239. Memorandum of a Conversation, Department of State, Washington, August 5, 19591


  • Types of U.S. Aid for India


  • Ambassador Ellsworth Bunker
  • OFD—Mr. William V. Turnage
  • SOA—Mr. R. B. Horgan
  • SOA—Mr. Henry W. Spielman

Mr. Turnage asked how the Department could assist the Embassy.

The Ambassador said that we need more impact projects now, despite the fact that in the past our aid had been effective without them. But the Ambassador was concerned with the speed with which we were shifting over from a program to a project basis. He cited B. K. Nehru’s request for DLF money for a power program on a $50-million-now-$43-million-later basis, and DLF’s difficulties with this procedure. They want to make allocations by individual projects only, and allocate the entire cost of a project at one time. The Ambassador wondered why, at the present moment, we could not allocate the $50 million and give an expression of intent with regard to the remaining $43 million. Later, as we get into the Third Five Year Plan, there would be more project-type aid.

Also, the Ambassador said he felt the U.S. couldn’t stay out of the public sector. Unless we change the “Hollister policy”2 we leave large areas to the Soviets by default. We create the impression that our aid has strings, that we are trying to direct Indian economic development. We are the only country with these inhibitions: the U.K. and West Germany do not have them. The Ambassador feels that the fourth steel mill is coming and that the U.S. should build it.

Mr. Turnage said that the Department had never accepted the “Hollister policy.” He said that he and Mr. Randall were both sympathetic on the question of the steel mill. The problem was to give the private sector a last-gasp opportunity to get the mill. If they fail, then he believes that we will come—perhaps this fiscal year—to building the mill, with whatever tie-in to the private sector that is possible. He thought, however, that any assistance for public sector oil had very dim prospects indeed. Treasury wouldn’t go along, because private money was available, and because it would open a “Pandora’s Box”.

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The Ambassador reported that he had asked B. K. Nehru why the GOI wanted to use Government money for developing the oil industry when private money was available? Mr. Nehru had replied that the Prime Minister had a prejudice against the private oil companies, based on his reading of the Middle East’s troubles with them. But the Ambassador noted that the GOI had partially given in, by going into a joint government-private venture in the case of the Assam pipeline. This was a delicate matter, in which we should proceed slowly and try to influence the direction the GOI was moving. The Country Team felt that we should now try to supply advisers in the field of oil exploration.

Mr. Turnage said that he was disturbed about the Third Five Year Plan. It was wrong if it allowed an increase in unemployment, instead of utilizing India’s manpower resources more effectively, for example in a housing program, or other labor extensive [intensive] industries.

The Ambassador said that he agreed that it was desirable to go in for more of this type of development and that he had talked to the GOI about it.

Mr. Turnage mentioned the importance of India’s agreeing to take more PL–480 grains. He particularly deplored the break-down of the latest negotiations, over Indian refusal to accept a 400,000 ton usual marketing requirement for a 3,000,000 ton wheat gift. He felt this was a small price for them to pay. He felt the Indians should try to expand consumption of wheat, for example by instituting a Public Works program that would provide more work, therefore more income, therefore more food consumption, therefore more PL–480 wheat.

Mr. Turnage wondered where the necessary dollars were going to come from for the Third Five Year Plan. The Ambassador indicated that Senator Fulbright’s ideas for the DLF would go a long way to provide them; certainly we needed to revise our present ideas.

At the close of the meeting there was a brief discussion as to whether the Indians were justified in complaining that the U.S. had priced itself out of the market to the point where they should use our aid to buy goods in other countries. Mr. Turnage took the position that our overall trade statistics and the buying behavior of other countries than India showed this could not be true in general. The Ambassador countered by citing specific examples where particular U.S. items were up to fifty percent more expensive than those from, say, West Germany, and cited the fact that our export-import gap was closing rapidly.

  1. Source: Department of State, Central Files, 791.5–MSP/8–559. Confidential. Drafted by Rogers B. Horgan of SOA.
  2. John B. Hollister was Director of the International Cooperation Administration, 1955–1957.