Foreign Relations of the United States, 1955–1957, South Asia, Volume VIII

143. Briefing Paper Prepared in the Office of South Asian Affairs²

Washington, January 19, 1955.

INDIA—SOME CURRENT ECONOMIC PROBLEMS

1. Communist Economic Offensive: There seems no doubt but that the Soviet Union and its European satellites and Communist China have recently greatly increased the tempo and scope of their efforts to supplement political penetration of South Asia with economic penetration. This is particularly true with respect to Afghanistan and India. The realization of the seriousness of this economic offensive has been heightened by the free world’s military reverses in Indo-China. Communist efforts in India have been at least partially successful, e.g., the number of delegations between the Soviet-Communist China bloc and India has been greatly stepped up in the last year; the conclusion of an Indo-Communist China trade agreement looking to increased trade; the Indian Government is seriously considering a Soviet offer to construct a large steel mill on easy credit terms.

2. Public Law 480: Agricultural Trade Development and Assistance Act:³ Public Law 480 authorizes the disposal of $1 billion in US surplus agricultural commodities over a three-year period. This Act has been cited by high US officials as a valuable supplement to the economic development efforts of, specifically, the South and Southeast Asian countries in the Colombo Plan.⁴ The problem of working out an adequate program for India remains acute, especially in view of India’s request one year ago for US consideration of a three-year program for India involving 4½ to 5 million tons of wheat. At present, the best that we have been able to get the Inter-Agency Committee administering the Act to agree to is a program to India in this fiscal year of only $24.4 million at market cost. The Embassy and the FOA mission have strongly recommended a program of one million tons of wheat for one year, and NEA is continuing to try to obtain an adequate program.

3. Strategic Materials and East-West Trade: As part of our policy to eliminate trade between India and the communist bloc in strategic materials, and to assure the US adequate supplies of such materials, we have arrangements with the GOI on beryl and thorium nitrate.⁵ Constant vigilance, however, is necessary to assure, insofar as it lies within the power of the US, that India’s actions do not conflict with the provisions of the Battle Act.⁶ India’s cooperation with regard to exports has been carried on in an informal … manner. This cooperation has been at least adequate, though problems involving specific shipments or groups of shipments continue to arise. So far, we have been able to adjust to them on an ad hoc basis.

4. Negotiations and Agreements: Negotiation of a Treaty of Friendship and Establishment continues to be an important US objective in terms of assisting in the creation of conditions facilitating the inflow of private American capital into India. The GOI has recently evidenced a reawakening of interest in actively pursuing negotiations. To supplement the negotiation of this Agreement, the US would also like to see the conclusion of a convention for the prevention of double taxation. Discussions on an investment guarantee agreement have not indicated any particular desire on the part of the GOI for such an agreement.

5. Aviation Problems: The 1946 Indo-American air transport agreement⁷ was permitted to terminate on January 14, 1955, after last-minute attempts on both sides to reach agreement did not result in the reconciliation of previously expressed points of view. The crucial barrier to agreement was India’s insistence on the pre-determination of flight frequencies which was a principle the US could accept in the Indian case only at the risk of endangering its worldwide position against pre-determination. The Government of India has issued temporary permits authorizing continued operation of two round-trip flights weekly to and through India, each by Pan American and Trans-World Airlines. Each company has, in the past, been operating three round trips weekly. PAA will serve either New Delhi or Calcutta on each flight and TWA will serve Bombay on both flights.

At the same time that India is making it more difficult for US airlines to operate in India, a question has arisen here directly affecting India’s own air operations. India has ordered three Super Constellation aircraft in the United States. The aircraft became or will become ready for delivery, one in January, one in February and one in March of 1955. They require US export licenses. India’s announced intention of instituting—at some vague future date—air service between India and Canton via Hong Kong raised the question of the conditions under which the US should license the export of these planes, in view of the possibility that some US equipment—if it were used on the Hong Kong-Canton run—might fall into the hands of the Communist Chinese. After lengthy discussions in the Department, in which the interested bureaus were unable to reach agreement, Secretary Dulles acted to issue instructions for an export license on the plane ready for delivery on January 3. The fate of the other two planes has not been decided.

6. General Agreement on Tariffs and Trade:⁸ India, as an adherent to the General Agreement on Tariffs and Trade, has participated in the current discussions at Geneva looking toward a revision of the Agreement. India’s position is that the underdeveloped countries, including itself, require special advantages in terms of their ability to maintain tariffs and quantitative restrictions.

2. Source: Department of State, NEA/SOA Files: Lot 57 D 16, Briefing Material for Ambassador Cooper, India: Economic. Secret. Drafted by Warren A. Silver and Peter H. Delaney of the Office of South Asian Affairs. It was Tab 1 in the briefing book prepared for John Sherman Cooper, who was appointed Ambassador to India on February 4 and presented his credentials on April 9.
3. For text of P.L. 480, approved on July 10, 1954, see 68 Stat. 454.
4. The Colombo Plan for Cooperative Economic Development in South and Southeast Asia, which went into effect July 1, 1951, was intended to stimulate long-term development. (Cmd. 8080)
5. The United States entered into an agreement with India on October 1, 1950, to buy 25 percent of the Indian production of beryl ore for a period of 5 years, with an option for 5-year extensions. A memorandum of commitment in regard to the purchase of thorium nitrate was concluded in 1954 and subsequently on December 14, 1955, the United States negotiated a contract with India to purchase 230 tons of thorium nitrate. Documentation on these subjects is in Department of State, Central File 891.2546.
6. For the text of the Battle Act (named after Rep. Laurie C. Battle of Alabama), or Mutual Defense Assistance Control Act (P.L. 213, approved on October 26, 1951), see 65 Stat. 644. It provided that all U.S. military, economic, and financial assistance be terminated to any country trading embargoed materials to the Soviet Union and its satellites, including the People’s Republic of China. Thorium nitrate was on the list of strategic materials and India’s sale of this material to the PRC, led the United States to make a preemptive purchase of India’s production. For documentation, see Foreign Relations, 1952–1954, vol. XI, Part 2, pp. 1696 ff.
7. For text, which was signed and became effective on November 14, 1946, see TIAS 1586 or 61 Stat. (pt. 3) 2573.
8. Concluded at Geneva October 30, 1947, and entered into force for the United States January 1, 1948. See TIAS 1700; 61 Stat. (pts. 5 and 6).