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

3. Progress Report by the Operations Coordinating Board¹

Washington , November 28, 1956.

PROGRESS REPORT ON “UNITED STATES POLICY TOWARD SOUTH ASIA” (NSC 5409)

(Policy Approved by the President March 6, 1954)

(Period Covered: March 28, 1956 through November 28, 1956)

A. Summary of Operating Progress in Relation to Major NSC Objectives ²

1. OCB Recommendation Regarding Policy Review. NSC 5409 has been reviewed from the standpoint of operating considerations and operating experience to date and of anticipated future developments. It is recommended that the policy be reviewed by the National Security Council for the following reasons:

a. the NSC Planning Board has decided to review existing policy on all of the countries covered by NSC 5409 in connection with its review of policy on Pakistan in the light of the Prochnow Report.³

b. In this connection various considerations might be noted for use in the review. These include:

(1) the perennial food crises which raise serious problems of a policy nature;

(2) the increased Soviet political-economic offensive which raises problems in connection with U.S. aid programs;

(3) indications of a shift in orientation of some of the countries toward a neutralist position.

2. Summary Evaluations

a. General. There are four numbered objectives in NSC 5409.

(1) The first objective contains three components: (a) strong, stable governments, (b) friendly to the U.S., and (c) with the will and ability to resist communism within and without. Although Pakistan is the only country in South Asia openly aligned with the U.S., India, Ceylon and Afghanistan have continued to demonstrate their will to resist communism. However, Nepal, Ceylon and Afghanistan have entered into new arrangements in varying degrees with Communist China or the USSR which make them more vulnerable to the communist political-economic offensive. Ceylon has taken steps to weaken its ties with the U.K. and simultaneously has shown a receptive attitude toward the offerings of the communist bloc. India has continued to maintain an official neutral position accepting assistance from both the communist bloc and the U.S. These countries are not unfriendly to the U.S. The governments of South Asia appear strong enough to maintain their present domestic policies.

(2) The second objective likewise contains three components: (a) greater cooperation among the South Asian countries; (b) greater cooperation between them and the Free World; and (c) full recognition that their national interests are served thereby. Cooperation between these countries and the Free World may be endangered by the Middle East crisis which could have serious economic and political consequences. About seventy percent of the area’s total imports pass through the Suez Canal. While India, Pakistan and Ceylon do not at present appear likely to withdraw from the Commonwealth, the political crisis may still develop in such a way as to renew this threat. Strong distrust of Britain and France has been manifested, and there is likely to be popular pressure to de-emphasize ties with the West. Pakistan’s attitude toward the Baghdad Pact may also be subject to some change, especially if their expectations of early U.S. adherence fail to materialize. As a result of the replacement of the Kotelawala Government by the Bandaranaike Government, Ceylon has tended to weaken its ties with the U.K. There has been greater awareness among the countries of the area of the need to cooperate more closely among themselves; this has been to some extent achieved under the Colombo Plan. Afghanistan and Pakistan have made limited progress in improving the atmosphere in which their differences are being considered. During President Mirza’s visit to Kabul in August, means were discussed to improve their international communications and transit arrangements, and both countries have welcomed U.S. friendly assistance to these ends.

(3) A third objective is the improvement of the basic economies of the nations. India has completed its first Five Year Plan achieving an appreciable increase in per capita real income. Ceylon’s economy has made no outstanding improvements nor has it deteriorated noticeably. Afghanistan, as a result of seeking alternatives to dependence on Pakistan for critical services affecting its economy, accepted Soviet offers of aid and appears to have mortgaged its economy for years to come. Nevertheless, its economy is of a nature which has not altered greatly under existing political and economic pressures, and it has shown some recognition of the importance of strengthening its economic ties with the Free World.

(4) A fourth objective contains two components: (a) military strength contributing to area stability and (b) contributing to the stability of the Free World. Although Afghanistan and India resent Pakistan’s membership in SEATO and the Baghdad Pact, some progress was made in area stability, however, in that Pakistan and Indian military forces improved in quality, and the defense of the Free World was strengthened thereby in some measure.

b. U.S. Operations Aimed to Accomplish the Foregoing Objectives:

(1) Defense Assistance. Pakistan is the only country in the area which has a Defense Assistance Program. The 1954 U.S. commitment to Pakistan consists of filling equipment deficiencies in certain force objectives. A joint State, Defense, ICA Committee estimated in the Spring of 1956 that the cost of fulfilling this commitment was about $430 million, including consumables and construction. As of 30 September 1956 about $201 million in military assistance had been programmed and about $72.8 million delivered. There have been no recent complaints from high Pakistan sources regarding delays in deliveries or unsatisfactory quality of items. The attitude of the Suhrawardy Government, which took office on September 12, 1956, toward the continuation of the U.S. military aid program has not yet been determined, although there have been some assurances that no radical changes are to be expected in the near future. During the period April 1–July 31, 144 training courses were completed by Pakistan students in the U.S.

(2) Progress of 1290–d Programs. An exploration of the proposals in connection with the 1290-d program for Pakistan⁴ is being made by the Pakistan Government. A U.S. team of experts from the Department of the Army is being developed to be sent to Pakistan, when approved, to assist in training personnel. A program for training 10 Afghan military officers in the U.S. and for four VIP visits to the U.S. are being implemented. $128,000 has been obligated for training 15 Afghan police officials for one year.

(3) Economic Aid Programs and Progress in Meeting Commitments or Program Schedules:

India. In general, program commitments were met satisfactorily and without undue delay. The U.S. consummated a $360 million agreement with India for the purchase of U.S. surplus agricultural products. The agreement provides that $288 million or 80% of the local currency generated would be used for developmental loans and grants, of which $55 million would be for loans to the private sector of the economy. Receipts of wheat under P.L. 480 should help stabilize prices of food. Indo-Japanese negotiations on the Orissa Iron Ore project await assurance by the U.S. that financial assistance will be forthcoming. Such assurance has been withheld pending a special U.S. survey of the project. A draft contract for the survey has been sent to USOM, about October 1, for discussion with the GOI.

Pakistan. Programming of technical cooperation and defense support aid continued to be hampered by inadequate Pakistan administrative and technical services, and by the difficulty of recruiting satisfactory U.S. personnel. USOM and the Government of Pakistan are conducting a thorough review and evaluation of all project activities. Some of these, such as the Ganges–Kobadak irrigation project, had been plagued by ineffective management, lack of coordination, and considerable delay in implementation. New projects are being screened to prevent such difficulties, including consideration of placing full authority in the hands of a contractor to carry specific projects through to completion. A multi-year P.L. 480 program is under active consideration with a view to insuring adequate food supplies to Pakistan during the course of the current Five Year Plan. This planned program is regarded as a major step in attempting to meet Pakistan’s perennial food crises. To help Pakistan in its immediate problem of averting a crisis in food prices, consideration is now being given its urgent request for 220,000 tons of wheat under Title I of the FY 1957 P.L. 480 agreement previously concluded with that country.

Afghanistan. Program commitments were met satisfactorily, except for difficulties in recruitment of several important technicians. A special survey mission has made an intensive study of the Helmand Valley multi-purpose development to assist the Afghan Government in determining those measures needed to assure its success. A preliminary report is being studied in preparation of the final report to be ready about December 17. A food crisis caused by flood and drought led to the acceptance of an offer of up to 40,000 tons of wheat under P.L. 480, Title II. In connection with the Afghan–Pakistan transit project apparently satisfactory assurances have been received from Afghanistan that the project is needed and desired. Upon the receipt of similar assurances from Pakistan a U.S. survey mission will study the economic and engineering problems involved in the project.

The United States concluded an agreement in June to expand air transportation facilities in Afghanistan at a cost of $14.5 million.⁵ Implementation of this project has been delayed for several months, primarily because of difficulties in reaching agreement with Pan American World Airways. The Embassy at Kabul reports that this delay is leading to disillusionment on the part of the Afghan Government. The importance to U.S. policy objectives of the earliest possible conclusion of this contract was recognized and the responsible agencies were moving toward such a conclusion at the end of the reporting period.

Nepal. Program commitments were met satisfactorily. At the same time India has agreed to tripartite cooperation with the United States and Nepal in connection with local projects and with a regional project for development of Nepal’s roads.

Ceylon. Since the FY 1956 Development Assistance and Technical Cooperation programs were signed April 28, 1956,⁶ program implementation has just begun. Operations are proceeding smoothly and no serious problems have arisen. Economic aid agreement was concluded with Ceylon in April 1956 with the present government, but had been negotiated with the previous government.

(4) Information Programs:

India. U.S. programs were aimed to reach the literate twenty percent of Indians in fifty cities and, in general, financial and other resources were committed on schedule. Progress was discerned in a milder Indian view toward the U.S., a better appreciation of the worldwide U.S. effort to promote an Atoms for Peace Program, and in more favorable Indian attitudes toward U.S. aid programs. The GOI continued to berate communists in India ….

Pakistan. Projects which showed effective results were: wide distribution of Khrushchev’s speech before the Twentieth Congress; provision of background material on the Suez dispute; featuring Baghdad Pact and SEATO activities; initiation of an Armed Forces Information Program; production of six motion pictures (three on economic development, two on direct anti-communist themes, one on the Pakistan Army); organization of a Pakistan–America Society in East Pakistan, expansion of the activities and prestige of the six societies in West Pakistan.

Afghanistan. The most successful effort was the production … of a 45–minute full color motion picture, which featured economic development, particularly the Helmand Valley Project, and the religious heritage of Afghanistan.

In general, the government continued rigid restriction and censorship of information activities. There was increased inclination of students and minor officials to look favorably on the USSR and to be critical of the U.S.

Ceylon. With the change of government in April, nationalist and left-wing elements began to criticize the existence in Ceylon of U.S. radio transmission facilities.

B. Major Operating Problems or Difficulties Facing the United States

1. General:

a. Opposition to SEATO and the Baghdad Pact. The Indian Government has taken the lead in opposing these two regional organizations and will probably continue to oppose any important steps taken to strengthen their military aspects as will other nations in the area which follow similar lines. In this category fall Afghanistan, Ceylon and Nepal. This is a continuing problem for which there appears no ready solution.

b. US. Private Investment in South Asia. Soviet bloc economic overtures in the area have led to suggestions that they be counteracted in part by increasing the participation of private U.S. foreign capital in the economic development of the area. The climate for such investment in the area varies but leaves much to be desired. The basic question is how the U.S. Government should seek to stimulate private investment in the area.

c. Perennial Food Crises in the Area. The promotion of better agricultural production is necessary in all of the countries in the area, and in some of the countries there are acute food crises annually. The provision of U.S. surplus agricultural commodities under P.L. 480 agreements is welcomed by the countries of the area because it enables them to meet emergency situations and helps to stabilize food prices. U.S. interests and prestige can be adversely affected, however, by long delays in the receipt of such commodities by these countries because of their difficulty in securing shipping space, now aggravated by the Suez Canal problem.

d. Soviet Economic and Psychological Inroads. The ICA programs, especially in Nepal and Afghanistan, are considered by host governments to be in competition with the Soviets and in some instances Soviet and U.S. technicians, in Afghanistan, are being requested to work together. U.S. technical activity under such circumstances is determined on a case-by-case basis, taking into account the nature of competitive offers of Soviet assistance. These governments are under constant pressure to accept Soviet offers, and U.S. delays in concluding new projects and implementing agreed projects increase this pressure. The U.S. is seeking to determine policies and courses of action to meet this problem.

The Free World is faced by a problem which will become increasingly serious in proportion to the success of Soviet bloc efforts to intensify economic penetration of the area. Soviet bloc economic influence in India is indicated by the Bhilhai steel plant in India, arrangements to train hundreds of Indian technicians in the USSR, offers of long-term loans, technical assistance and expanded trade. The extraordinarily large credits made available to Afghanistan by the Soviet bloc impose a heavy burden on the Afghan economy and may lead to a complete re-orientation of foreign trade towards the USSR. Nepal has accepted a large grant and industrial equipment from Communist China. Pakistan and Ceylon continue to trade largely with the Free World. Nevertheless, Ceylonese efforts to expand its markets have resulted in an increase of trade with the Soviet bloc and may lead to closer economic or technical assistance ties with the communists. Pakistan, too, has negotiated new trade agreements with the Soviet bloc, seeking to expand exports of jute and cotton.

2. India

India’s Second Five Year Plan. The Second Five Year Plan calls for a doubling of the developmental activity of the previous five years. It imposes heavy strains on the financial and administrative structure of the country. The most critical immediate problem is that of foreign exchange resources needed to implement the Plan. India’s foreign exchange holdings are now declining at a rate which will exhaust within the first 12 months the reserves counted on for the five-year period. Reasonable success in achieving economic progress such as is envisaged by this plan may be highly important to the continued effectiveness of democratic institutions in India. The U.S. is planning to re-examine its economic aid policy toward India in an effort to gain the maximum influence on India’s political economic future from aid and investment actions.

3. Pakistan

a. Negotiation for Base Rights in Pakistan. For political reasons, negotiations have not been initiated for base rights in Pakistan desired by the Department of Defense.

b. U.S. Aid Programs in Pakistan. Fundamental decisions concerning the nature and magnitude of U.S. military and economic aid programs are required. It is expected that these decisions will be made in connection with the NSC review called for by Action 1624.⁷

4. Afghanistan

Soviet Military Aid to Afghanistan. Recent Soviet bloc offers of military aid involve substantial loans extended by the USSR and Czechoslovakia. These were estimated to total $25–$30 million. No details are available concerning delivery dates but it is reported that delivery of equipment obtained from credit extended by Czechoslovakia in 1954 in the amount of approximately $3 million has been substantially completed. This situation poses problems for the U.S. Government which are primarily of a political-economic nature and should be included among the factors affecting our political relations with Afghanistan and the size and nature of our economic assistance.

5. Ceylon

Ceylon Naval and Air Facilities. The Ceylon Government is negotiating the status of British naval and air facilities in Ceylon. This situation poses a problem not only for the British but for the U.S. Government in connection with contingent defense plans for the area and the need to plan for alternative bases.

6. Nepal

Communist China’s Influence in Nepal. Nepal concluded a new trade agreement with Communist China and agreed to accept economic aid. At the same time there has been anti-Indian sentiment in Nepal partly because of India’s proprietary attitude toward Nepal. The U.S. has the problem of trying to help Nepal remain independent of Communist China’s economic and political influence while coordinating our programs to avoid conflict with Indian interests.

Nepal also agreed with Communist China for the exchange of consulates general, though no date was set for the opening of the Chinese Communist post. The U.S. is planning to open a corresponding post in Nepal.

C. Listing of Additional Major Developments During the Period

1. The pro-western Ceylon Government of Prime Minister Kotelawala was defeated in the April elections, bringing into power a government which began to chart a neutralist course in international relations.

2. Nepal concluded a basic treaty for regularizing relations with Communist China, and its Prime Minister visited there for two weeks, and signed a large aid agreement.

3. Nehru’s visit was postponed from July to December, 1956, because of President Eisenhower’s illness.

4. The report of the Brookhaven Survey Team on the establishment of a regional nuclear center, as proposed by the United States to the Colombo Plan nations, has been received. Appropriate methods for implementation are under study. The Brookhaven Report will be distributed to and discussed with Colombo Plan nations at the meeting in Wellington.

1. Source: Department of State, S/S–NSC Files: Lot 63 D 351, NSC 5409–Memoranda. Secret. Forwarded to the NSC under cover of a note from Staats to Lay dated December 3. An attached financial annex is not printed.

2. NIE 52–56, Probable Developments in Pakistan. (To be published early in Dec.) NIE 53–56, Probable Developments in Afghanistan’s International Position, Jan. 10, 1956.

   NIE 51–56, India Over the Next Five Years, May 8, 1956.

   No estimates published or anticipated on Nepal and Ceylon. [Footnote in the source text. For texts of NIEs 52–56 and 53–56, see Documents 216 and 111, respectively. NIE 51–56 is not printed.]

3. Herbert V. Prochnow had recently chaired an interdepartmental committee which had reviewed certain U.S. aid programs, including the program in Pakistan. The Prochnow Committee Report was circulated to the National Security Council on August 3 as NSC 5610.
4. See Document 196.
5. Entered into force June 23. (7 UST (pt. 2) 2047)
6. See Document 139.
7. This action, taken by the NSC at its 301st meeting on October 26, directed the Planning Board to review the scope and allocation of military and non-military aid programs for Korea, Pakistan, Turkey, Iran, and Taiwan on a priority basis and to recommend to the NSC appropriate revisions in existing policies. (Department of State, S/S–NSC (Miscellaneous) Files: Lot 66 D 95, Records of Action by the NSC, 1956)