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

215. Telegram From the Embassy in India to the Department of State¹

New Delhi, August 26, 1958—9 p.m.

473. Cirtel 1043;² Embassy despatch 485 November 8, 1957;³ MSP master program book FY 1960 submitted August 3;⁴ Embtel 405 August 19, 1958.⁵

1. Referenced documents reflect Mission’s views on courses of action, as coordinated by me through country team mechanism and on basis by judgment of necessary balance in programs, designed to achieve US objectives in India.

(A) Essentially, our objectives center about need for India to have stable, non-communist government, economically sound and favoring free world, which will give hope for building an Asian bulwark against challenges of international communism, especially Communist Chinese strength and ideology.

(B) Economic growth in India is essential to India’s future ability fill that role. Because of India’s importance and size, free world aid is necessarily of relatively large magnitude.

2. Good balance has been achieved in planning so far as it is now possible to plan for 1960. FY 1960 and subsequent programs of the various agencies must work for certain added “balance” in content and execution (noted below).

We must of course have the requested resources to begin coordinated execution of the proposed programs for achievement of US objectives.

3. I am convinced India can make truly effective use of US aid. There are faults in Indian organization and execution of its development programs. Some of these are being corrected. At same time these faults should not obscure facts of success to date and strengths inherent in India’s resources and will to develop. Reduced second plan goals are, in my opinion, capable of substantial achievement.

4. I firmly believe referenced country team submissions have indicated the minimum levels of economic aid required to give real hope for achievement to four [our?] objectives in India and Asia.

5. Recent growth in awareness of free world’s common interest in Indian economic problems (as evidenced by World Bank-sponsored meeting this week in Washington) promises a coordinated, effective approach. The apparently healthy attitude of cooperation and consultation all countries coming to this meeting could bring the necessary amount of economic aid at least cost to each country.

I believe that, even with the optimistic estimates of other free world aid to India and draw down of India’s own reserves in next three years, there is clearly revealed need for substantial and early US aid to India—by special legislation if necessary. In this fiscal year after probable other non-US aid, India will need substantial US assistance in meeting its foreign exchange obligations if India is not to draw down reserves to a level which will cause large illegal flight of capital, greatly increasing aid needed.

7. While the first problem is help India achieve present plan, we must now also consider India’s third plan and desirability of GOI consultation with US and other aid sources on the third plan.

8. Official programs to date have been well coordinated. I am pleased with the effective “cross-support” of US objectives achieved in execution of MSP dollar aid and EXIM Bank, PL 480, technical cooperation, USIS and various exchange-of-persons programs.

9. ICA and IES exchange-of-persons programs are coordinated by mission-wide consultation including consideration by my education exchange coordinating committee which also includes when appropriate, Ford and Rockefeller representation and takes into account activities of UN and other agencies.

(A) More adequate budgetary support is required for exchange activities. We propose in FY 60 to stretch PL 402⁶ dollars by using US owned local currency for part of transport costs of certain grantees previously financed entirely by PL 402 dollars, but it is my firm belief that US objectives could be better served by at least doubling IES dollar allocations for India.

(B) In view of rising administrative costs of US information programs, of broader opportunities for effective work and of increasing Communist propaganda offensive in India (joint Embassy–USIS despatch 1373 of May 12, 1958)⁷ additional funds are needed for specific activities [such] as an enlarged exhibits program, publication of American Reporter in additional Indian languages, increase in circulation of American Labor Review, and a slick magazine to compete with impressive Communist journals. Increased budget projections for FY 60 reflect my views on what is required for reasonably adequate educational exchange and information programs.

10. Usefulness to our efforts of the large supplies of agricultural commodities under Title I of PL 480 is unquestioned in my mind and GOI’s. India could not have paid for past quantities PL 480 food with its own foreign exchange; substantially smaller imports would certainly have led to large scale human suffering, inflation, economic dislocation and consequent deterioration of political stability.

(A) I believe we should now seek additional authority for an agricultural commodity supply under Title I of PL 480 principally of food grains, for at least remainder of second plan. Such program in addition to supplying measure of stability in the vital food sector of the economy could, and should, be made to bring into focus for the government and people of India the need to devise effective measures to increase agricultural production.

(B) With regard PL 480 receipts, we should decide soon what disposition we wish to make of the rupee loan repayments arising from PL 480 program so as to make largest possible contribution to US objectives of increased economic and social advancement. Magnitude of these funds effectively precludes their expatriation from India in form of resources for a long time to come.

(C) Cooley amendment⁸ funds have considerable potential benefit, when rate of US investment in India shall have grown enough to make effective use of local currency in desired amounts. At present, however, realities dictate use for this purpose something near 10 percent rather than 25 percent of PL 480 rupee proceeds. Maintenance of 25 percent level would involve sums which would take years to use and would cause political embarrassment for GOI by giving opportunity to opposition while alarming our friends.

11. To date, Export-Import Bank assistance has been effectively coordinated with DLF and other programs. I believe that additional Export-Import Bank loans may be necessary to assist India in meeting the foreign exchange costs of critical developmental imports and further serve US aims by stimulating US private business arrangements in India. This should be accomplished, of course, without diminishing future IBRD willingness loan to India.

12. Coordination of MSP programs and projects with GOI is now good and continues to improve. GOI is becoming more cooperative as result its own growth in experience and comprehension of US programs’ effectiveness. TCMs end use checks are serving a constructive purpose now better understood by GOI. These checks and reviews will be continued.

13. Official US programs are well coordinated with private US programs. Resident representatives of Ford and Rockefeller Foundations consult fully with me and with appropriate Embassy and TCM officials on projects and policy, so that coordination is effected in a manner which will not prejudice beneficial private aspects of their programs.

14. IBRD and our own activities seem well coordinated in Washington and by consultation with IBRD resident representative in India. US participation Colombo Plan meetings and consultation at the Embassy level in India has been sufficient to produce complementary programs. With the increase in Colombo Plan and other countries “aid, this area of coordination will require even greater care.”

15. The Communist economic offensive in India has taken no new turn in recent months. It remains a serious danger in its emphasis on monumental projects, technical assistance and use of trade for general propaganda as well as specific benefits. Opportunities for Communist use of trade for specific purposes have been found in Kerala. In event further drop in Indian exports, India may be forced increase its volume of trade with Communist countries.

16. We must be alert to possibilities of shifts in project emphasis which can improve prospects achievement US objectives:

(A) In course of assistance for India’s present and future payments problems, some “impact” projects should be undertaken in their entirety by US. PL 480 local currency also should be allocated to some projects for which US meets the foreign exchange cost—so that the US “label” may be applied to the whole of these projects.

(B) Through our program execution and consultation with the GOI, we must also stimulate more development in south India to mitigate India’s “north vs south” conflicts and to lay ground for demonstration superior Congress Party economic capabilities as compared Kerala Communists.

(C) Bengal as state next most susceptible to Communist disorder and the voters’ dissatisfaction, should have specific aid projects of political nature. This may well require grants of dollars as well as rupees and active persuasion of GOI and GOWB to produce projects we can support.

(D) Technical cooperation and certain other FY 1960 programs must take cognizance of need for (1) many more Indian trainees in US—most immediately an adequate steel trainee program which will have a direct beneficial effect upon US politico-economic objective; absence of such program will mean dangerous flood of Communist-trained technicians; (2) a strong non-Communist labor organization in India and, to this end, trade union exchanges and provision of first class personnel for labor management projects; (3) more enlightened Indian management through cooperation US employer organizations and American universities, and (4) increased Indian agricultural output as vital base for Indian economic progress and political stability.

(E) We must anticipate and take steps, through official and other US programs, to counter specific parts of the Soviet economic offensive in India, where such US counter-moves are constructive and in keeping with general composition our programs. Prime examples of such US action in past include the USIS aid to experimental TV in India and US industry’s aid to Indian pharmaceutical production. This would not mean that US programs are dictated by Soviets.

(F) Indian trade ties with South Asian and Southeast Asian countries should be strengthened or, where practically nonexistent, stimulated by US programs with the help of PL 402 Section 104 (D) funds.⁹ From US and Indian standpoint such action could help meet the rapidly growing challenge of Communist Chinese trade penetration of Southeast Asia.

17. US private investment in India has shown heartening trend in the last two years. There has been modest improvement in specific factors contributing to Indian “climate” for investment, helped by official and privately-sponsored visits of business groups, economic journalists and the like. But achievement US objectives in India requires more US private initiative. Understandably, US risk capital is hesitant, what with recent developments in Middle East and Southeast Asia. In net, however, I am convinced that India is good risk for private capital. If foreign private capital comes in sufficient quantities it will greatly improve the climate and profit outlook for further investment.

18. There has been progress on certain Indo-US agreements which help India’s climate for investment. We should continue these efforts, including rapid action in Washington once active negotiations begin. But considerable further action needed (including, where feasible, Export-Import Bank loans to stimulate US equity investment) at least to increase US firms’ consideration of investment in India.

19. In connection with other aspects of our total program, I should like to stress the fact that recently increased prior consultation and exchanges of information between the USG and GOI are proving highly useful. This program should be accelerated. Indians have learned great deal in recent years and months (and have much yet to learn) about Communist evasions, calculated digressions and aggression and about real nature of US aims and policies. A stepped-up US campaign of exchange confidential information and consultation can serve to further our interests and increase effectiveness of our integrated programs.

20. In sum, we are fortunate to have, as well as base to build upon, such strengths as India’s will to achieve development, its natural resources, and choice of democratic institution.

Bunker

1. Source: Department of State, Central Files, 791.5–MSP/8–2658. Secret. Repeated to Karachi, Kabul, London, Tokyo, Colombo, Madras, Bombay, and Calcutta.
2. Circular telegram 1043, May 5, sent to all major diplomatic posts for the chief of mission, requested estimates for the fiscal year 1960 Mutual Security Program. The cable requested overall analyses of U.S. objectives and the role of various U.S. and non-U.S. programs in fiscal year 1960 in achieving U.S. objectives. (Ibid., 120.171/5–558)
3. Despatch 485 transmitted the Country Team’s assessment of India’s overall situation at the beginning of Nehru’s second term. The study totaled 90 pages. (Ibid., 791.00/11–857)
4. Not found.
5. In telegram 405, the Embassy offered its recommendation for a new P.L. 480 agreement with India, suggesting that it was “critical for Indian political-economic stability and economic development.” (Department of State, Central Files, 891.23/8–1958)
6. The U.S. Information and Educational Exchange Act, or the Smith–Mundt Act, approved January 27, 1948, authorized a comprehensive information and educational exchange program. (62 Stat. 6)
7. Despatch 1373, 47 pages in length, reported on the increasing Communist propaganda campaign in India. In the introductory section, Ambassador Bunker noted in part: “It is the strong feeling of the Country Team that the United States should lose no opportunity to anticipate and forestall where possible, and otherwise to meet and counter Communist efforts to win over the people of India. Much of the required United States effort will be on the political and economic fronts, but in view of the expanding propaganda activities of Moscow, Peking and the satellites, together with what appears to be a deteriorating political situation within India, it is important that greatly increased effort be made in the fields of information and education as well.” (Department of State, Central Files, 511.91/5–1258)
8. Reference is to an amendment to the P.L. 480 extension bill of 1957, introduced by Congressman Harold D. Cooley (D.–N.C.) which earmarked up to 25 percent of the local currencies acquired under Title I for loans to U.S. or foreign firms to promote expanded markets for American products abroad. The bill was approved on August 13, 1957. (71 Stat. 345)
9. Reference is to Section 104 (D) of P.L. 480 which provided for the use of counterpart funds.