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

226. Telegram From the Department of State to the Embassy in India¹

Washington, March 17, 1959—5:48 p.m.

2202. Joint State–ICA–DLF message. Your 1538, Deptel 1688.²

A. Appreciate thoughtful attention country team has given to achieving greater Indian awareness of US assistance. We concur in need for clearer identification of US assistance in mind of the Indian public but feel that following comments may prove helpful in considering immediate possibilities. Would especially call attention to para 3 below on desirability developing identifiable projects suitable DLF financing as soon as possible.

1. Basic difficulty we foresee in undertaking impact type financing during second plan period is fact that possible dollar financing to Indians during next two years may barely cover estimates amount required for core, after taking account of possible assistance from other sources. These estimates based on projects in planned core as well as other requirements for the economy which we assume represent highest present Indian priorities. We had considered our aid program now and prospectively through FY 1960 would be geared to assistance economically sound projects within such priorities.

Country team proposal if implemented would probably mean US would finance projects not included present reduced Indian plan. If such financing would be at expense projects now included in second plan which would be case unless plan needs met by funds from other than U.S. sources, we doubt its practicality. Accordingly financing of any new project must be appraised against expressed Indian desires for dollar financing and economic value of project or activity that might have to be dropped from Indian plans because of lack of foreign exchange.

2. Further, our experience has been that India needs dollars primarily to meet payments on projects already underway. In current Indian program certain external financing requirements will be met through credits from EXIM Bank, IBRD and other countries for projects, particularly those which involve purchases from those countries. Remaining essential requirements for external financing largely determine projects which can be assisted by DLF. This restricts choice of projects considerably. You will recall that identification of specific projects against which DLF aid applicable achieved only with difficulty and after considerable staff work here in [and?] detailed discussions with Indians. In virtually no case has it been possible to insure complete financing of a major project through latest DLF loan.

3. We would urge however further effort identify feasible projects now in core which US might support order achieve objectives your proposal. Particularly important every effort be made persuade Indians work up project applications for submission to DLF which represent individual loan applications and not single application for a given level of aid to partially cover a series of projects. Suggest you work with Indians in developing such identifiable individual projects to be submitted DLF on this basis. Fully agree that any DLF assistance that may be available after completion of second plan should be on project basis. Have so informed B. K. Nehru who fully agrees. To extent Indians can finance last year of second plan from other sources, DLF financing that may be available in FY 61 could be earmarked for projects included in third plan. Selection of such projects if funding feasible in FY 61 will involve continuing and early discussions between Embassy and GOI.

4. What is your assessment of possibilities relating U.S. assistance from rupee loans under PL 480 to specific projects having impact appeal? Large volume such rupee funds will be available from latest agreement.

5. Recognize balance of payments problems have not prevented Indians from undertaking identifiable projects not in core when financing could be arranged from Soviet Bloc or other special sources. While this occasional practice may be argument for deviating from financial support for core projects, consequences such a move must be considered in full.

6. Request country team views above, particularly possibilities for developing DLF project submissions which clearly identify US assistance, possible associations PL 480 rupees with projects, and feasibility substitution certain new projects supported by US for one or more in core.

B. Other comments.

1. Re impact projects you propose: (a) Would appreciate further consideration suitability hydro power project [in] view: remoteness from population centers, lengthy construction period, lack immediate awareness by power user of source of power. If project proposal were to materialize would expect DLF to give consideration then to additional resources available and in light Indian and country team recommendations as to priority since project not now in core. In any event would be useful if country team could obtain Sharavathy “project report” on informal basis, (b) Re UP University ICA has commented Icato A–1576.³

2. Does country team believe US identification with capital projects can be secured by providing finance alone or are US engineering and construction services necessary to secure this result?⁴

Herter

1. Source: Department of State, Central Files, 791.5–MSP/1–859. Confidential. Drafted by Sidney Schmukler of the Economic Development Division of OFD, J. Wesley Adams of SOA, and Alfred White of ICA and approved on Dillon’s behalf by his Staff Assistant, Robert C. Brewster.
2. Telegram 1538 is printed as Document 224; regarding telegram 1688, see footnote 7 thereto.
3. Not found.
4. The Embassy responded to this cable in telegram 2767, May 9. It reads in part as follows: “Optimum arrangement both technically and psychologically is merging of dollar and rupee financing with US engineering and construction, TC, and local participant training. Foreign assisted steel plants attest significance of technical assistance and foreign exchange combination.” (Department of State, Central Files, 791.5–MSP/5–959)