611.91/12–150

Department of State Policy Statement

[Extracts]
secret

India

a. objectives

We desire in India the continuance in power of the present noncommunist government and would like it to pursue, with wide popular support, a policy of friendship and cooperation with the United States. We should like India voluntarily to associate itself with the United States and like-minded countries in opposing communism. In the Indian domestic sphere our fundamental objectives are political stability and economic progress, the latter based on increased food production and expanded industrial capacity which would contribute to a rise in the standard of living and improve India’s ability to defend itself against attack. We desire also access to the resources and markets of India and the development of an attitude which would lead the Government of India to cooperate in denying resources to the Soviet Union and its satellites which are of importance to the development of Soviet war potential. Our relations should be such that India would be amenable to voluntarily allowing us the use of its facilities if necessary in the event of war.

b. policies

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The most serious politico-economic problem which should command the attention of the US is the deepening need for strengthening India’s economy. The likelihood of the continuation in power of the present government, which is more favorably disposed toward the US than any probable successor, is directly related to the progress which that government can make in ameliorating domestic, economic and social conditions. To date, the Government of India has made little progress, and as time passes its problems promise to become more formidable.

Since the end of World War II, India has had a large deficit in its transactions with both the dollar and sterling areas, due in part to extraordinary imports of food. The Government of India has controlled these deficits by restrictive import regulations (which were primarily responsible for small dollar and sterling surpluses in the year ending in June 1950 although the usual deficits have reappeared), by drawing on the dollar pool of the sterling bloc and on the International Monetary Fund, and by postponing needed development [Page 1477]projects. In recent years the only source of certain essential Indian imports (especially some types of capital goods) has been the US, although recovery in Europe and Japan has somewhat improved this situation. It will continue to be our policy to make needed goods as freely available to India as is possible within the limits of the tightening supply situation and overall foreign requirements which must be met to achieve US foreign policy objectives. India’s dollar shortage remains an obstacle to the procurement of these items and limits its ability to proceed with developmental projects.

India’s domestic politico-economic policies also impede progress in the development of the Indian economy. It is our belief that unduly restrictive governmental controls, tax and fiscal policies which inhibit domestic investment, heavy nonproductive military expenditures, and the failure to carry out needed agrarian and labor reforms stand in the way of efforts of the Government of India to revive and expand industry and agriculture. Our views in this regard have been brought to the attention of the Government of India, and the US should continue to make our views known tactfully at opportune occasions.

It is apparent that India must depend upon outside sources of capital for rapid progress in its plans to increase agricultural and industrial output. Indian domestic policies, intra-regional tensions, the threat of war, and the fear of nationalization inhibit the investment of Indian capital, and these factors together with fear of the inability to remit profits, and the existence of more attractive investment opportunities in the US and elsewhere, limit to a marked degree contributions to the economic development of India by US private investment. Moreover, there is a need for certain basic improvements in India’s economy of a nature which do not lend themselves to financing by private capital. Accordingly we have supported serious consideration by the International Bank of Indian requests for credits based on well-conceived projects designed to reduce India’s reliance on foreign sources for the balance of its food requirements, to increase exports of important raw materials now being stockpiled in the US, and to repair India’s rail communications. It is recognized, however, that India’s ability to service international loans is limited.

It is our policy to help India obtain technical assistance from abroad in the fields of agriculture, public health, education, labor, power development, and transportation. We are supporting United Nations technical aid programs for India. Under our own Point IV program, India will receive the largest portion of funds which have been allocated to the South Asian area. We assist India in obtaining the services of qualified experts from private organizations, and also make public officials available to the central and state governments of [Page 1478]India under the provisions of the Smith–Mundt Act, a practice which will be continued under the Point IV Program.

With China under Communist domination, Soviet power now encroaches along the perimeter of the Indian sub-continent. India has become the pivotal state in non-Communist Asia by virtue of its relative power, stability and influence. Yet grinding poverty, starvation, and sickness are the seeds of social and political unrest. As has been stated, it is likely that the present Government of India will lose power unless it can present the Indian people with definite progress in improving their social and economic conditions, and it is likely that a successor government would be less favorably disposed toward the United States than the present one. India, like other underdeveloped countries, lacks a capital surplus large enough to undertake all the large-scale developmental projects which seem to be necessary.

There exists now a combination of factors and considerations which indicate the need for the adoption by the US of a program of financial and economic aid to India for the carrying out of projects which have both popular appeal and promise of showing early and positive results in terms of increased food production and a perceptible improvement in economic conditions. Such a program would supply the “missing component” to a set of circumstances which would permit progress in economic and social development; the other components would have to be supplied by India. One of them would be self-help on a scale hitherto unknown in India involving, among other steps, the modification of laws which inhibit economic activity and the creation of an atmosphere of confidence and enthusiasm. Action by the Government of India to settle disagreements with Pakistan, especially those relating to trade and finance, and positive accomplishment in this regard, would allow India to reap the greatest possible benefits from a program of this kind.

The approval of P.L. 621 (amendment to Mutual Defense Assistance Act of 1949) on July 26, 1950 makes it possible to implement our policy of assisting India to maintain its ability to defend itself against aggression. We intend to give India reimbursable aid (by procurement assistance, technical advice, or by sales from US military stocks) within the framework of established higher priority and supply limitations. We also intend to assist India by approving licenses for commercial orders and by concurring in retransfers to them on the part of present holders of Lend-Lease stocks. We should make certain that such aid can be justified in terms of India’s internal security, its defense needs, the desirability of its participation in any possible regional defense plans, and its possible international commitments in defense matters (such as might arise through its association with UN” action).

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Bilateral treaty relations with India are based for the most part on international agreements concluded before India’s independence, being either US-UK treaties which applied to India or agreements concluded directly with India which remained in force under the terms of India’s independence arrangements. It is desirable that new treaties and agreements be negotiated to replace outmoded US-UK agreements and to fill gaps in our treaty structure. Still to be negotiated are a Treaty of Friendship, Commerce and Navigation, a Consular convention, and a double Taxation Treaty. Unresolved differences stand in the way of the conclusion of a commercial treaty. The Government of India wishes to “screen” all foreign investment, passing on each specific case to decide whether it would be consistent with Indian policy regarding the economic development of the country and the best use to which, in the Indian view, the natural resources of the country should be put. In order to conclude a FCN treaty with India it will be necessary for the US to make certain departures from the standard draft of the treaty. The Government of India has also indicated a certain reluctance to grant national treatment to American firms which are permitted to enter India, but in return for our agreeing to a provision regarding screening, it is contemplated that the Government of India will be required to agree to give national treatment to American firms.

Our commercial policy is to encourage India’s full participation in the program for the expansion of world trade and employment of which the General Agreement on Tariffs and Trade and the Havana Charter for an International Trade Organization are the main features. India is officially committed to a multilateral trade policy, although we recognize that so long as India suffers from a critical shortage of hard currencies, it must retain restrictive trade and financial policies such as are permitted by GATT and the ITO Charter. Such restrictions adversely affect US exports of semiand nonessential items. Although India applies taxes and controls to many exports, it appears that the effect of these in limiting Indian exports to the United States is not serious, as compared with other factors such as transportation, and shortages of jute goods resulting from the trade war with Pakistan.

India produces many materials which are of strategic value to the United States and whose uninterrupted flow to this country is of considerable importance. The continuing supply of Indian manganese is of essential importance to the maintenance of a high level of steel production in the United States. It should be our constant policy to encourage the maintenance and increase of the present rate of shipment. Burlap, mica, kyanite, corundum, beryl, and monazite are also [Page 1480]of considerable importance. The opportunity which these materials present to diversify the basis of the Indian economy and their importance as dollar earners should be stressed. The Indian Government and Indian producers should be encouraged to maintain their dealings in these materials on a sound businesslike basis which would encourage the continued growth of this mutually advantageous trade.

The Government of India is intent upon developing its own merchant marine in order to compete in the international cargo carrying field and to reduce its dependence upon foreign shipping and a drain on its hard currency. We should be alert to measures by the Government of India which are discriminatory to US vessels or are otherwise inconsistent with the treatment accorded by the United States to foreign shipping. The strategic location of India and its great importance in South and Southeast Asia requires the maintenance of United States air services to India. We should endeavor to prevent the further development of an Indian air transport policy which might reduce the capacity to carry fifth-freedom traffic. It should also be our policy to assist India in the development and maintenance of adequate air navigation and communications facilities as well as a good domestic air service.

c. relations with other countries

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The Government of India has refused to extend recognition to either Bao Dai or Ho Chi Minh,1 and has stated its intention to postpone action in this regard until it is more certain which of the opposing sides has the support of the majority of the people of Indochina. Critical of what it regards as the half-hearted measures which the French have taken to turn over power, India is by no means persuaded that Ho is a greater danger to Indochina than the French, and is, therefore, critical also of the United States for the aid which it is giving Indochina.

Divergencies between United States and Indian views toward China and Indochina are serious foreign policy conflicts blocking closer understanding with India.

The Government of India is currently endeavoring to bring about, through negotiation with the French and Portuguese governments, the integration with India of the remaining foreign enclaves in India. It is our policy to avoid any involvement in this question.

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  1. Bao Dai, Chief of State of Viet-Nam, and Ho Chi Minh, President of the “Democratic Republic of Viet-Nam.”