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

167. Letter From the Ambassador in India (Bunker) to Frederic P. Bartlett, at London¹

New Delhi , June 27, 1957.

Dear Fred :

. . . . . . .

I talked to so many people in the Administration, the Department, and in the Senate and House that I hardly know where to begin. I think perhaps my narrative will be clearer if I discuss these under a number of headings.

I. Economic Assistance

The greater part of my time was devoted to this subject. I talked with the President, with Mr. Dulles, Clarence Randall, Chris Herter, Sherman Adams, Douglas Dillon (with Win Brown), John Hollister, Eugene Black, Sam Waugh and, of course, Bill Rountree, Jeff Jones and others in South Asia.

I found the President looking extremely well,² in fine spirits and receptive to what I had to say. I had time to explain why I thought we were heading into a crucial period here in the immediate future and what it could mean to our long-term interests here and in Asia. I felt that I had a sympathetic hearing. The President again expressed the view that he felt we were better off with India following its policy of non-alignment than were she to join up actively on our side, with the consequent added burden on the American taxpayer and 2000 miles more of active frontier. He, of course, made no commitment as to what, if anything, might be done in the way of extraordinary assistance to India.

Following my talk with the President, I had a long talk with Clarence Randall, who impressed me greatly. He seems to be intensely interested in his subject, to have an excellent grasp of it, and asks questions which make a lot of sense. Randall had first asked, as you know, for a study of the Indian situation, this at the suggestion of the President. He has now asked the Department to come up with recommendations. Burr Smith and others in SOA were working on these at the time I left and I had an opportunity to go over the ground a little with them. My only fear is that what they come up with may be too cautious and lukewarm.

I also covered the ground as thoroughly as I could with Foster Dulles,³ Chris Herter, Sherman Adams and Douglas Dillon. I felt the talk with Dillon was perhaps the most encouraging of all. He seemed interested in the problem, to be thinking clearly about it, and I felt would be willing to back what action he thought necessary even though it might be difficult.

I talked briefly with John Hollister, and later with his Deputy, Dennis FitzGerald. Hollister, as you know, is quite lukewarm about India and I did not get much encouragement from him. Incidentally, he has turned down the UNIVAC machine for Mahalanobis⁴ on the ground that with all the unemployment in India, spending a million dollars on a fancy calculating machine cannot be justified. I think, however, we may be able to do something in other directions on this. Reports are current that Hollister will be resigning after the pending foreign aid bill is passed.

The upshot of all these talks and a pretty thorough review with SOA led me to come to the reluctant conclusion that there is practically no prospect of any legislative action on a loan or credit to India in this session of Congress. The budget fight is still on and the Administration has not yet won it by any means. It got over the first hurdle on foreign aid in the Senate extremely well but there is yet to come action by the Appropriations Committee. Hearings are still going on in the House on the Authorization Bill. Added up, this means that it will be near the end of the session before final action is taken on the authorization and appropriations. This would leave little time for Congressional action on a special measure which would undoubtedly be controversial and which could only hope to succeed with the strongest kind of backing from the President and the Secretary. I do not believe this would be forthcoming unless we were faced with an imminent collapse here.

There is the added problem in connection with special legislation for India that there are other countries, such as France, which are facing extremely difficult economic and financial problems and feel that they also should have special attention. There was also a feeling that India has overreached itself in the second Plan. This I think is true and I am quite sure that the Plan will not be completed within five years. Nevertheless it is also true that India will need more assistance than will be available under the presently contemplated Mutual Assistance program.

In the Senate I talked with Lyndon Johnson, Bill Knowland, George Aiken, Prescott Bush, John Cooper, Carl Hayden, Alec Wylie [Wiley], and briefly with Green and Mike Mansfield.⁵ In the House I saw John McCormick, the Majority leader. Since the Foreign Aid Bill was then under consideration by the Committee, I had the opportunity to add what I could toward urging that the development fund be kept intact and to emphasize again the critical situation we are facing in India and the need to do something about it in our own vital interests. Taken all together I found a more sympathetic response toward the Indian situation than I had expected. There is, of course, in many quarters great resentment at Krishna Menon but, nevertheless, a realization of the importance of India to us and the need to give assistance. Except for John Cooper, however, I found the same reaction as I had received from the Administration, i.e., that it would be extremely difficult, if not impossible, to get special legislation in this session. John Cooper was more optimistic than the others and felt that if the President and Secretary were to strongly back a recommendation it might be possible to get through a loan to India of say $200,000,000. He prefaced this by saying that a strong support of the President and Secretary would be absolutely essential. Under present conditions I do not believe this would be forthcoming. Unanimity of opinion on the other side was so complete that I felt it would not be productive to try to force the issue further.

I talked this over several times with Ambassador Mehta and B.K. Nehru and found that their independent appraisal coincided with mine. With the short time available for any such action there is the added risk that the matter might be proposed and fail to get favorable action. Then we would be left with a situation in which many harsh things would have been said about India (which would be inevitable in any event) but with no offsetting constructive results to show for our efforts.

II. World Bank

On my arrival I found B.K. Nehru greatly discouraged about his negotiations with the Bank. He had hoped to get a loan of $125,000,000 for the railroads, and the Bank countered with an offer of $75,000,000. He felt that this left him in an extremely awkward position, for he has commitments to meet over the next year for the larger amount. I subsequently talked with Eugene Black,⁶ Burke Knapp and Rushinsky [ Rucinski ], and they outlined to me what they were proposing to do for India in the way of loans this year. These included the $75,000,000 for the railroads, $10,000,000 for the Trombay power plant near Bombay, and a further loan of $17,500,000 to Tata for additional expansion, making a total of 102.5 millions. They felt this was as far as they could go, pointing out that this would put India right at the top of their borrowers, and that the only money they could lend was what they themselves could borrow. They had some trouble selling the last $100 millions of bonds on the New York market. After talking with B.K. Nehru again, I urged the Bank to increase their loan for the railroads to $100,000,000, taking the increase off what they might lend in subsequent years. I doubt very much, however, that they will do this for I think they feel that $100,000,000 is about as much as they can do in any one year for India. They also pointed out that their actual payments this year to India would amount to about $150,000,000.

III Export-Import Bank

I had a session with Sam Waugh and the Board of the EXIM Bank. It developed that they really had no policy as far as India is concerned and asked what I thought they could do. I said I felt that there was no point in getting into competition with the World Bank by loaning money to projects where the credit of the Indian Government was involved. This would only mean that the World Bank would reduce its lending and India would be no better off. I said I thought that they could be useful, however, in two types of projects. One instance would be where American firms were willing to invest in India but would not want to put up their own equity capital. In such cases they might be willing to borrow on their own credit from the EXIM Bank. The second instance might involve a situation in which savings in foreign exchange would be large enough to offset the capital investment over a period of years, and thus the borrowing ability of the Indian Government would not be compromised. The Reynolds Aluminum project might be a case in point. Sam Waugh asked me to write him along these lines, which I shall attempt to do after conferring with Bob Fluker and others here.⁷

IV. PL 480

It seems pretty well assured that the PL 480 extension for $1,000,000,000 will go through. It is doubtful, however, if India will be able to share in much of this because of her present loan. The feeling in Congress seemed to be that PL 480 will be extended from year to year as long as there are farm surpluses, although I understand the Administration is not very enthusiastic about the project. However, I think there will be pressure to keep it going as long as the surpluses continue. In this case India might come in for larger shares in subsequent years.

. . . . . . .

Sincerely yours,

Ellsworth Bunker

1. Source: Department of State, NEA/SOA Files: Lot 62 D 43, India—June–December 1957. Confidential; Official–Informal. Extract. Bartlett left New Delhi before Bunker’s return for reassignment to Washington where he assumed the position of Director of the Office of South Asian Affairs. The sections not printed deal with Bartlett’s departure, “Kashmir,” military aid to Pakistan, “Other Economic Matters,” and “Miscellaneous Matters”.
2. Bunker met with the President for 11 minutes on June 5.
3. Ambassador Bunker met with Dulles and Jones on June 4 to discuss India’s financial problems. He emphasized that how India fared economically over the next few years would be most important to the United States. The Secretary mentioned that money was tight and there was Congressional resistance to aid programs. He hoped that India might qualify for assistance from the new Development Loan Fund. Finally, Dulles suggested that Bunker take up the question with Congressional leaders. (Memorandum of conversation by Jones, June 4; Department of State, Central Files, 891.00/6–457) Herter welcomed Bunker to the Secretary’s Staff meeting on June 6 where the Ambassador stated that India’s success was crucial to demonstrating that an underdeveloped nation could raise its economic standards in a democratic manner. (Ibid., Secretary’s Staff Meetings: Lot 63 D 75)
4. Professor P.C. Mahalanobis was a physicist, Director of the Indian Statistical Institute, Honorary Statistical Adviser to the Indian Cabinet, and economic adviser to Prime Minister Nehru. He played a key role in formulating the second Five-Year Plan, which stressed the expansion of the public sector at the expense of private industry.
5. The Democrats were Johnson of Texas, Hayden of Arizona, Theodore Francis Green of Rhode Island, and Mansfield of Montana. Knowland of California, Aiken of Vermont, Bush of Connecticut, Cooper of Kentucky, and Wiley of Wisconsin were the Republicans.
6. Black discussed the Indian aid question with Dillon on June 24 remarking that it was not likely that the United States could meet India’s valid assistance needs without special legislation. He suggested that if Congress would permit India to repay the dollar wheat loan of 1951 in local currency at a higher rate of interest, then the World Bank would consider an equivalent dollar development loan of perhaps $125 million. (Memorandum of conversation by Dillon, June 24; Department of State, Central Files, 891.00–Five Year/6–2457)
7. Bunker wrote to Waugh on July 26. (Ibid., NEA/SOA Files: Lot 62 D 43, Indian Economy—June-December 1957)