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

165. Memorandum of a Conversation, Department of State¹

Washington, May 13, 1957

SUBJECT

• India’s Development Program and Desire for U.S. Assistance

PARTICIPANTS

• Mr. Dillon, Deputy Under Secretary for Economic Affairs
• Ambassador Mehta, Ambassador of India
• Mr. Govindan Nair, Financial Minister of India
• Mr. R.B. Smith, SOA

Ambassador Mehta called, at his request, to introduce Mr. Govindan Nair, the recently arrived Financial Minister for India. The Ambassador then expressed his appreciation of Mr. Dillon’s recent speech at Arnold House on foreign aid. Mr. Dillon believed that the conference had been generally successful and commented that all groups which had recently studied foreign aid had reached substantially similar conclusions. He hoped that after President Eisenhower addresses the nation on this subject next week,² Congressional action will be favorable.

Ambassador Mehta recalled that Prime Minister Nehru, in speaking to the Far East-America Council of Commerce and Industry, during his recent trip, had said that India’s approach to economic problems was not doctrinaire but pragmatic with the exception of India’s insistence on maintaining a democratic approach on both political and economic matters. India has no plans, for example, for the collectivization of agriculture and recognizes clearly the important part played by private enterprise in her economy.

Despite the success of India’s First Five Year Plan, baffling problems remain in the accomplishment of India’s development program. Nevertheless, India’s leaders realize that the impact of this program must be adequate to alleviate unemployment and increase the pace of industrialization. In the first year of the Second Five Year Plan, however, appreciable strains have developed on prices and balance of payments. Even if this plan is successful, the standard of living will rise only slightly.

The Ambassador then inquired whether Ambassador Bunker had conveyed to the Department any suggestions for informal talks between the Indian Embassy and the Department on long-term loan assistance to India. Mr. Dillon replied that the Embassy had reported a number of conversations held between Embassy personnel and Indian officials on the subject of India’s development program, but that no request for talks had been indicated.

The Ambassador said that at luncheon on the first day of Prime Minister Nehru’s visit, President Eisenhower had questioned him on the Five Year Plan and that the Prime Minister had given a detailed explanation. Subsequently, the Prime Minister, in a press conference, had said that India would welcome long-term loan assistance indicating that loans were a good form of aid in that they encouraged self-respect. While on his recent visit to India, the Ambassador said that he had had talks with Mr. Bartlett and Ambassador Bunker who had suggested that informal talks on the possibility of assistance be held before any formal approach to the U.S. Government is made by the Government of India. The Ambassador hopes to continue these discussions with Ambassador Bunker on the latter’s return for consultation.

The Ambassador then raised a direct question whether an informal approach should be made to see if formal talks should be held later. He expects the Indian Finance Minister to be in Washington in the fall for talks with the IBRD and IMF. Mr. B.K. Nehru, Secretary of the Ministry of Finance, will be in Washington on May 16 for talks with the IBRD and will be in a position to supply the latest material for the information of the Department. The Ambassador frankly stated, that unless the ground is prepared carefully, he could see no point to a formal request by India which might raise, unnecessarily, controversy between the two governments or invite a rebuff. He recalled the long debate over the wheat loan to India in 1951. He hoped that there would be no publicity on any informal talks that might take place.

Mr. Dillon said that the U.S. obviously is interested in the future of India and its economy as indicated by the U.S. aid now being given. The question is, therefore, one of amount and not of principle. He did not believe that it would be possible to make any firm judgments until the nature of the new aid legislation is more definitely known, although he hoped that the concept of longer-range planning of assistance would be accepted by the U.S. Congress. Mr. Dillon expressed the opinion that it would be helpful to have informal discussions and to determine more clearly India’s view of her economic problems.

Mr. Dillon indicated that the U.S. Government has made some studies based on available public information.³ He believed that it would save time ultimately to start technical discussions at the working level to determine the magnitude of the problem and to see if the information on which the U.S. has been working is accurate. Then, once aid legislation is finally passed, in about two months, the U.S. Government would be in a better position to advise the Government of India whether a formal request should be made. This decision might be made before the visit of the Finance Minister.

Ambassador Mehta stated that he had been informed that the President had asked that a study of the Indian economic problem be made. Mr. Dillon said that this was accurate but that the study had been made only on available published data. The Ambassador then inquired as to whom B. K. Nehru should see for technical discussions. Mr. Dillon agreed to receive Mr. Nehru, but suggested that technical talks could appropriately be held with Mr. Turnage of E and Mr. R. B. Smith of SOA.

Ambassador Mehta then referred to India’s attempts to attract private capital. He said that in the past ten years, U.S. investments in India had increased from the $25 million level to $100 million and that a number of new investment schemes were under consideration. British and German private companies are also cooperating with the Government of India which is very keen to assist in attracting private capital. As evidence, he said that from a total of $230 million borrowed by India from the IBRD, approximately $150 million had been utilized for loans to private Indian companies. Thus, India is not stifling the private sector, although it does have problems of regulation and of meeting demands for protection from its own industrialists. He also referred to India’s repayment of its lend-lease silver debt as evidence of India’s good faith in international financial transactions.⁴

1. Source: Department of State, Central Files, 891.00–Five Year/5–1357. Confidential. Drafted by Smith.
2. On May 21, the President addressed the American people on the need for mutual security in waging the peace. In his speech he noted that countries like India and Pakistan had with great difficulty been applying considerable portions of their limited resources to long-range investment. “But at this critical moment of their economic growth a relatively small amount of outside capital can fatefully decide the difference between success and failure. What is critical now is to start and to maintain momentum.” (Public Papers of the Presidents of the United States: Dwight D. Eisenhower, 1957, p. 392)
3. On February 4, Rountree addressed a memorandum to the Secretary recommending the establishment of an interdepartmental staff study group representing the Departments of State and the Treasury and ICA. The group would consider the timing, form, and amount of economic development aid for India. (Department of State, Central Files, 791.5–MSP/2–457) The Interdepartmental Working Group on India held its first meeting on March 13. (Memorandum from Strong to Silver, March 14; ibid., 791.5–MSP/3–1457) Clarence B. Randall, Special Assistant to the President, wrote to Secretary of the Treasury Humphrey, Under Secretary of State Herter, and ICA Director Hollister on April 15 to indicate that the President wanted a study made of the Indian economic situation, though he could not recall having promised to do this, as Mehta alleged, at the time of Nehru’s visit. Randall urged that the study be completed by April 26 in a form ready for the President’s personal attention. (Ibid., 891.00/4–2457) The Report of the Working Group, entitled “The Economic Problem of India,” was completed on May 2. (Washington National Records Center, ICA Director’s File: FRC 61 A 32) Kalijarvi sent it to Randall on May 3 with a covering letter, indicating that although all the interested agencies and bureaus had agreed to it there were fundamental differences in regard to the policy implications involved. (Department of State, Central Files, 891.00/5–357) The Department of State favored additional development assistance to India. (Letter from Herter to Randall, May 2; Washington National Records Center, ICA Director’s File: FRC 61 A 32) Burgess informed Dillon on May 2 that Treasury did not object to more assistance for India if the funds were reallocated from funds originally intended for other areas, but would not likely support any approach to Congress to gain additional funds for a higher level of assistance. (Ibid.) Hollister sent a memorandum to Dillon on May 2 suggesting further study of the second Five-Year Plan to determine whether it was soundly conceived to accomplish the objective of steady and uniform Indian economic development. He also thought more attention should be paid to foreign private investment. (Ibid.)
4. The first installment of India’s lend-lease silver repayment was shipped to the United States on April 24. Ambassador Bunker, like Cooper before him, had urged a long-term moratorium. Dillon informed him April 24 of the reasons why the Department could not go along with his recommendation. (Department of State, Central Files, 791.56/3–1257)