of State Rusk to President Johnson¹

Washington, March 26, 1966.

SUBJECT

• The Economic Bargain with Mrs. Gandhi

Discussions held since the submission of our strategy and talking points papers² have indicated the desirability of restating in brief and specific terms the economic bargain we hope to strike with Mrs. Gandhi, if we reach the desired understanding on political issues.

In sum the proposition is this:

1. On the economic front the basic issue is confidence: confidence on our part that India will press forward aggressively to accelerate its economic development through liberal economic policies and emphasis on agriculture; and confidence on Mrs. Gandhi’s part that the U.S. can be counted on to provide necessary financial support.

2. We believe Mrs. Gandhi is prepared to make the following points:

a. India plans to liberalize its import control policies and its internal price, marketing and other business controls and to adjust its exchange rate and tax policies to support such liberalization. If assured of U.S. support, India is ready to work out the details of these measures with the World Bank and IMF and to take the necessary actions this spring.

b. In order to move rapidly toward self-sufficiency in food production, India will follow through on emphasizing agricultural development, including making adequate fertilizers available to farmers and vigorously seeking to attract foreign private investment in fertilizer production.

c. India has already made a good start on family planning and will accelerate its efforts to control population growth.

3. We would recommend the following U.S. response:

We realize that a liberalized import program is possible only with assurances of substantial Consortium financial support. The U.S. will provide its share of that support in coordination with the World Bank and the rest of the Consortium. We suggest that India’s key finance and planning people come to Washington as soon as possible to work out the details with the World Bank and the IMF. We will work with them and talk to our key consortium partners.

[Our financial support for FY 1967 would involve about $385 million A.I.D. loans and $50 million EX–IM loans—the same levels as pledged in recent years—and $35 million as the U.S. share of readjustment of Indian debt. In future years A.I.D. loans may go up a bit, if Indian performance warrants.]³

4. While the foregoing would be the key points in any bargain, the following points are also important:

a. We are disappointed that India has not moved forcefully enough to attract foreign private investment in fertilizer production. No special financial backing is needed for action on this score; and the vigor of Indian performance in seeking fertilizer investments will certainly affect our judgment as to how vigorously we can expect India to move on other economic fronts. We do not expect India to accept unreasonable terms from foreign investors, but we do expect India to make every effort to tap this large resource of financing and know-how. We are not doctrinaire on the public sector-private sector question; we have financed public sector plants and may well again, but only after we are sure India is doing all it can to capitalize on available private resources.

b. Congratulations might be offered on India’s promising initiation of its family planning program.

Dean Rusk

1. Source: Johnson Library, National Security File, Country File, India, PM Gandhi Visit Papers, 3/27–30/66. Confidential.
2. The strategy and talking points papers, prepared as background for the Gandhi visit, are ibid.
3. Brackets in the source text.