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

266. Memorandum of Conversation, Department of State, Washington, September 26, 1960¹

Washington, September 26, 1960

SUBJECT

• Call by the Indian Minister of Finance on the Under Secretary

PARTICIPANTS

• The Under Secretary
• Mr. Morarji Desai, Minister of Finance, Government of India
• Mr. B. K. Nehru, Commissioner General for Economic Affairs, India
• Mr. L. K. Jha, Secretary, Ministry of Finance, Government of India
• E—Mr. Edwin M. Martin, Assistant Secretary for Economic Affairs
• SOA—J. Wesley Adams

The conversation opened with references to the American election campaign and to the United Nations session in New York. Regarding the latter, Mr. Dillon commented that the Indians could be helpful in blunting the attack of the Soviets on the United Nations. He remarked on the difficulty of negotiating with a country which advanced preposterous positions.

Difficulties with “tied” and “project” loans

Asked by Mr. Dillon how India’s economy was progressing, Mr. Desai remarked that the Government of India was having difficulty both with tied loans and with the restriction of too many loans to “project type” assistance. The latter, he said, was making it difficult to finance commodity imports essential to India’s development. Mr. Dillon replied that he was aware of these difficulties, but noted that quite a number of Development Loan Fund loans, such as those for steel, had been made for what, in effect, were program imports. Mr. Jha inquired if the DLF might view favorably a program of non-ferrous metal imports. Mr. Dillon said that he saw no reason why an application regarding non-ferrous metals should not be treated in the same category as steel. Asked if the same reasoning would apply to fertilizers, Mr. Dillon replied in the negative, stating that the DLF wanted something concrete to show for its money.

Remarking that it was as yet impossible to tell what the final results might be, Mr. Dillon mentioned that the administration had under consideration, for presentation to the next session of the Congress, a complete re-writing of the Mutual Security legislation. Consideration was being given to including in this new draft provisions both for long-term loan commitments and program, or balance of payments, assistance.

U.S. Aid to Second Plan

Mr. Dillon referred to the recent Consortium meeting on India in Paris, observing that its results must not have been particularly gratifying to India. Regarding India’s needs for the last year of the Second Plan, Mr. Dillon thought that the United States could be helpful both through some additional PL–480 sales of cotton and through quick disbursements under two loans now under consideration by the DLF.

Mr. Nehru inquired if the DLF loans, when approved, would be retrospective, pointing out that only in this way would they help India’s balance of payments for FY 1960–61. Mr. Dillon said that while the DLF in general did not like the idea of retrospective loans, some accommodation to the Indians on this score might be effected.

U.S. Aid to Third Plan

As for the Third Plan, Mr. Dillon noted that much of U.S. assistance to India, outside of PL–480, would probably have to come from the DLF. He noted that the DLF appropriation of $550 million for the current year was being more rapidly committed than in previous years, and said that the administration hoped to seek an additional $150 million from the Congress in January. He also remarked that, in his view, whichever party won the forthcoming election would be sympathetic to continuing aid to India.

Need for greater aid by Europeans

In response to an inquiry from Mr. Desai as to whether he thought other countries had provided their share of assistance to the underdeveloped countries, Mr. Dillon replied in the negative. He thought that Germany in particular had not done what it could. Mr. Desai said that he thought the Austrians, Swiss, Dutch, and Scandinavians also could do more than they are doing. Mr. Nehru added the Australians, stating that they were contributing only small amounts each year to the Colombo Plan. They could be helpful to India, he added, by dropping their insistence on a high figure of usual marketings for wheat in India’s PL–480 agreements. Regarding the Germans, Mr. Dillon remarked that Chancellor Adenauer had taken a position that he cannot adopt any measures prior to the elections next year which would raise taxes. Mr. Etzel,² he said, took the view that any additional aid must be financed by a reduction in other expenditures. Mr. Erhard³ was more sympathetic to a larger aid program by Germany. Mr. Desai said he thought that some of the difficulty grew out of the personality clash between Erhard and Etzel.

Mr. Dillon referred to the recent session at Bogota⁴ where a strong feeling was manifest among the Latin American representatives that the Europeans should be more helpful. A similar feeling, he remarked, had been directed against the United States in previous years but had shifted to the Europeans on this occasion because of our new aid proposals.

Cooley loans

Mr. Desai remarked that the GOI was experiencing some difficulty with Cooley money, in that it was believed to contribute to inflationary pressures within the country. In actual fact, there was plenty of rupee capital available—such that the Cooley funds were not really required. By way of illustration, he said that the recent stock issue of the new Firestone synthetic rubber enterprise, in the amount of 1.6 crores, had been over-subscribed nearly sixty times. Secretary Jha added that the real difficulty was the lack of foreign exchange and that if this were available in sufficient quantity the nonemployed rupee capital could be put to work in new ventures requiring both foreign and local currencies.

Lockheed proposal

With regard to foreign investment in India, Mr. Dillon mentioned the Lockheed Aircraft proposal, stating that it looked like a good project. United States loan agencies, he added, would give serious consideration to any request to assist in the financing. Mr. Desai remarked that there seemed to be some duplication between the pro-posed Lockheed aircraft and the Avro 748, which was being produced for the Defense Ministry. Mr. Jha added that a recent study has shown that the Avro 748 was nearly as good as the Lockheed aircraft for civilian uses. Also, he said, the Lockheed project would require the expenditure of substantial foreign exchange. Mr. Dillon observed that while this might be true, it also seemed probable that the Lockheed venture would be a foreign exchange earner through the subsequent export of aircraft. When Mr. Desai expressed some doubt on this score, Mr. Dillon commented, to the amusement of his guests, that this might be a case where India could undertake credit financing in promotion of its exports.⁵

1. Source: Department of State, Secretary’s Memoranda of Conversation: Lot 64 D 199. Official Use Only. Drafted by Adams on September 29. Assistant Secretary Jones briefed Dillon for this meeting in a memorandum of September 26. (Ibid., Central Files, 033.9111/9–2660) Desai was in Washington to attend the annual meetings of the IBRD and the IMF.
2. Franz Etzel, Vice President of the High Authority of the European Coal and Steel Community.
3. Ludwig Erhard, Minister of Finance of the Federal Republic of Germany.
4. Reference is to the meeting of the Organization of American States at Bogotá, September 5–13.
5. On September 30, Desai paid a brief courtesy call on Herter. A memorandum of that conversation, drafted by Cuomo, is in Department of State, Central Files, 891.10/9–3060.