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

237. Memorandum of a Conversation, Department of State, Washington, July 10, 1959¹

Washington, July 10, 1959

SUBJECT

• Meeting with the British to Exchange Information on the Sino-Soviet Bloc’s Economic Activities in India

PARTICIPANTS

• British
  • Mr. H.A.F. Rumbold, Deputy Under Secretary of State of Commonwealth Relations
  • Mr. Roger Jackling, Counselor, British Embassy
  • Mr. Geoffrey M. Wilson, Financial Attaché, British Embassy
  • Mr. Henry S.H. Stanley, First Secretary, British Embassy
  • Mr. Peers Carter, Counselor, British Embassy
• American
  • NEA—Assistant Secretary G. Lewis Jones
  • NEA—Deputy Assistant Secretary Donald D. Kennedy
  • U/CEA—Mr. Abraham Katz
  • DFI—Mrs. Doris Whitnack
  • SOA—Mr. Frederic P. Bartlett
  • SOA—Henry W. Spielman

Mr. Jones opened the meeting by welcoming Mr. Rumbold to Washington on this, his first visit to the United States, and thanking him for the opportunity to exchange, informally, information on the Sino-Soviet Bloc’s economic and psychological activities in India, and to discuss informally our evaluations of their significance. Mr. Jones asked if the British representatives had any factual information to add to the summary paper which we had submitted to him about a month earlier.

Mr. Rumbold said that he appreciated the opportunity to study the summary statement and said he would like to make the following additional contribution from the British viewpoint.

The first Soviet objective in increasing foreign aid to non-Communist countries was to secure foreign exchange. The Soviets have been short of sterling and prefer to retain their gold holdings. They need to import, and these needs will increase concomitantly with increased industrialization. During recent years they have approached the British to buy complete factories for the production of consumer goods. The Soviets have increased their capacity to export and have rapidly be-come a substantial trader. Recent tin sales were an example. It would be necessary for the free world to live with the Soviets as a trader. The Soviets were also using their trading position to serve their political ends, with Egypt, Syria and Iraq as examples. It has been relatively easy for the Soviets to “mop up” small countries, and difficult to “mop up” big countries such as India. In India the Soviet political activities appeared to offer the greatest scope. However, Soviet technicians have done a straight technical job and have not engaged in propaganda. The Soviets have moved into a commanding position in the book trade. Communist trade unions in India have been the best organized and were considered to be able to “deliver the goods”. [2 lines of source text not declassified] The rupees earned by the Soviets in India are used to purchase distressed products such as spices, wool, jute, and cashews.

India has been sitting on the fence economically as well as politically. When India made a deal with the Soviets Indian officials attempted to offset it by making a deal with the West. After arranging for the Soviets to build a steel mill, they turned around and arranged for the British to build one. However, the Soviets’ offer of assistance has been helped by the Government of India’s desire to build many industries in the public sector. The most outstanding example has been the oil business. The Soviets have also attempted to gain propaganda advantages by providing help to projects outside the hard core; in fact, more than half of the Soviet assistance has been outside the hard core.

We should not underestimate the West’s advantages. In the first place, Indian foreign trade is largely oriented toward the West. Most Indian firms are Western directed and oriented, or their staffs have been trained in Western methods of doing business. The private sector is still the strongest influence in India. Most of the foreign private capital is from the United Kingdom. In 1958 5.6 per cent of the imports and 7.5 per cent of the exports were in trade with Russia. The Soviets have financed only 7.5 per cent of the hard core projects. But there is danger in the Soviet effort. In the field of political propaganda there is the danger of the general Indian public giving the Soviets more credit than the facts warrant. Through bilateral trade agreements the Soviets are making in-roads into India’s foreign trade. Mr. Rumbold doubted the Soviets’ ability to absorb more than limited amounts of Indian commodities, so that propaganda effects of purchasing distressed items are of a transient nature. Indian officials are aware of the possible danger of Soviet influence and have restricted trading with the Soviet Bloc to state trading companies, thereby reducing Soviet contact with individual Indian traders. Also, there is a limit to the amount of rupees which may be held by the Soviets. Mr. Rumbold emphasized that the United Kingdom was especially worried about Soviet penetration into the petroleum industry. His government gave serious consideration to providing special funds for the construction of the Barauni refinery, but decided against making the offer. The Indians apparently are driving a hard bargain because the Soviets have had an open field for a year, but no agreement has been signed. [1 line of source text not declassified] Burma Oil Company has agreed to supply two loans of ten million pounds sterling each, and the Government of the United Kingdom has agreed to supply three million pounds sterling for the construction of a pipeline from the Assam oil fields to the two new public sector refineries. On the surface, one can be disturbed by the large number of Soviet technical assistance personnel in India. Fortunately, most of them are assigned to the steel mill with practically all the others working in petroleum or the Bombay Technical Institute. The West is supplying much larger numbers of technicians, but the number is unknown because most of them are in the private sector. The British community in Calcutta, for example, is over 10,000. The best way to stop Soviet influence in India is to help India expand on its own merits. India is one of the best underdeveloped markets in the free world. It is well-governed, and has many of the characteristics of a western nation. It is also the highest developed country in Asia. The West’s real strength lies in helping the private sector. In providing aid we should guard against competitive aid. Also, it is difficult to draw the line between balance of payments assistance and project assistance. If we are not careful, we could give the attractive projects to the Soviets by default. Another danger is the Indians’ own opinion of their capacity for growth which may be greater than their capacity to absorb. There is also the danger that development may create distress, such as the price of food increasing beyond the ability of people to pay for it. Information obtained on the Third Five Year Plan indicates that the Indians may be thinking too big. It might be wise for us to caution them to go slowly, and for us to guard against encouraging the Indians to expect too much assistance.

Mr. Bartlett said that he agreed by and large with Mr. Rumbold’s observations, and would like to make the following supplementary comments:

It is possible to divide Soviet activities in India into two separate efforts. Before 1954 the Soviets attempted direct action, and were defeated. An example was their effort to obtain control of the Andara State Government. With the change in policy through its economic offensive in India there developed two objectives in Soviet policy. The immediate objective was to gain good will and thus to spread their influence. The ultimate objective was to be in control. The Soviets, in order to obtain their objectives, are using all of the tools at their disposal: aid, trade, propaganda, and cultural relations.

Soviet Handicaps:

The Soviets are handicapped by (a) the vast size of India, its diversified industries and resources, its diverse languages, the deep-seated Western orientation of its leaders, including the general use of the English language, and the respect for English law; (b) heavy Western investment—$1.2 billion largely from England; (c) the stubbornness of the Hindu religion; (d) Soviet mistakes in Hungary, Tibet, and Finland, and the withdrawal of aid from Yugoslavia; (e) the constant, and perhaps increasing, drain on Soviet resources to aid Red China.

Soviet Assets:

The Soviet Union has certain characteristics which give it greater flexibility than Western countries. These may be summarized as follows: (a) the Soviets may take opportunistic stands on such issues as Kashmir or Goa while Western countries must base their positions on moral grounds; (b) the Soviets may take such action as its leaders dictate without having to justify their actions to a Congress or a Parliament; (c) the Soviets can pick the markets in which they wish to buy or to sell; (d) the Soviets can conscript technicians for assignments; (e) their own growth is cited as an example to underdeveloped countries; (f) over the past nine years the Soviets’ gross national product has increased at a much greater rate than that of the United States; (g) the Soviets have a local Communist Party through which to work; (h) the Soviets may concentrate on projects most suited to their desires while the United States must be prepared to provide whatever type of assistance is required.

Caveats:

The Soviet assets and influence are insufficient to force a change in India. In fact, the Government of Kerala is likely to change in the next six to eight weeks. We should not expect to keep the Soviets completely out of India. In fact, the GOI does not wish to rely only on the West for assistance. The big question is “when is the point of no return reached?” This point is a matter of judgment, and perhaps can be illustrated by the Soviet activities and influence in Afghanistan. (Mr. Bartlett explained Soviet penetration in Afghanistan.)

Mr. Bartlett concluded by saying that the West meeds to maintain its relative preponderance in the economic and cultural fields. Mr. Rumbold said that Hinduism had absorbed so many points of view over the last 2,000 years that it may feel that it can absorb Communism. He doubted that it would be possible for the Western countries to maintain their relative advantages. The Soviets are going to have more goods for sale overseas, and they will find means for selling them, Mr. Rumbold observed, and said they apparently feel that from aid may develop permanent trade arrangements.

Mr. Katz discussed Soviet objectives in India, both short and long run, which he described as predominantly political and from this point of view merely a quantitative approach to comparing the Soviet and Western efforts in India, which was dangerously misleading, [sic] This, he said, pointed up the need for modification of Western economic policies and programs towards India to meet the challenge of the Bloc’s economic objectives.

On strictly Indian problems Mr. Rumbold thought that the Indus Waters dispute and the Kashmir problem must be solved before greater regional trade could be stimulated. Mr. Rumbold thought that over the next five to seven years the main danger in India would be the Indians’ attempt to progress more rapidly than their economy could justify, and would, therefore, in effect go broke. This type of situation might force them to come to the West for greater amounts of aid.

In response to a question by Mr. Kennedy, Mr. Rumbold said that the West should attempt to influence the direction of the Third Five Year Plan. If we wait until the Plan is completed, which the Indians prefer, we run the risk of being asked only for balance of payments assistance. On the other hand, if we get involved in guiding the Plan we are likely to give an implied commitment for financing it. However, in the latter event we may not be responsible for more than we would be in any event. Mr. Rumbold was concerned that the GOI might come up with a plan that called for more external assistance than would be available. It was clear that the sort of advice he had in mind was to keep the size of the Third Five Year Plan within realistic limits. Mr. Kennedy pointed out that there was also the prior question of how large the Third Five Year Plan should be to provide the basis for the essential economic growth in India.

Mr. Rumbold said that the United Kingdom recently had suggested to the International Bank for Reconstruction and Development that the Bank send one wise man to India. He, himself, considered Oliver Franks, of Lloyd’s Bank, as a possibility, as this Bank official would be going to India this fall in any event. He could go later as the IBRD’s representative, and on both occasions could undoubtedly influence the direction of India’s Plan. Mr. Kennedy said that he thought the Indians would prefer that a visit be made next summer after the Plan had been approved by the Cabinet, which then would be too late to have any effect on the direction of the Plan. Mr. Kennedy then defended Senator Kennedy’s proposed resolution,² and suggested that it might be composed of a staff of technicians under the direction of two or three outstanding personalities. There would, of course, have to be one member of the group in general charge.

Mr. Kennedy closed the meeting by thanking Mr. Rumbold for a very interesting and helpful exchange of views.

1. Source: Department of State, Central Files, 861.0091/7–1059. Confidential. Drafted by Spielman on July 31.
2. See footnote 4, Document 205.