891.03/1–3051

Memorandum by the Assistant Secretary of State for Near Eastern, South Asian, and African Affairs (McGhee) to the Secretary of State

top secret

Subject: Indian Bequest for Food Grains

Discussion

Since the Indian Ambassador presented her Government’s request for assistance in obtaining 2 million tons of food grains on December 16, the Department has been studying the Indian food grain position and ways and means of meeting the request. We have consulted informally with Treasury, Commerce, Agriculture, ECA, and the Bureau of the Budget.

We find that the extraordinary sequence of floods and droughts which beset India has destroyed crops which would normally have produced in the order of 5 million tons of food grains. We find also that India would face very serious difficulties in financing the purchase of the total 6 million tons of food grains which it must import during 1951 to prevent mass starvation. Our statistics on these aspects of the situation require further refinement, but the foregoing general conclusions are valid.

Our own supply position is such that we can make available during 1951 2 million tons of food grains in addition to the quantities which the Indians intend to acquire in this country under their purchase program. Commerce has stated informally that ocean transport will be available. United States and Indian inland transport and terminal facilities are deemed capable of bearing the added burden.

The cost of 2 million tons of food grains is estimated at $180 million. Present indications are that few or no funds are available from previously appropriated ECA funds. It will almost certainly be necessary to ask Congress for new money for the Indian food grain program.

The newly appropriated funds should provide at least $90 million to be used for the procurement of 1 million tons of foodgrains in fiscal 1951, the balance of the request to be subject to review and appropriation of funds which must be available in the first half of fiscal 1952. This approach will permit a final evaluation of: (1) India’s addition food grain import requirement on the basis of crop-yields and domestic procurement in the first half of 1951, (2) India’s ability to finance further importation of food grains, on the basis of trade [Page 2096]developments in the first half of 1951, (3) our supply position in the light of other requirements which may develop, and (4) the availability of shipping and United States inland transport.

In order that procurement, loading and shipment may begin immediately, the authorizing legislation should also authorize the RFC to make available $50 million, pending the appropriation of funds for the first 1 million tons.

The aid agreement which will be negotiated with the Government of India for this program, should specify that the aid will generate counterpart funds which will be used for local expenditures involved in Indian programs: (1) to maximize Indian food production, (2) to provide for educational exchanges of the type now carried on under the Fulbright Act, (3) to establish technical and welfare institutes and (4) to develop health, sanitation and other similar projects for the benefit of the people of India.

In view of the grave impact of the program on the United States economy in general and on grain reserves and the price of grain during this period of crisis in particular, the Government of India must make every effort, in addition to that made possible by United States aid, to alleviate the present problem. In this respect, the agreement should specify that India maximize her effort: (1) to produce more food grains and (2) to increase procurement of food grains from other sources such as Pakistan and the Commonwealth. As an additional point the agreement might also specify that India maximize the production of strategic materials which are urgently needed by the United States.

For the purpose of administering the program, the President should appoint a Personal Representative for Indian Food Aid. Prior to the appropriation of funds for the last half of the program, the President’s Personal Representative should report to Congress on fulfillment of the terms of the agreement and should recommend Congressional action in the light of further information on: (1) India’s requirements, crop-yields and procurement, and (2) India’s ability to finance additional imports, as judged from trends in her balance of payments position in the remainder of fiscal 1951. The President’s Personal Representative should also supervise the deposit of counterpart funds, see that the food grains are distributed so as to achieve the maximum benefit for the people of India and see that the program receives full publicity in India.

The Government of India should bear the cost of transportation to India. The United States, however, should assist in making ships available through bareboat chartering or other means.

The Indian request collides with a highly unsatisfactory Indian position on the Far East crisis. We must focus attention on the humanitarian aspect of the Indian request and on the longer-range [Page 2097]aspects of our relations with India. If we do not assist India in its present crisis, elements inimical to the United States and the Western world generally will be strengthened. Our friends will despair of convincing the Indian masses of United States good will toward them and interest in them. If, as is probable, millions die of starvation, we shall find it difficult to live with our own consciences, and our dwindling credit in much of Asia will be further reduced.

If we do assist India, our friends will gain greater influence with the masses and with Nehru and his Government. We could mitigate much of the anti-Western bitterness which enables Nehru to maintain his present posture in foreign affairs. No overnight change can be expected, but the basis for a developing United States–Indian rapprochement will have been provided.

We have reached the stage in our examination of the Indian request at which an Executive decision is required. We can continue to compile and study statistics, and review possible legislation and sources of finance indefinitely. What is now needed to give direction to our efforts is a determination that it is in the United States national interest to meet the Indian request, in whole or in part and by such methods of financing as we can devise in consultation with the Congress.

This is the more true as considerable independent interest in this problem has appeared on the Hill. Senator Smith of New Jersey and Representative Javits1 are attempting with some success to line up bipartisan support for food for India. They and some of their colleagues are becoming increasingly convinced of the necessity of early legislative action.

The Executive cannot longer delay its decision. Food grains from a grant program must begin to move to India by April at the latest if a breakdown of the rationing system and possible starvation is to be averted.

Recommendation

That you sign the attached memorandum to the President2 seeking his decision to give Administration support to Congressional action providing for a grant food grain program for India.

Concurrences

E and H have concurred.

[Page 2098]

Attachments

Memo to the President

Paper on Economic Considerations

Paper on Political Considerations3

[Annex I]

India’s Bequest for Foodgrains: Economic Considerations

On December 16, 1950, the Government of India officially requested United States aid for the procurement of 2 million tons of foodgrains. In determining the course of action to be taken in response to this request, the Department must consider the factors underlying the request and the ability of the United States to render aid. These factors center about India’s need, her capacity to finance an additional 2 million tons, the United States supply situation, the availability of ocean transport, and the availability of inland transport both in the United States and in India.

a—india’s foodgrain requirements

The Government of India’s estimate of its foodgrain ration requirements for calendar year 1951 is 9 million tons. In addition to this 9 million tons .9 million tons will be required to replenish the pipeline. The Government of India’s estimate of local procurement ranges from 3 to 4 million tons. (For the purposes of this calculation we shall use the figure 3.5 million tons.) The local procurement of 3.5 million tons of foodgrains leaves 6.4 million tons to be procured from abroad.

The Government of India is undertaking to finance 3.9 million tons of imported foodgrains. The Government of India has procured or tentatively arranged for procurement of 3.0 million tons of foodgrains from abroad. An additional .8 to .9 million tons is expected through additional International Wheat Agreement allocation and transfers under the International Wheat Agreement. The 2.5 million tons remaining to be procured abroad would not be covered fully by the proposed grant of 2 million tons.

The principal criticism to be anticipated is that of the vagueness and uncertainty of the Indian statistics relating to their requirements for imports of foodgrains. It is to be recognized, however, that even with a most efficient statistical organization it would be extremely difficult to narrow the range of the figures submitted by the Government of India because of the huge quantities of food and people involved in the calculation. Vagaries of the weather and other unpredictable [Page 2099]factors connected with natural causes, which would affect domestic production and procurement, require wide ranges of estimate.

An informative comparison can be drawn from the Government of India’s figures for rationing requirements for 1951 and the figures developed from India’s foodgrain production and requirement.

(1) The latest estimates on the 1951 foodgrain production in India show a decrease of 5.47 million tons from the production of foodgrains in 1950.

Rice production for 1951 in India is estimated to be 2.72 million tons less than production in 1950 which was not a good year. This estimate is based upon crop cutting tests. Crop cutting for the 1951 millet crop will not be available until March. The latest estimates, however, are that the millet crop for 1951 will be 2.75 million tons less than in 1950.

The present outlook for the 1951 wheat crop is the same as that for 1950.

(2) In 1950 India imported 2.2 million tons of foodgrains and took .9 million tons from her pipelines.

By adding the 5.47 million tons representing the shortfall in foodgrain production, the 2.2 million tons imported for consumption in 1950, and the .9 million tons consumed from the pipeline, we arrive at a figure of 8.57 million tons of food grains which would be required from abroad to maintain the 1950 standard of consumption. This figure does not allow for an increase in population of at leaes 5 million people. It also does not allow for .9 million tons which would be required to keep the pipeline in most efficient operation.

It appears, therefore, that the Government of Inida’s estimates of imports required—6.4 million tons—is a very modest estimate indeed when compared with the minimal 8.57 million tons which would be required to maintain the 1950 standard.

Even the lowest figure of 6.4 million tons required for importation leaves a requirement of .5 million tons from abroad after we have deducted the tonnages for the Indian purchase program and the proposed grant-in-aid.

At the Department’s request, The Office of Foreign Agricultural Relations prepared an estimate of India’s 1951 foodgrain import requirements. In the light of later information from the field, this estimate of 5.6 million tons of foodgrains required from abroad represents the lower limit of the estimate. The upper limit is estimated at 6.2 million tons.

[Page 2100]

This range is derived in the following manner:

Ration requirements in 1950 were 7.6 million tons
Additional ration requirements in 1950 8 to 1.0
To replenish foodgrain pipeline .9
To repay foodgrain borrowed 1950 .2
Total Government procurement requirements for 1951 9.5 to 9.7 million tons
Less Government procurement from domestic procurement 3.5 to 3.9 million tons
1951 import requirement 5.6 to 6.2
Government of India financed imports 3.8
Balance to be imported 1.8 to 2.4

b—the government of india’s ability to finance the necessary import of additional foodgrains

(1) To evaluate India’s ability to pay for the importation of foodgrains required in 1951, the official Indian balance-of-payments projection for fiscal 1951 has been converted into a tentative balance-of-payments estimate for the current calendar year. On this basis there would be an estimated deficit of $166 million in calendar 1951. This figure takes into account a foodgrain import of only 3.9 million tons. It does not allow for the additional 2 million tons of emergency food imports required. If India’s total of imported foodgrains for calendar 1951 is taken, at a rough estimate, to be no more than 6 million tons, of which 3.9 million tons are assumed to be within India’s capacity to acquire and finance, the general magnitude of the expected financial imbalance can be projected as follows: The cost of 2 million tons of foodgrains is estimated at $180 million f.o.b., or $214 million delivered. If India were to finance the importation of these additional 2 million tons, her total estimated deficit would be increased to approximately $380 million (i.e. 166+214). This would, of course, require utilization of India’s sterling balances and substantial drawings on the sterling-area dollar pool. The net amount of such dollar drawings would, of course, depend on what happens to the remainder of India’s dollar balance of payments during this period.

(2) India’s large sterling balances can be examined from the point of view of their possible availability in the present emergency. From the peak of about £1.3 billion in 1946 for pre-partition India–Pakistan (pre-devaluation equivalent about $5.2 billion) India has drawn down her share to approximately £640 million (post-devaluation equivalent about $1.8 billion). The bulk of these balances is in a blocked account. Under an agreement of August 1949 India was entitled to a release of £50 million in the year ending June 30, 1950, and an additional £50 million in the year ending June 30, 1951, none of which has yet been drawn. In addition she will be entitled, under the so-called [Page 2101]Colombo plan, to releases of £35 million per annum for the six years beginning July 1, 1951. It should be noted that arrangements between India and the U.K. with respect to the former’s sterling balances are very flexible, and India has been able to draw on her sterling account to the extent necessary to meet current deficits even when the drawings exceeded the limits set by previous understandings.

As India is a sterling-area country and maintains her reserves in sterling, any net surpluses or deficits in her balance of payments will be reflected in changes in her sterling balances. Thus, a deficit of $166 million in 1951 would imply (in the absence of capital movements) a reduction in India’s sterling balances of approximately £60 million. If India draws down her balances at the rate of £35 million per annum for the next six years in accordance with her present development plans, those balances will be further reduced by £210 million by 1956 or 1957. Thus, barring further emergencies, the total diminution in India’s balances would be of the order of £270 million, leaving India some six years hence, with a reserve of approximately £30 million.

(3) The foregoing calculation was based on the assumption that extraordinary external aid would be provided for the two million tons of additional wheat required. If India should not be able to obtain this aid and must finance the increased imports herself, her reserves would be pulled down still further by the equivalent of $214 million, or approximately £76 million. The result would be to bring her sterling balances down to the neighborhood of £300 million or slightly under $900 million by 1956–7. It is doubtful whether such reserves can be considered adequate for a country of India’s size, growing population, and volume of international transactions. In the absence of external aid, India might curtail or abandon her economic development program in order to prevent her reserves from falling below the safety level. If India should follow such a policy it would, of course, pose the longer-range problem of India’s essential requirements for development and improvement of living standards, a problem in which the U.S. is vitally interested for political reasons.

(4) Informal talks with the Department of Agriculture indicated that Australia has no foodgrains available for export, other than those coming under the IWA. While Canada has some low-grade (#5, not normally used for human consumption), Canada’s inland transport situation is such that movement could not begin until much later in the year.

Canada and Australia have indicated that they will make rather modest contributions to the Commonwealth development program for South and Southeast Asia; it has been estimated that these gifts might aggregate about $25 million for the first year of the program. [Page 2102]All in all, therefore, it is not likely that any but rather nominal sums compared to the requirement can be forthcoming from these sources.

(5) India’s reserves other than sterling are not large. The statistics on short-term deposits in New York indicate working balances maintained at about $50–70 million chiefly for the use of the Indian Purchasing Mission. In addition, India has a modest independent gold reserve which since before World War II has been maintained at a constant level ($247 million since partition). This reserve is approximately equal to the legal minimum requirements against the note issue of the Reserve Bank of India. For both legal and psychological reasons this traditional gold reserve is not available for meeting current-account deficits in India’s balance of payments.

(6) There would be little justification for financing the import of the additional 2 million tons of foodgrains by a long- or intermediate-term loan. Neither the Export-Import Bank nor the International Bank for Reconstruction and Development would be prepared to advance the necessary funds for procurement of consumers goods, i.e. for an undertaking which has no income producing possibilities. The International Monetary Fund has already advanced India $100 million, nearly four times the Indian gold contribution to the Fund.

c—the availability of supplies and the ability to deliver

(1) The Department of Agriculture has stated that an additional 2 million tons of wheat are available in the United States. It should be noted, however, that the entire 2 million tons of foodgrains should be taken in wheat only as a last resort. In view of possible increases in the price of wheat and possible increases in the demand for wheat from other quarters, the composition of the 2 million tons of foodgrains might well extend into barley, corn, and other substitutes.

(2) United States inland transport for 2 million additional tons of foodgrains will be a problem, but not an insurmountable one. Present estimates on the availability of inland transport show that the greatest load will come in late spring and during the summer.

(3) The Maritime Commission has stated informally that ocean transport will not be a major problem.

(4) Studies of India’s ability to unload and distribute an additional 2 million tons of foodgrains show that India has this ability.

Note:

Comprehensive analyses of the detailed statistics involved in factors A, B, and C are in process.

[Page 2103]
[Annex II]
secret

Indian Request for Food Grains: Political Considerations

india’s importance to us security

South Asia, of which India comprises the most important part, is the only substantial area in the Asian land mass which has not been subverted, or is not imminently threatened with Communist domination. If South Asia falls under Communist control, a strategic area containing nearly half a billion people will be denied to us, and its resources, including strategic materials, can be utilized against us. Potential bases for containment of Soviet power, or attacks on the Soviet heartland and Communist China would be denied to the non-Communist powers and Soviet control of the Asian land mass would be virtually complete.

The present threat of famine in India promises to create conditions ideally suited to the subversive activities of the Communist Party of India which is exploiting situations calculated to increase popular dissatisfaction with the present non-Communist Government. A quick response to the Indian Government’s request for food grains is the most effective means, immediately available to our Government, of counteracting Communist subversion in India.

humanitarian considerations

Rightly or wrongly large numbers of Indians have expressed disappointment or bitterness over the failure of the US to respond to the informal request for food grains made by Mr. Nehru in 1949. Today, in the face of shortages far more serious than those which existed in 1949, Indians find it increasingly difficult to understand why the US, which prides itself on humanitarian principles, cannot make food grains available to avert famine. Informed Indian officials are aware of our many commitments in other parts of the world, and may understand the bureaucratic complexities and political complications bearing on a project of this sort, but most Indians feel that if the US really wants to prevent famine it will find some way of doing it, while Communist propaganda will be quick to seize on our failure to help as evidence of greed and cold-bloodedness in our dealings with under-developed areas and under-privileged peoples. Public support in the US for assistance to India can probably be stimulated more effectively on humanitarian grounds than on the basis of strategic considerations. Mr. Hoover4 and Mr. Stassen5 have both declared [Page 2104]themselves in favor of economic assistance to other countries, and it is understood that in a private conversation Mr. Taft6 recently stated that while he had not investigated the matter, he was inclined to favor a gift of food grains to India if this were necessary to prevent starvation.

indian government attitudes

Considerable annoyance and concern has been created among officials in Washington by statements made by Mr. Nehru. It is quite apparent that Mr. Nehru, recognizing the power of Communist China, is grasping at every possible straw in his effort to avoid offending the Chinese Communist authorities, and many of his pronouncements regarding the Communist aims are disturbing. We cannot, however, afford to allow Mr. Nehru’s declarations to blind us to the vital importance of not losing India and South Asia to Communism by default.

In the last analysis Mr. Nehru’s current policy toward Communist China, is essentially the same as that of the British Government, which, while not openly encouraging him, does not appear to have made any effort to change his views. Whether we like the British attitude or not, self-interest dictates that we continue to make sacrifices to keep Great Britain independent. By the same token it is in our interest to prevent India from falling under Communist domination.

Mr. Nehru’s pronouncements to the contrary notwithstanding, the Indian Government is well aware of the danger of Chinese Communist aggression—exemplified in Tibet and Korea, and threatened in Burma. Current reports indicate that border defenses are being strengthened, and Mr. Nehru has stated in Parliament that India will not tolerate an invasion of Nepal. There is no reason to believe that the present Indian Government would not fight Communist invaders to the best of its ability, but if large elements of the population are starving the will to resist will be proportionately weakened.

So far as internal Communism is concerned, Indian authorities—both Central and State—continue to apply stringent measures to control Communist activity.

Whatever we may think of Mr. Nehru’s somewhat emotional declarations we know that if the present government falls India will either be thrown into a state of chaos or come under control of a government far less sympathetic to our ideals and objectives than the present government. It is all too likely that a new government would be controlled either by Communists who would swing India into the Soviet orbit or by elements of the extreme right utilizing totalitarian methods which would be much closer to Soviet communism than to the principles supported by the western democracies. The emergence [Page 2105]of either type of government would probably have a disastrous effect on Indo-US relations. By comparison Nehru’s current effusions would probably seem quite innocuous.

indo-us relations

Relations between the US and India are essentially good. Differences of opinion regarding issues such as Kashmir, Formosa, Indochina, and admission of the Chinese Communists to the UN need not be regarded as incapable of solution. However misguided Mr. Nehru may be on the subject of the Chinese Communists and the UN (along with the British and a number of other governments) we will only be hurting ourselves if we allow our rancor to cloud our vision in viewing the over-all importance of keeping the present Indian Government in power.

If we permit famine to develop in India, we may contribute to the collapse of a government which in the long run is much more apt to cooperate with us than any possible successor government. The cost of the food grains under discussion is not inconsequential; and the effect of a gift of food grains cannot be mathematically predicted; but failure to take this calculated risk may result in inestimable losses in terms of manpower, resources, and strategic advantage.

If Congress is asked to authorize a gift of food grains the question of Kashmir and other Indo-Pakistan disputes will be raised. We may wish to state frankly that we do not agree with Mr. Nehru’s position in the Kashmir case and are continuing efforts through the UN to bring about an equitable settlement, but are convinced that the urgency of the food problem is such that we cannot afford to make a gift of food grains contingent upon a final settlement of current Indo-Pakistan disputes. If it is suggested that funds currently being used to support Indian armed forces might better be used for the purchase of food it may be pointed out that in view of Communist aggression we believe the Indian armed forces should be maintained at their present strength, or greater, even if differences with Pakistan are settled. It may be also pointed out that famine in India would probably serve to increase tension between India and Pakistan and make it more difficult than ever for the Indian Government to agree to an equitable settlement.

the alternatives

If we respond to the Indian request we may reasonably expect the following benefits:

1.
The position of the present non-Communist government will be strengthened; the possibility of subversion of India and South Asia by Communist powers will be reduced; and the possibility of gaining [Page 2106]Indian cooperation and denying South Asia and its resources to the Communist bloc will be enhanced.
2.
The Indian people and the world at large will be impressed by our humanitarian impulses; charges that we are willing to relieve suffering only when we stand to gain politically will be counteracted; and the American taxpayer will have the satisfaction of participating in a generous project to prevent starvation in a country plagued by natural disasters.
3.
Relations with India, which, despite differences of opinion, are essentially good, will be improved; cooperation between our governments necessitated by a gift of food grains will offer new opportunities for increased mutual understanding; and our basic good will toward the Indian people will take tangible form.

If we refuse the request for food grains we may reasonably expect the following developments:

1.
The present government will be weakened and India may be threatened with anarchy, a dictatorship of the extreme left, or a dictatorship of the extreme right. The possibility of Communist subversion of the country, and utilization of Indian manpower and other resources against us will be increased.
2.
The Indian people and peoples of other Asian countries will question the validity of our humanitarian impulses; and charges that we are interested in relieving human suffering only for political reasons will be substantiated in the eyes of the world.
3.
Our relations with India will deteriorate; we will throw away an opportunity to develop mutual understanding between our governments; and the Indian people will be willing to believe that our expressions of solicitude are hypocritical.

  1. Correspondence with Senator H. Alexander Smith and Representative Jacob K. Javits, not printed, is in file 891.2311/1–2451.
  2. Memorandum to the President dated February 2, p. 2109.
  3. Papers on economic and political considerations are printed respectively as Annexes I and II, below.
  4. Herbert Hoover, U.S. President, 1929–1933; associated with a number of U.S. relief efforts abroad both before and after his presidency.
  5. Harold E. Stassen, President of the University of Pennsylvania.
  6. Robert A. Taft, U.S. Senator from Ohio.