210. Letter From the Ambassador in India (Bunker) to the Deputy Under Secretary of State for Economic Affairs (Dillon)1
Dear Douglas : While our two telegrams of May 29th (Embtels 3077 and 3078)2 were intended to give a fairly complete picture of the Indian foreign exchange situation, I think a few additional comments may be in order.
The seriousness, indeed alarm, with which the GOI views the prospect ahead is manifested by the fact that B. K. Nehru is proceeding to Washington from London after attending the preparatory meeting for the Commonwealth Finance Ministers’ Conference in Montreal. Since we attempted to give in our Embtels as comprehensive a picture of the situation as we could with the data in hand and to emphasize the seriousness with which we viewed the problem, I will not attempt to repeat these views here.
There is another aspect of this present situation, however, directly affecting the private sector which is giving us concern. In the effort to apply all possible resources to meeting its commitments the GOI has imposed a tough and restrictive import policy, the effects of which are beginning to be felt now in a good many industries. There is growing concern among businessmen, a concern shared by the GOI, that imports of raw materials will be insufficient to keep the economy functioning at a normal rate. Restrictions on the import of fertilizers are likely to impede domestic production of food grains. The closing down of factories and a failure to increase food production could combine to cause unemployment and unrest, and eventual political instability. A good many businessmen, who had previously expressed confidence that the economy would be able to pull through and maintain a fairly good production rate, have expressed to me and other members of our Mission their growing concern at the prospect ahead. I have discussed this problem with the Finance Minister, Mr. Desai, and B.K. Nehru, and both have said that they are fully aware of the seriousness of the problem and that it has top priority in their thinking.
[Page 432]B.K. Nehru will probably arrive in Washington about the time this letter reaches you. He hopes to discuss with you and others in the government, the EXIM Bank, IMF, World Bank and the Monetary Fund this critical situation which India is facing. I have frankly never seen the GOI so deeply concerned and worried about anything since I have been here. For political reasons which I believe sound the situation until now has been played down. The Congress Party and its future is tied to the Second Five-Year Plan, committed to the achievement of economic progress under democratic institutions. The success or failure of the Plan in their eyes, and I believe they are right in this, will certainly have a bearing on the outcome of the next general elections. A failure of the Plan which resulted in a severe cutback and a slowing down of the economy could have catastrophic results on the stability of democratic institutions in India, indeed on their ability to survive.
It is because of the fact that the GOI is aware that it is facing probably its most critical test since independence that B.K. Nehru is going to Washington to lay the facts before the USG, and the Finance Minister, Morarji Desai, is hoping also to visit Washington September 7–14 on his way to the Montreal Conference. I think it is most important that he should do so and I hope, therefore, that we shall be able to give him a waiver on his inoculations, which he has conscientious scruples against taking. The UK and Canada I understand have already agreed to this.
I know what a difficult problem this poses for us as well as for India. Essentially we are facing a single problem divided into two priorities. The first is to provide the means to help India get through the year that started April 1st, and for this it is our view that a line of credit of $300 millions starting six months from now will be needed to meet commitments falling due which are not postponable. The second part of the problem is the broader one of planning to meet the needs of the succeeding two years of the Plan. We are now engaged in an intensive study of this and should have more detailed information in your hands in another month to six weeks. In general outline it seems to us that this broader program will need to include a substantial PL 480 program involving perhaps 2½ million tons of food grains per year, aid for the core projects and certain maintenance imports, and assistance for the private sector, including projects which may fall outside the core but which we want to back for policy reasons. I believe we shall want to include enough for industrial projects in the private sector to permit fulfillment of the planned targets for private industry. I do not think that this latter amount will be prohibitive.
If we can meet this problem it will be possible for India to achieve essentially realistic and satisfactory targets of economic development. It will fall short by about twenty percent of the original planned [Page 433] targets but it will make possible steady progress and will give hope for the future. Cannot we together with our free world associates find a way to meet this critical challenge to the future of democratic institutions in Asia? If we act with boldness and imagination I am sure it will pay off. I know the problem will have your sympathetic consideration.
With kindest regards,
Sincerely yours,
- Source: Department of State, SOA Files: Lot 60 D 449. Official–Informal Correspondence. Secret; Official–Informal. On June 20, Bunker sent a copy of this letter to Bartlett. (Ibid., SOA Files: Lot 62 D 43, India Economic—1958)↩
- Telegram 3077 is printed supra. Regarding telegram 3078, see footnotes 2 and 3 thereto.↩