219. Memorandum of a Conversation, Department of State, Washington, September 8, 19581
SUBJECT
- Mr. Desai’s Call on Mr. Dillon
PARTICIPANTS
- Mr. Morarji Desai, Finance Minister of India
- Mr. B. K. Nehru, Commissioner General, Government of India
- Mr. L. K. Jha, Special Secretary, Ministry of Commerce and Industry, Government of India
- Mr. H. Dayal, Chargé d’Affaires ad interim
- Mr. P. Govindan Nair, Economic Minister, Embassy of India
- Mr. Tom B. Coughran, Assistant Secretary, Treasury
- Mr. Ralph Hirshtritt, Treasury
- Mr. C. Douglas Dillon, W
- Mr. William Turnage, OFD
- Mr. Leon B. Poullada, SOA
After welcoming Mr. Desai to Washington, Mr. Dillon expressed interest in the future of India’s economic development plan stating that he understood that some thought was being given by the Government of India to stressing agricultural development. Mr. Desai confirmed that agriculture loomed very large in the thinking of Indian officials for future planning purposes. The Government of India hopes, eventually, to have five fertilizer plants in the government sector and will also encourage private enterprise in this field. He stressed that one of the difficulties was to convince backward farmers that modern methods of agriculture would produce results. He then discussed, at some length, the historical and social forces which hindered rapid agricultural development. Bringing the picture up to date, Mr. Desai stated that India had just had a very bad crop year which resulted in a shortfall of 6.7 million tons of food grains.
Mr. Dillon asked whether the Government of India had any thoughts on the desirability of expanding the IMF. Mr. Desai replied that India was, of course, in favor of strengthening this international institution, particularly if it resulted in the possibility of additional aid to India. On the other hand, he recognized that India would have to contribute a larger quota and this would present a serious problem. Mr. Coughran inquired whether Indian officials had expressed any opinion on the proposal for the establishment of an International Development Association. Mr. Desai replied that India would welcome any additional international facilities which could assist in its development program.
With regard to India’s planning philosophy, Mr. Desai emphasized that, though India was sometimes criticized for making over-ambitious plans, he did not think a plan which called for raising the annual per capita income from $58 to $65 yearly could be termed overambitious. On the other hand, the political opposition in India, particularly the Communists, were quick to seize upon any slow down in economic development in order to discredit the present government.
Mr. Desai then said that he felt the Communist threat in India was overemphasized in the United States. Addressing his remarks to the problem in Kerala, Mr. Desai stated that the people in Kerala were not basically Communist. According to him, the success of the Communist Government in Kerala was attributable to two factors: namely that on the whole, the people were better educated and therefore had high expectations which could not be fulfilled; also the Congress Party had become disorganized by internal squabbles and the well-organized Communist Party had taken advantage of this. Now, however, he felt the tide was turning. There is a growing disillusionment in Kerala with the Communist Government since many of the intellectuals have found that their individual liberties are being threatened. Mr. Desai [Page 463] expressed the opinion that the Communist Government will be defeated in Kerala in the next elections. He added that the Kerala experience was the most fortunate thing that could have happened to India because it pointed up the Communist threat and other Indian states would not be likely to follow Kerala’s example.
Mr. Dillon referred to the PL 480 program saying that although we had intended to have a program ready for negotiation during Mr. Desai’s visit, certain delays had become necessary because of problems of internal administration, but that it was our hope that a program would be ready for negotiation in the near future. Mr. Desai accepted this philosophically, merely referring to the need for expediting shipments so that there would be no interruption in the flow of food grains to India.
Referring to the present DLF negotiations for utilization of the new $75 million credit, Mr. Nehru said that a problem had arisen in India because of lack of imported steel. Some mills had been closed in Calcutta with resulting labor trouble which was, of course, being exploited by the strong Communist elements in the Calcutta labor unions.
In regard to the long-term plans of the Government of India, Mr. Nehru mentioned that it was essential for India to have some assurances as early as possible on amounts of additional aid which might be forthcoming. This was particularly important in connection with the need for announcing a new import policy next January, since the level of imports would have to be adjusted realistically to anticipated resources. Mr. Dillon replied that it was, of course, not possible to make any commitments at this time. He went on to explain, however, that Congress had expressed a sympathetic interest in additional funds for DLF and that it was the intention of the Administration to request such funds when Congress convened in January. Mr. Nehru said that the problem of DLF picking up prior commitments would arise again since India would have to go ahead in the very near future in placing new orders and by the time additional DLF funds became available, the new orders would again constitute prior commitments. Mr. Dillon recognized that this presented a problem, but felt that it would not be insuperable provided the usual conditions of bidding, etc., were complied with.
The group then discussed, in general terms, India’s Third Five Year Plan with both Mr. Desai and Mr. Nehru making the point that realistic planning for the Third Five Year Plan had to be geared to the goals attained under the Second Five Year Plan.
Mr. Desai stated that he had the impression there was some misunderstanding about India’s defense expenditures. India did not wish to expand its armed forces and was in favor of maintaining the status quo. For a number of years, India had done nothing to modernize [Page 464] its armed forces, but growing armaments in Pakistan and the constant talk of Jehad by Pakistani leaders, forced India to modernize its armed strength. He gave, as an example, Chaudri Mohammed Ali’s2 war-like statements, expressing dismay and surprise that such a level headed and old time civil servant would indulge in such provocative propaganda. Mr. Dillon said that it was our impression that India’s armed forces were larger and much more powerful than those of Pakistan. Mr. Desai replied categorically that such was not the case. He went on to discuss at some length India’s difficulties with Pakistan, stressing that the Pakistan Government was unstable and unreliable, that it had kept none of its agreements with India, and that even in such matters as the post-partition financial settlement, India had fulfilled all its obligations, whereas Pakistan had refused to abide by its part of the bargain. He mentioned specifically that at the time of partition following Pakistan’s invasion of Kashmir, India had paid to Pakistan 55 crores of rupees, although it was obvious that Pakistan would use these funds to finance the Kashmir war. India had done this only because Gandhi had fasted and insisted that India fulfill its promise regardless of what Pakistan did.
Mr. Desai then briefly discussed the canal waters and Kashmir questions. With regard to canal waters, Mr. Desai said that India was anxious to solve this problem with its neighbor, but that Pakistan’s demands were outrageous. Each time India made a reasonable offer, Pakistan used this as a “spring board” for increasing its demands. Even the latest Pakistan proposals to the IBRD made in London last month would require India to pay a total of 380 crores of rupees which India considered to be far in excess of what was realistically needed by Pakistan to make up its water requirements. On the Kashmir question, Mr. Desai said that the conviction had grown in India that the Pakistani leaders did not wish to solve this problem, because they could use it as a political rallying point. Moreover, India had grave fears that if the Pakistanis were given Kashmir, the Punjabis would displace the Kashmiris and the latter would have no recourse but to turn Communist. Such a large group of Communists with access to assistance from China and the USSR would represent a security threat to India.
Mr. Dillon stated that he recognized that the solution of Indo-Pakistan differences presented many difficulties, but that it was our sincere hope that these differences could be resolved by negotiation so that both countries could dedicate their energies and resources to the economic development which they both need so badly.