3. Memorandum of Conversation0

SUBJECT

  • United States Aid to India

PARTICIPANTS

  • Mr. B. K. Nehru, Commissioner General for Economic Affairs, India
  • Mr. George W. Ball, Under Secretary for Economic Affairs
  • NEA—Mr. Howard R. Cottam, Deputy Assistant Secretary for Economic and Regional Affairs
  • OR—Mr. Sidney B. Jacques, Director, Office of International Resources
  • SOA—J. Wesley Adams, Officer in Charge, Economic Affairs

Foreign Aid Requirements of Third Plan

Following an exchange of pleasantries, Mr. Nehru presented a statement on India’s requirements for foreign aid to cover its Third Five-Year Plan beginning April 1, 1961 (Annex A).1 The figures contained therein, he said, were revisions of those set forth in a previous memorandum2 which he had supplied Under Secretary Bowles, and which he understood the Under Secretary had given to the Under Secretary for Economic [Page 4]Affairs. In its essentials this memorandum proposed: (1) a U.S. commitment in principle to support India’s’s Third Plan up to a certain ceiling of aid, (2) a substantial amount of “free” or “non project” aid, (3) “untied” aid and (4) that India, on a population basis and for compelling political reasons, had a good case for receiving “substantially more than one-third” of total American aid.

Following his perusal of Mr. Nehru’s document Mr. Ball remarked that, as Mr. Nehru was well aware, current United States laws and regulations made it difficult to accede at this time to some of the proposals advanced in the memorandum. He commented on particular points as follows:

  • (1) Long-Term Commitment. The problem of a long-term commitment in support of the development programs of various countries was currently under consideration by the Administration. He could not predict the final results of this study but could assure Mr. Nehru of the Administration’s sympathetic interest in supporting India’s development.
  • (2) Tied Loans. Mr. Ball said that he personally hoped that the United States might be able eventually to move away from the present strict position on U.S. procurement. In view of the current balance of payments position, however, he doubted that there was any immediate prospect of our being able to depart from this policy. The issue, he said, was tied up with a resolution of basic long-term problems of capital movements.
  • (3) Amounts of Assistance. Here again, Mr. Ball explained that the Administration had under study the over-all problem of volume and type of aid which it might be able to provide on a global basis. As Mr. Nehru was aware, the U.S. was subject to ever-widening demands on its resources.

Mr. Nehru said that his government was faced with three main problems with respect to the financing of its Third Plan:

  • First, he said, was the volume of aid and in this context he reviewed briefly the history of the efforts of the creditor or consortium countries to assist India. Unfortunately, he said, these countries had not been able to make available the full amount of $1,050 million in aid which had been indicated over the last few years. With the greater expenditures contemplated over the Third Plan the Government of India will need even greater foreign assistance than in the past if its Plans are to prove successful.
  • Secondly, it was most important that India obtain, to the extent possible, advance commitments of aid in order that the Plan projects might go forward without hindrance. He knew it would be difficult under present U.S. legislation, but hoped it might be possible for the United States to make a general commitment of support up to a certain amount, to be followed [Page 5]by annual appropriations and with the money to be disbursed as required.

A third problem concerned the organization of aid to India. The International Bank for Reconstruction and Development, he said, intended to invite all of the capital exporting countries to participate in the next meeting of the “Aid India Club” now expected to convene in April in London. Mr. Nehru said that if this meeting were to prove successful in producing firm commitments of substantial aid it was important that the United States begin conversations now to urge on the European participants the importance of their coming to that meeting prepared to make firm commitments. In this connection, he presented a table of a proposed apportionment of aid to India among the contributing countries (Annex B).

Asked by Mr. Ball whether the figure of $500 million included in the Indian table as the amount of aid to be obtained from the IBRD and IDA had, in fact, been discussed with Bank officials, Mr. Nehru said that it had. He remarked that both institutions and, in particular, the IDA, should be able to make a more substantial contribution. Noting that the Soviets had already promised $500 million in support of the Third Plan, he said that the GOI expected that the USSR would contribute an additional two sums of $150 million each. Mr. Ball thanked Mr. Nehru for the table.

Sugar Quota for India

Remarking that Ambassador Chagla had already made a representation on the matter to Secretary Rusk, Mr. Nehru urged that favorable consideration be given to the Indian request for a sugar quota of 500,000 tons in the U.S. market. This request, he said, was closely tied in with the external financing of India’s Third Plan. If granted, it would enable India to earn very substantial additional funds through commercial exports. Mr. Ball explained that the question of U.S. imports of sugar was currently before the Congress and that we had no way of forecasting what action the Congress might take; however, we would certainly keep the Indian request in mind. Mr. Nehru expressed his appreciation of the legislative aspect and stated that the purpose of his representation was to urge favorable consideration in any recommendations the Department might forward to Congress. He asked if there was any possibility that India might be granted a temporary allocation under existing legislation. Mr. Ball replied that it was his understanding that, under the law, the present quota countries stood first in line, and that only if these countries were unable to supply all of their entitlement could other countries be considered. Mr. Nehru concluded this point by asserting that it would help India enormously if it could obtain an export market for this very important industry.

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Barter of Ferromanganese

As a last point Mr. Nehru inquired if it would be possible to negotiate a barter agreement wherein India would provide the United States with ferromanganese in return for agricultural commodities which would be re-exported by India to third countries in exchange for other commodities required by India. Commenting that he did not know if this would be possible, Mr. Ball said that he would investigate the matter.

In conclusion, Mr. Nehru said that Mr. Ball could expect him “to be something of a nuisance.” India, he said, was a huge country and its problems and needs were great. He hoped that the United States would be able to continue the assistance which it had so generously offered in the past. Mr. Ball replied that he would be glad to receive Mr. Nehru at any time and that we intended to be of all possible assistance within the limits of our capabilities and our world-wide commitments.

  1. Source: Department of State, Central Files, 791.5-MSP/2-861. Official Use Only. Drafted by J. Wesley Adams (NEA/SOA) on February 13 and approved in B on February 20.
  2. The annexes are not attached.
  3. A copy of this undated memorandum is attached to a January 31 covering transmittal memorandum from S/S to NEA. (Department of State, NEA/SOA/E Files: Lot 65 D 115, Third Five Year Plan)