Foreign Relations of the United States, 1964–1968, Volume XXV, South Asia

310. Memorandum From the President’s Special Assistant (Komer) to President Johnson¹

Washington, March 29, 1966, 10:15 p.m.

George Woods is eager to start working over the Indians on a self-help and aid package as soon as he knows where we stand. Therefore, if you are satisfied as a result of your talks that Mrs. Gandhi intends to adopt the major economic reforms that we and the World Bank have been seeking, the best way to move ahead might be for me to tell Woods on your behalf. State, AID and I suggest we tell him the following, which protects us with plenty of caveats:

1. You have concluded from your talks that she is prepared to liberalize India’s import control policies as well as internal price, marketing and other business controls which have been inhibiting economic growth, provided the necessary financial support is forthcoming. Additionally, she is prepared to adjust exchange rates and tax policies to support liberalization.

2. In order to move more rapidly toward self-sufficiency in food production, Mrs. Gandhi has assured you that India will follow through in emphasizing agricultural development, making adequate fertilizer available to the farmers and vigorously seeking to attract foreign private investment in fertilizer production.

3. She has also spoken to you of India’s efforts in the family planning field and of her determination to accelerate these programs.

4. In turn you have indicated to Mrs. Gandhi your realization that the liberalization program described above can be implemented only with assurances of substantial financial support. You are prepared to say informally that if India actually takes the necessary steps to the satisfaction of the World Bank and the other consortium donors (including ourselves) we are prepared to help provide needed support for such a program in phase with its execution, subject of course to Congressional appropriations.

5. You currently believe that we will be able to support the Indian economic reform program in FY 1967 with about $385 million of AID loans (if Congress meets your aid request) and $50 million of EX–IM Bank loans—the same levels as pledged in recent years. Of this amount you are prepared to extend an increased proportion in the form of program lending. You also understand that the economic reform program will require a debt rescheduling in which the U.S. will take its share—approximately $30 million for FY 67 (much less than the Europeans). All this is, of course, conditioned not only on India’s actually following through with its reform program, but also on the willingness of other consortium members to bear an appropriate portion of the burden.

6. Finally, in view of our continuing wish to provide our support in coordination with the World Bank and the other members of the Indian Consortium, you have suggested that Mrs. Gandhi have her senior financial and planning officials come to Washington as soon as possible in order to work out an agreement with the World Bank and the IMF regarding the details of the economic reform program and the financial backstopping arrangements. We expect the Bank to take the lead in coordinating the necessary consultations between India and the governments of the consortium members.

This package is the real McCoy—much more so than emergency food. If George Woods, with our backing can drive the tough bargain which he contemplates, we will have accomplished more in moving India via our aid leverage than in the last six years combined. And we will have done so at little if any greater out-of-pocket cost than in 1963 or 1964. I stress again that this is a self-enforcing bargain—if India doesn’t make the reforms we and the Bank want, it doesn’t get most of the dough. This puts the choice squarely up to them. I may be over-enthusiastic, but I see this as a major foreign policy stroke, affecting 500 million people in the largest country in the Free World.²

R.W. Komer

Tell Woods

See me³

1. Source: Johnson Library, National Security File, Memos to the President, Walt W. Rostow, Vol. I, 4/2–5/26/66. Confidential.
2. A handwritten postscript by Komer reads: “We’d keep all of this very quiet for the time being, leaving it to the Indians to make the first move.”
3. Johnson checked this option.