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

173. Telegram From the Ambassador in India (Bunker) to the Department of State ¹

New Delhi , September 20, 1957—4 p.m.

793. Subject: TTK visit.² References: Embassy telegrams 574,³ 584,⁴ 586⁵ and 640.⁶ As recognized in NSC 5701⁷ and the OCB plan for implementing it,⁸ I believe it clearly in United States interest to give India’s development maximum possible support. I now wish emphasize that next six months is the critical time at which assurance of United States aid can have the maximum actual and public impact.

Therefore we should bend every effort to meet the crisis (see reference telegrams cited above). I use the word advisedly and after mature consideration (in India’s economic progress, as far as we possibly can).

Background

While TTK duly aware his visit primarily exploratory with little prospect reaching immediate concrete agreement, Prime Minister’s statement New York Times correspondent regarding welcoming of loan from United States and general Indian press speculation on prospects visit reveal general public expectation of substantial results after if not during visit itself. Indian thinking public now frankly regard United States as only real hope of aid needed carry out minimum plan as currently being rephased. On basis lack success developing European capital GOI must share this view.

TTK’s general approach.

This TTK’s first visit to United States (also first visit for Principal Secretary H.M. Patel, the top permanent finance official). It is my impression he approaching trip to United States with some awe and considerable trepidation which he will try to cloak. Therefore as important that attitude toward him be warm and friendly as that discussions be forthright and factual. He aware some his financial measures and India’s present financial stringency causing concern among private American businessmen. He aware India has made foreign policy blunders (including Krishna Menon) and has taken positions not in India’s long-range interest—particularly in meeting Chinese Communist threat which he foresees approaching climax in four-five years. Believes, however, that as in most democratic countries, shifts to improved foreign policy positions cannot be accomplished overnight.

On the other hand he very conscious that at this instance India has taken strong internal measures of self-help including broad based taxation and curtailment of imports. GOI now preparing for further 20 percent cut in next six months from present austerity level despite serious adverse effects total economy and increase inflationary pressures. Believe he and others in Cabinet including Moraji⁹ desire be convinced India must continue move toward democratic capitalism while preferring to call itemized economy or “Indian socialism” with emphasis on social justice.

TTK’s probable lines of enquiry

TTK will pursue all possible sources aid during trip. He will undoubtedly press IBRD for further credit. Despite lack success to date he will also attempt maintain pressure United Kingdom with hope getting at least trustee status for first major public GOI bond flotation abroad, which GOI wishes make in United Kingdom. He will try hard persuade West Germany give substantial credit. No evidence TTK expects assistance out of Ottawa Commonwealth Ministers meeting or further IMF drawings.

In discussions with United States, TTK expects be able talk in concrete terms amounts aid needed by India and discuss alternative prospects. Will have following main points in mind:

(a) He feels it essential in order finance basic economic development including hard core of plan and to give psychological and material support to drooping rupee that India have immediate assurance availability $7–800 million credit in addition continued agricultural commodity sales for rupees. GOI would desire that aid on full loan basis.

(b) He would prefer use new dollar credits as foreign exchange backing for currency while drawing down maximum on sterling balances currently used as currency reserve. Alternatively, he would desire line of credit to finance normal commodity imports, all of which could be raw material such as steel.

(c) Recognizing difficulty availability such sum from any one source in United States, he would expect get firm views on (1) availability private U.S. capital with or without EXIM Bank guarantees (including sounding U.S. bond market), (2) an EXIM Bank line of credit, (3) the Development Loan Fund as source finance for project assistance, including politically important slum clearance in key areas threatened by Communists, and (4) possible approach to Congress for special legislation in next session provide either total amount credit necessary of residual amount not covered by any combination of above possibilities.

Why help India and when

Success in economic developments is fundamental to:

(a) Internal political stability in India and maintenance of free democratic institutions. Due in large part to economic difficulties public criticism of Congress leadership by party members is appearing for first time, and divisions within party are developing on economic issues. Success with second plan is important to maintain popular support for and cohesion within Congress Party. It is also the only major card Congress and central government have to play to maintain its cohesion and counter the natural centrifugal forces of language, religion and local nationalism which are divisive in themselves and being exploited by CPI, and the surest protection against totalitarian controls from the center, whether from the left or extreme right.

(b) India’s ability contain and overthrow CPI government in Kerala and arrest similar trends elsewhere, particularly West Bengal.

(c) India’s ability to demonstrate to the thus far uncommitted masses of Asia that they can better be improved by democratic than by totalitarian methods.

Moreover, I believe, and will later send a full explanation of my reasons, that India is a good long-term investment for U.S. Government and private capital. Quite aside from our overriding political stake its success we should not miss any opportunity to exploit this potentially rich business opportunity.

GOI facing acute current foreign exchange shortage (Embtel 584). It has hitherto had an excellent credit rating, but its credit worthiness, and hence capacity to attract needed capital, will be at risk if reserves are drawn down too far. Import cuts being proposed will in fact reduce standards of living. Even tempo of development very costly to reestablish when broken.

A given amount of aid now, morever the assurance of it, would therefore be more useful in serving United States interest than substantially larger amounts later. In addition to U.S. Government assistance we should take opportunity of TTK’s visit to help GOI help itself by trying to open his eyes to real potential of private investment as contribution to solution and consequent importance India continuing adjust its attitudes to attract private foreign investors. Indication specific investor interest and stimulative measures which could be taken by U.S. Government obviously best means persuading him real possibility tapping this source capital.

TTK says he taking with him material on double taxation convention. Suggest this be pressed with him with view to conclude as soon as possible. He needs persuasive arguments to use in getting Cabinet approval Delhi. In same context I have recommended high level (possibly Prime Minister) public statement clarification India’s view on private capital and need thereof. Believe India moving in right direction as indicated developments reported Embtel 640 and signature convertibility guaranty agreement, and that with proper stimulus and friendly persuasion it will move further in this direction in own interest developing its resources.

Suggest considerable attention be paid H.M. Patel who extremely able, responsible and cooperative; among friendliest to U.S. of all ranking GOI civil servants. As Principal Finance Secretary he is one of main formulators of finance policy and is important factor in policy continuity in event change of ministers.

Bunker

1. Source: Department of State, Central Files, 033.9111/9–2057. Secret; Priority. Repeated to Bombay, Calcutta, and Madras.
2. Indian Finance Minister Tiruvallur Thattai Krishnamachari was coming to Washington for the annual meetings of the International Bank for Reconstruction and Development and the International Monetary Fund.
3. Telegram 574, August 30, indicated those projects on which India placed the highest priority at a time of inadequate foreign exchange. (Department of State, Central Files, 891.00–Five Year/8–3057)
4. Telegram 584, August 31, summarized the Indian estimate concerning its foreign exchange situation over the 2 years beginning on July 1. (Ibid., 891.131/8–3157)
5. Telegram 586, August 31, discussed the serious inflation problem besetting the Indian economy. (Ibid.)
6. Telegram 640, September 7, noted that economic pressures had compelled a change in the Indian Government’s attitude toward the private sector including foreign private capital. (Ibid., 891.00/9–757)
7. Document 5.
8. Document 168.
9. Moraji Desai, Minister for Commerce and Industry.