891.03/6–651: Telegram
The Ambassador in India (Henderson) to the Secretary of State
3524. 1. During talk June 5 with Deshmukh FinMin he expressed deep appreciation efforts US Govt assist India in obtaining food grain on credit, pointing out both food and credit wld be extremely helpful just now.
2. I asked how GOI proposed use funds obtained from sale food grain purchased on credit. He said plans were to add funds to budget. Ind budget broken into two categories—revenue budget and capital budget. During fiscal year ending Mar 31, 1952 in spite best efforts GOI it looked like combined budget wld have shown deficit of approx 500 million rupees. This deficit wld have been due to deficits in capital budget since there wld probably have been slight surplus in revenue budget. GOI wld have had no choice than to pay deficit out of govt cash balances accumulated during war years which, because of recent withdrawals, already dangerously low. Now anticipated sale of US grain shld yield between 700 and 900 million rupees which if added to combined budget wld result surplus several hundred million rupees. GOI intended continue efforts obtain favorable balance revenue budget but wld probably spend more in capital budget than originally anticipated. These funds wld be invested with care in order insure increases natl production particularly food and eventual repayment to GOI. Number of projects which GOI had been compelled postpone because lack rupees; some of these cld now move forward at once. One advantageous fact of food grain sale wld be deflationary effect which badly needed.
3. I referred to possibility US might be able during US next fiscal year give certain amt ECA aid. Deshmukh said he and Nehru had [Page 2167] discussed this matter at length and he greatly pleased PriMin had finally decided India shld accept aid this kind if it cld get it. Nehru’s greatest concern had been lest public in India and other countries might gain impression that in accepting aid from US under ECA terms GOI was in some way changing its fon policy or was under some kind legal or moral obligation to make such change. Nehru was finally convinced that advantages accruing to India from econ coop this kind with US wld outweigh any unjustified criticisms that GOI was altering its fon policies.
4. I told Deshmukh that if Congress shld enact legislation authorizing ECA aid to GOI amt to be devoted to India might not appear large when compared to what had been spent on various Eur countries under Marshall Plan. I wld not like for GOI build up great expectations and be disappointed. Deshmukh replied it might be just as well if at least for first year amt wld not be very large. After US and India had become accustomed work together economically and lad established mutual confidence more might be done. In response my question he said that some of funds derived by GOI from US food grain might advantageously be used as rupee support for dollar expenditures which might be made under broader US econ aid program. In any event GOI did not intend act hastily in deciding how this rupee windfall wld be spent.