Foreign Relations of the United States, 1958–1960, South and Southeast Asia, Volume XV

206. Memorandum From the Director of the International Cooperation Administration (Smith) to the Deputy Under Secretary of State for Economic Affairs (Dillon)¹

Washington, March 11, 1958.

SUBJECT

• India, Economic Development Prospects

1. The attached paper shows clearly that internal and external resources are still not in sight for financing even the “core” of India’s Five Year Plan.² India will have to do one or more (probably all three) of the following:

a. Raise additional internal resources

b. Secure at least $500 million of additional foreign exchange

c. Further screen down development plans.

2. In this situation it appears that the U.S. Government should begin now to determine in an orderly way what it should and can do to assist India during FY 1959.

3. At the same time I believe that we should make an effort to develop an improved appreciation of India’s plans and prospects over a longer term—say the next five or six years. Specifically I think we should explore the possibility of arranging for a joint Indian–IBRD–US review of India’s development plans, capabilities, and need for outside resources. I believe that such a joint effort might be helpful to India in providing some “prestigefull” outside support for needed measures to mobilize greater public and private resources internally as well as giving us an excellent insight into the issues and influences at work in India’s planning.

Recommendations:

1. I would like to suggest that you establish a working group including representatives of OFD, NEA, S/P/State, O/NESA/ICA, DLF, OIF/Treasury, the Export-Import Bank, and the Budget Bureau. This group would be instructed to prepare an analysis of India’s need for U.S. economic aid during FY 1959 and suggest means of meeting the need. This would provide a basis for decision on a total program by the Executive Branch soon after completion of congressional action on the MSP, the PL 480 extension, and the EX-IM Bank authority increase.

2. I would also suggest that you set up a small working group to consider the best method of organizing a broader review of India’s economic plans and problems for the medium term future. To start with this group might be limited to representatives of OFD, S/P, NEA/State, and O/NESA/ICA.³

JHS

1. Source: Department of State, Central Files, 891.00/3–1158. Confidential.
2. The attached 20-page paper, drafted on February 12 by Alfred D. White of O/NESA/ICA, is not printed.
3. In a memorandum of March 13, Robert C. Brewster, Dillon’s Special Assistant, informed William Turnage that Dillon had asked him to take action on Smith’s memorandum. Brewster’s memorandum is attached to the source text. Turnage subsequently helped prepare a memorandum for Dillon’s signature and forwarded it to him on March 25. In a covering memorandum, Turnage summarized his ideas in part as follows: “At this early stage I believe a small working group could operate much more effectively. I realize that at some time we must bring in several other agencies but I hope this can be postponed until we have a clearer idea of our own position. I can think of nothing less constructive than work with a large interagency group at this early stage of progress.” Dillon approved the memorandum and sent it to Smith on March 27. (Ibid., 891.00/3–1158)