845.515/541

Memorandum by the Assistant Secretary of State ( Acheson ) to the Executive Secretary of the Policy Committee ( Yost )

Sir Girja Bajpai has made urgent representations that his Government would take most serious offense at any suggestion on our [Page 259] part that the agreement for the return of the million ounces of silver to be transferred under the Lend-Lease Act for use in India be made with the Government of the United Kingdom as sole obligor, as joint obligor with the Government of India, or as guarantor of the promise of the Government of India. He pointed out that even though the constitutional position of the Indian Government might well change after the war, it was inconceivable that any Indian Government would repudiate an obligation with the United States. His Government, like the Government of the United States, regards the obligations of a government as binding upon its legal successor. India views its relations with the United States as of the highest importance to it, on the political, the commercial and the financial planes.

In view of the seriousness which the Indians attach to this issue, we recommend that the decision of the Policy Committee of February 2 be revised to propose that the Foreign Economic Administration transfer the silver to the Indians in the usual way, through the re-transfer procedure (which may itself carry with it certain British responsibility), making the agreement for the return of the silver, however, exclusively with the Government of India.50

Agreements for the return of lend-lease silver in kind are a special feature of the lend-lease program, developed through arrangements between Secretary Morgenthau and the Silver Committee of the Senate. They are not required by law. So far as the Treasury is concerned, an agreement directly with the Government of India will be regarded as entirely satisfying the understanding between the Secretary of the Treasury and the Silver Committee.

It should be noted that we must apply considerable pressure to the Indians this coming week in connection with the reverse lend-lease of raw materials, on which they have proposed an unacceptable procedure. It will not help this negotiation, of direct importance to the war production program to have the Government of India in a mood of irritation.

We are not unmindful either, in making this recommendation, of the confusion and difficulty which have resulted for American troops in China in direct consequences of the deterioration of our lend-lease relations with China. Reverse lend-lease for the troops in India is not in perfect condition, and measures for its amelioration are receiving consideration. From the point of view of the conduct of the war, the good-will of the Government of India for such purposes seems of more direct importance than the remote possibility that some future Indian Government might repudiate its obligation to return to us a quantity of silver which we do not need. The decision [Page 260] of this issue seems to require a choice. If we accept the obligation of the Government of India alone, some future government may repudiate it, or, as is conceded to be more likely, may feel some resentment at having to meet it. On the other hand, if we involve the British Government in the transaction, the present Government of India will feel a very strong resentment, which cannot help but prejudice reverse lend-lease arrangements of immediate importance to us in the war. As between the two possible resentments, we have no hesitation. The good relations of the United States and a future Indian Government will depend on many factors beyond the return of the silver involved here. On the other hand, it seems clear that nothing but harm can come to the supply arrangements in India upon which our forces depend for support and well being, and on which the success of the Burma campaign may largely hinge, if we insist on a British promise to return the silver. We can see no gain to the United States from giving offense in this case to the British and the Indians.

  1. In a meeting on February 14, the Policy Committee recommended that the loan be made with joint responsibility by the Indian and British Governments.