209. Telegram From the Embassy in India to the Department of State 1
3077. For Dillon from Bunker. I am greatly disturbed by new GOI forecasts of their balance payments position which indicates extremely serious situation current GOI fiscal year (April 58–March 59). Concurrent country team message (Embtel 3078)2 gives details and explanation of these estimates but am sending this personal message to you because I believe situation this year has earmarks of Indian foreign exchange crisis which will require extraordinary measures of external assistance. I earnestly ask your personal consideration of this serious problem. Summary facts of situation submitted Embtel 3078 are as follows:
Estimated deficit for current fiscal year to March 31, 1959, after taking into account all presently assured aid expected to be used during year is $617 million. On same basis deficit for last 3 years of plan estimated $1,317 million. According to GOI, deterioration in current year prospects due chiefly to effects of US and European recession, i.e., decline in value of exports and acceleration of shipments to [Page 430] GOI by foreign suppliers, though their own overestimate of exports significantly involved. 90 percent of payments obligations are for existing commitments which GOI unable to postpone.
Foreign exchange resources of $561 millions on April 1 do not provide adequate margin to meet deficit. Assuming reduction of foreign exchange reserves to $210 millions (100 crores) by April 1, 1959, a level probably below safe working capital needs, minimum external aid of $266 millions would be needed on conditions which would permit application to payment of current obligations. In addition a new PL 480 agreement would be required with shipments beginning before end of third quarter of this calendar year. Should such assistance not be forthcoming I believe consequences would be extremely detrimental to stability and future growth of Indian economy, and would seriously threaten attainment of US political objectives in India. Inability to meet its foreign commitments, coupled with the setbacks the second plan has already experienced due to shortage of internal resources, would further strengthen anti-democratic forces, who are unremitting in their efforts to minimize the rate of progress and to emphasize what might be achieved under a different system.
I therefore strongly recommend assistance of $300 million (affording some margin of safety for reserves) to India during FY 1959. This should take the form of an open credit to be available for payment of current foreign exchange obligations. The amount of such assistance that would have to come from the US would depend on your judgment of availability of similar assistance from other sources. I would emphasize, however, both the need for prompt action if purpose of aid is to be fulfilled, and then nature of assistance needed to do the job. I also urge importance of beginning negotiations for new PL 480 agreement immediately after congressional authorization. I am bringing the current year’s situation to your attention because I believe it is so critical as to require your personal interest and intervention. Despite the seriousness of the immediate situation I am not discouraged about long term prospects for definite and encouraging progress is being made; and the GOI and Indian people have made effective use of assistance received from the US and other countries. (Statement and details of longer term problems included in Embtel 3078 and will likewise require careful consideration.)3
- Source: Department of State, Central Files, 891.10/5–2958. Secret; Priority. Repeated to Bombay, Calcutta, and Madras.↩
- Dated May 29. (Ibid., 891.10/5–2958)↩
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In telegram 2801 to New Delhi, June 2, the Department of State outlined a new P.L. 480 program for India. (Ibid., 411.9141/6–258) In telegram 2807 to New Delhi, June 3, marked “for Bunker from Dillon,” the Under Secretary pointed out that the Department was urgently considering the problems summarized in telegrams 3077 and 3078. (Ibid., 891.10/5–2958)
On June 23, Ambassador Bunker and N.C. Sen Gupta, Joint Secretary of the Indian Ministry of Finance, signed the new P.L. 480 agreement in New Delhi. The agreement provided India with approximately $57 million of corn, grain sorghum, wheat, and ocean transportation. (9 UST 935)
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