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

172. Memorandum From Elbert G. Mathews of the Policy Planning Staff to the Deputy Under Secretary of State for Economic Affairs (Dillon)¹

Washington, September 11, 1957.

SUBJECT

• Aid for India

1. Economic Prospect. Two inter-agency groups have reviewed the Indian problem within the last few months. They both reached essentially the same conclusions:

a. India is embarked on an effective and promising development effort.

b. There is a significant gap between the resources available to India and those required to carry forward this effort.

c. Failing an increase in these resources, India will be required to cut back on development activity even more drastically than it has done to date.

2. Political Prospect. Personnel recently with the Embassy in Delhi judge that failure of present development programs could be reflected, in the 1961 elections, in Communist gains in Bengal and Bombay provinces comparable to those which installed a Communist government in the province of Kerala in the last election. This could spur a trend toward other types of extremism, disorder, and regional separatism, such as we now see in Indonesia. It is not difficult to imagine how, in the long run, such a situation would pave the way for a Communist accession to power in the sub-continent.

3. Measures Under Consideration. The measures that are now under consideration in relation to the Indian problem are not adequate to close the gap described in paragraph 1:

a. IBRD loans of about $100 million annually, which were taken into account in computing the gap.

b. Development Fund loans of about $60–$70 million in FY 1958, or $10–$20 million more a year than was assumed in computing this gap.

c. PL 480 sales, which are badly needed to prevent the gap from enlarging but which will not diminish it.

d. A proposal to convert the Indian wheat loan to a local currency basis if the IBRD would thus make a firm commitment to lend India about $125 million more than would otherwise be the case. This measure, in which Mr. Bowie had taken strong interest, seems promising in that it could—if the IBRD would make the additional loan—actually reduce the calculated gap. It would not solve the Indian problem, but would give us time in which to address other measures to that problem.

4. Additional Executive Branch Measures. There are certain additional measures which are not now under active consideration and which might be taken without Congressional action:

a. We could hasten the use of part of the approximate $90 million which is left over in the Asia Regional Fund to meet Indian needs.

b. We could try to settle the Japanese GARIOA debt (around $500 million spread out in annual payments over a long period) on the basis of a US decision—such as proposed by Embassy Tokyo—to use the proceeds for financing of development projects in southern Asia.

c. We could try to secure the consent of industrial countries whose currencies we hold, or will secure, as a result of PL 480 sales, to make a part of such currencies available to India on a loan basis. The potential here is probably limited.

d. There is, at least theoretically, the possibility of an EXIM Bank loan to India. The IBRD has indicated, however, that such a loan would diminish the Bank’s activity in India proportionately unless it were made in support of new US private investment. Whether this difficulty could be overcome through any practicable means is uncertain.

5. Additional Congressional Measures. The most promising measures are probably those which would call for Congressional action:

a. We could try to restore the Development Fund to its original size, so that it could meet—as we once intended that it should—a large part of the Indian need. If we can show a clear excess of sound applications over Fund resources by February, we might ask for both a supplemental FY 1958 appropriation and an increase in the $625 million authorized for the Fund in FY 1959. This latter increase might be achieved through a larger appropriation, borrowing authority, or use by the Fund of the approximate $300 million in dollar non-EXIM Bank loan repayments which accrue to the US annually.

b. We could ask for a special Congressional loan to India.

6. Recommendation. I would suggest that you call together the same E–NEA–S/P working group which studied the Indian wheat loan conversion problem and ask it to evaluate—together with H—each of the measures listed above, as a matter of urgency. This would be in line with the statement in your letter of July 15 to Mr. Randall² that “to provide the basis for a request (concerning a long-term loan to India) at the next session of Congress, if it should be decided to make such a request, the Department of State intends to undertake necessary preparatory studies”. Such a study would permit the Department to make a deliberate choice between its present course and some expanded program of aid to India.

EGM

1. Source: Department of State, Central Files, 791.5–MSP/9–1157. Official Use Only.
2. See Document 169.