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

228. Paper Prepared in the Embassy in India¹

New Delhi, May 12, 1959.

THE SOVIET ECONOMIC OFFENSIVE IN INDIA

Introduction

Soviet capabilities for effective economic warfare against the West in India have been evident for some time. In the past year there have been increasing indications that the Soviet Bloc is already applying some of this capability in South Asia, focusing attention on India. These indications, however, were not strong enough in themselves to permit an irrefutable statement of Soviet aims in India. Any attempt to portray Soviet activity here as part of a major economic warfare effort would have run the risk of interpretation as a panicky reaction to Soviet moves in this area.

Now, however, for the first time, facts are available from several [less than 1 line of source text not declassified] sources, which leave no doubt as to Soviet intentions in India, and reveal a Soviet economic warfare program of broad scope and considerable magnitude.

Summary, Conclusions and Recommendations

The Soviets have designated India as a primary target in Asia. They have embarked upon a major campaign to capture it. The brunt of this campaign takes the form of a substantial and well-coordinated economic cold war effort. This effort is imaginative, subtle and effective. Under present conditions, it has a high likelihood of success.

There is a good chance that it can be kept from achieving its purpose, however, provided the West, and particularly the United States, expands present economic programs to face squarely the changing realities of contemporary India. The success of such an expanded offensive would rest on the basic pro-democratic and pro-Western leanings of the Indian Government and people, including elite groups and the important private sector in the Indian mixed economy. But it will also require a rapid implementation of a new program while the forces on the side of the West are still strong.

The ultimate goal of Soviet policy in India is still the accession to power of a government strongly influenced or controlled by the Soviets. The new Soviet economic offensive is aimed at gaining the maximum influence for the Soviets over the development of India’s economy and the direction of its policies.

The Soviet economic offensive takes three main lines, all of which capitalize on some of India’s most pressing needs. These lines are:

(a) project aid programs of large magnitude to influence and impress the Indian people and Government,

(b) trade programs which will be significant economically as well as psychologically, and which will wherever possible create situations of Indian dependence upon the Soviet Union,

(c) technical assistance programs calculated to win the sympathies of a maximum number of Indian officials, scientists, engineers and students and the Indian intelligentsia in general—while making for more effective aid and trade programs.

Project Aid

In the field of aid the Soviets are prepared to go far beyond anything they have provided thus far. They will give India “anything it asks for” for development under the third Five Year Plan. Estimates of such Soviet aid are between 650 million and one billion dollars.

This reflects a major change in our estimate of Soviet policy. Hitherto we have assumed, though without specific hard evidence, that the Soviets did not wish the Indian economic development effort to succeed because of the fertile field for subversion which would accrue to them from the resultant discontent and disillusionment with the democratic process of the Indian people. Their main effort was propaganda, or to get India cheap.

However, the success of the Indian effort so far, with the support of the West, has been sufficient to force a reversal of this policy, and we now have hard evidence that present Soviet policy is to see that the economic targets of the third plan succeed—with emphasis on the public sector. (This line of action cannot have been decided upon with much satisfaction by the Soviets, for it is costly and involves a real risk for them. If it does not succeed, India will, in large part with the Soviets’ own help, be in a much stronger position to defy them.)

There are many advantages which the Soviets can derive from such a policy. Since the United States has not been prepared to finance public sector industry directly in India, and since a maximum of funds for the public sector enterprises must come from foreign sources, the Soviets have an excellent opportunity to influence the development and growth of India’s industrial base.

Immediate political advantages are even more apparent. In the light of the amount of publicity and the growing influence which the Soviets have already been able to get from their aid—$350,000,000 in less than four years—the influence and propaganda benefit to be derived from a much more massive aid program could be very great. Much of the pro-Western swing and influence which has been developing over the past two years of extensive Western aid could be negated. The power of pro-Soviet Cabinet officials would increase considerably, as would the number of GOI officials disposed toward the Soviets. With the CPI already identified in the public mind as an affiliate of the Soviet Bloc, the prestige and palatability of the CPI might be expected to rise appreciably.

The present Indian government probably would not accept eagerly an overwhelming Soviet program, since it would fear the very developments cited above. The GOI is mindful of the capricious treatment to which such countries as Yugoslavia and Finland have exposed themselves by embracing the Soviet economy too closely. To the degree, however, that India becomes dependent on the Soviet Bloc for developmental imports, and to the extent that it has nowhere else to turn for funds for certain public sector industrial development, India’s ability to resist the Soviet offers will be lessened.

Trade

The objective of the Soviet trade offensive in India is, in their own words, to “inextricably involve” the Indian economy with that of the Soviet Bloc, and thus to enable the Soviets to exercise an increasing influence over India’s economic and political development.

To achieve this end, the Soviets plan first in 1959 to double the 1957 level of India-Bloc trade and then, building on this base, to increase their trade further over the next three to four years to the point where it will comprise 20 percent of India’s total foreign trade. The Soviets will strive for a dominant position in the purchase and supply of certain commodities important to India’s trade. They will also use trade to assist the economy and Communist Party of Kerala, India’s only Communist state. They will take whatever economic losses may be required to accomplish these ends.

The Soviet trade objective for 1959 will be met with the help of the trade agreements (with secret commodity lists appended) signed by India with East Germany, Poland and the USSR in late 1958 and overt agreements signed with Czechoslovakia and North Korea in early 1959. The Soviets will endeavor to accomplish their goal for the succeeding years by offering India the best possible terms. They will supply the goods India wants most, at the lowest prices. They will take payment in non-convertible rupees. In view of India’s increasing need for developmental imports and its relative inability to pay for such imports, such offers will be difficult to resist.

Technical Assistance

The classic example of the utility which the Soviet dominated Bloc can gain from technical assistance is that of their aid to the petroleum industry in India. Aid so far committed for this purpose has been about $41 million. This aid has gone into technical assistance (exploration, drilling and training of petroleum engineers) and aid in construction of refineries. Nevertheless, after only three years, the Soviet Bloc has an effective influence over the development of the petroleum industry in India (one of the Bloc’s first objectives is to drive out the Western oil companies or to irritate them into pulling out of India in disgust) as well as an influence over the political sympathies of the men who direct and develop this industry.

It can be expected that the Soviet technical assistance program in India over the next several years will build on this pattern. The Soviets have already offered to train in the Soviet Union all the steel workers and engineers which India wants to send. Other Bloc countries have made similar offers for workers from other Indian industries.

The Bloc plans to send to India in increasing numbers some of its best technicians and advisers to work closely and informally with certain officials in the Planning Commission (e.g., Pitamber Pant) as well as the various ministries of the GOI and quasi-governmental organizations such as the Indian Statistical Institute in Calcutta. This action is designed to influence the plans and policy direction of these bodies, thus making the Soviet trade and aid programs more effective. In the atmosphere of good-will engendered for the Soviets by their massive trade and aid programs, such efforts will succeed if the U.S. and the West do not move to counter them.

Correlation With Other Soviet Activities

The three principal approaches which the new Soviet economic offensive will take in India, will, of course, be closely integrated with Soviet diplomatic and propaganda activities. The entire offensive will support and be supported by a mounting massive propaganda effort both through the CPI and its own satellite organizations and directly from the Bloc.

Soviet diplomatic moves will continue to be calculated with their impact on countries like India firmly in mind. Indeed, all aspects of Soviet action are intimately interrelated. There is more than a speculative possibility that Soviet activity in the neutral crescent around India—Afghanistan through Nepal to Ceylon—is calculated to a considerable extent in terms of its effect on India.

One of the imponderables which must be borne in mind in an assessment of the prospects of Soviet success in its economic offensive is the attitude of Peking. To date the Chinese Communists have interposed no great objection to Soviet economic penetration in India. But in a few years’ time, if Chinese economic capabilities permit, it is possible that rivalry will arise between the two communist powers. On the other hand, it is also possible that Peking and Moscow will reach a modus vivendi and that Chinese power will be used to support the Soviets in their offensive in India. The point is raised at this time chiefly to maintain the proper perspective. At the present time the Chinese are working with the Soviets.

The Challenge to the West

The Soviets have thus engaged the West in a chess game on a very large scale. If we are to win this contest, we shall have to expand our offensive immediately so as to play the game with an intensity and an imagination which we have not achieved heretofore.

In expanding our own economic effort in India, many forces of strength are on our side. The Soviet awareness of those strengths and the realization that their continuance and growth meant India’s “irreparable” union with the West, have required the Soviets to act boldly. The unacceptable alternative was for the Soviets to abandon India and deny its vital importance to Communist aims in Asia.

The very forces in Indian political and economic life which the Soviets are preparing to exploit can be used to our advantage if we can cater to their needs. Indian society as a whole has basic antagonisms toward the authoritarian character of Communism. The GOI itself is pledged to the democratic development of India and has a strong predisposition toward the West, not lessened by India’s appreciation of ostentatious Soviet support of Indian views on colonialism and Kashmir.

The private portion of the Indian economy, which is still the largest sector of the economy, tends to identify itself with the Western centers of private competitive enterprise. The military in India would be loath to accept too sharp a swing to the left in the GOI and would exert its considerable influence in the councils of Government in favor of any reasonable alternative which we could provide to Indian economic coalescence with the Soviets. Large sections of the intelligentsia—writers, professors, scientists, technicians—either have an admiration for Western philosophy and technology or, at least, believe firmly in the principle that India must learn from and work with both sides and not just one: the concept of dynamic neutralism.

Despite the fact that communist strength is increasing in the labor movement in India, there are many Indian trade union leaders and organizers who feel strongly that the type of free labor movement developed in the West is best suited to the needs of a democratic India.

All of these natural predilections have been heightened during the past two years by the growing evidence that the West, in its own programs of aid to India, comes as a friend and not as an exploiter.

These friendly forces, however, have to face the changing realities of Indian life. Most of them realize that economic development on the scale which is now required in India depends on governmental initiative, since private enterprise, as it is now constituted in India, is not prepared to accomplish many portions of the job which must be done. Specifically, then, in expanding our offensive, we must be willing to shed certain of our prejudices against government enterprise, recognizing that the public sector in India will grow, no matter what we do, and that the choice is only whether this new development will be strongly influenced by the Soviets, or whether we can be in a position to assure that the course of India’s economic development continues in democratic channels.

Recommendations

United States policy decisions and resultant economic programs must [less than 1 line of source text not declassified] deny effective Soviet penetration of the Indian economy, by a) enlargement of the overall U.S. aid program and b) U.S. entry into selected Indian industries and ministries. To this end U.S. programs must quickly incorporate certain specific decisions, revisions, and actions:

1. The U.S. must be prepared to advance a larger general aid program with authority to commit funds over a period of three to five years. We must minimize the cumbersome regulations which slow decision in the execution of our economic aid program.

2. The U.S. must participate in the public sector in India by aiding such projects as the fourth public sector steel plant and giving more significant help to quasi-governmental organizations such as the ISI and the National Council of Applied Economic Research, and by bringing a sufficient number of influential advisors to these organizations as well as to the Planning Commission and various ministries of the Indian Government concerned with economic development. Effective visits by well-known American experts and economists need not await formal Indian Government invitations. The INSTEP program must be expanded.²

3. Aid to the private portion of the Indian economy must be strengthened by awakening American private investment to its responsibilities and the dangers confronting it from the Soviet economic offensive and by devising some mechanism for supplying finance and underwriting risks in a massive flow of U.S. private capital and know-how to India. The U.S. should encourage American firms to license manufacture of certain U.S. military-type equipment to India.

4. The U.S. must take steps to assist the beginnings of Indian trade expansion in Southeast and West Asia in order to exploit India’s present position and ambitions, while crystallizing the inevitable trade conflicts which are found to arise between India and China.

5. The U.S. should exploit India’s scientific leadership abilities and pride, particularly through concentration upon India’s modest aspirations in the field of atomic energy.

6. The U.S. must increase considerably its information program, not only better to publicize our own economic aid but to exploit Soviet pressure tactics and mistakes. In this field we should also expand our use of such tactics as informal consultation with senior Indian officials in the GOI, GATT, ECAFE, and the like, and by keeping the top Indian leaders intimately informed on a confidential basis of a much wider spectrum of facts and developments in other parts of the world which are known to us but not to the public at large. We must continue our program of fairs and exhibits in India—our participation in the agricultural exhibit in India this year, for example, must be of top quality.

7. The U.S. must provide more frequent consultation between senior officials in Washington and the field, on a quarterly basis if necessary. (Soviet officials frequently fly back to Moscow for two or three days in order better to implement their policies.)

8. Since Soviet action in India is so closely interrelated with its programs throughout the world, the U.S. should consider the need for a secret Economic Strategy Board of a sufficiently high level of personnel and resources to enable it to anticipate and counter the Soviet tactics globally.³

[Here follows the body of this paper, including index and tables, totaling 49 pages.]

1. Source: Department of State, Central Files, 861.0091/5–1259. Secret. Transmitted to the Department of State as an enclosure to despatch 1322, May 12, which describes this paper as throwing “new light” on the Soviet offensive and revealing “new facets of that offensive which the Embassy believes require immediate attention by the United States.” Copies of despatch 1322 and the enclosure were sent to Moscow, London, Karachi, Bombay, Madras, and Calcutta.
2. Project INSTEP was a program for training Indian iron and steel technicians in the United States.
3. In a letter to Acting Secretary Dillon, May 12, Bunker called the Soviet economic program in India “a challenge which we would be wise to move quickly and effectively to meet.” He suggested that Dillon take the time to read at least the summary and recommendations in the paper. Bunker also sent a copy of his letter to Bartlett on May 14. (Department of State, SOA Files: Lot 62 D 43, India Economic—1959)