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

336. Telegram From the Department of State to the Embassy in India¹

Washington, May 8, 1966, 12:20 p.m.

2170. Joint State/AID message. Subject: Indian Planning Minister Mehta’s Visit to Washington.

1. Mehta left Washington May 6 after two and a half weeks of discussions with IBRD and USG. In addition to talks with Bank and senior USG officials he met with President twice (May 4 and 5). Mehta expects be back in New Delhi by May 10.

2. Mehta’s Discussion with Bank. We maintained stance throughout visit that Mehta was here to work out understanding with Bank and USG was not party these negotiations. Discussions were in fact Bank operation in which we did not participate. Following conclusion Mehta’s talks with IBRD, he informed us that there had been general policy agreement between him and Bank. IBRD has confirmed this to us. We also understand that Mehta told Bank his position represented that of GOI. Bank informs us that extensive details remain to be worked out. We understand procedure will be for GOI to submit series of memoranda to Bank indicating Indian line of action with regard each of reforms.

3. While in Washington Mehta also had discussions with a variety of high-level USG officials. During these discussions Mehta generally stressed new GOI emphasis on agriculture and family planning, and good prospects for general economic breakthrough given adequate external support. (See Deptel 2041² for example of Mehta’s general line.) For our part we attempted in these talks to clarify for Mehta the considerations we held of particular importance for establishing the general framework within which our aid relationship could develop along mutually beneficial lines given a satisfactory GOI understanding with the IBRD.

a. We made it clear to Mehta how we felt about the problem of peace on the subcontinent. We told him we wanted concrete evidence that India and Pakistan were gradually settling their differences, and in this connection asked whether a new round of ministerial talks might not produce enough agreement to improve climate. We told Mehta Shoaib felt the ball was in India’s court. Mehta responded noncomittally.

b. We also told Mehta we wanted some sort of ceiling on domestic and foreign military spending and asked that accounting of Soviet aid be on delivery basis. As in conversation reported Deptel 2041, Mehta’s response was generally to effect GOI was in fact holding line on defense budget, GOI loath to divert funds from development to military, etc. Indian reps claimed that only arms coming from Soviet Bloc are naval equipment and assistance in building aircraft factory.

4. Following conclusion discussion with Bank, Mehta raised subject of amounts of nonproject and project aid with USG officials. Stated Indians accepted Bank’s analysis of $900 million requirement of nonproject aid for first year and required assurance that adequate support will be available throughout Fourth Five-Year Plan. Mehta also attached great importance to continuation project aid, noting that progress on projects had been virtually nil for past year. Apparently adding what he understood had been available from US for projects in FY 66 ($110 million) to amount he believed necessary from FY 67 ($150 million), he indicated need for coming year for $260 million in project aid from US.

Bank indicated optimism about raising $900 million non-project aid (including debt adjustment and including $100 million US non-project loan now under negotiation.)

USG indicated imminent release of four loans already authorized. Also said that $260 million was substantially more than would be available for DL projects because 1) we are not recognizing the $110 million carryover and 2) we wished to give a sharp priority to program lending. We did mention the possibility of announcing the availability of a fixed amount of extended risk guarantees in support of private US project financing.

5. In concluding session with Mehta,³ USG informed him that we aware of problems facing India, felt deeply about them, and wanted to do our part to support India’s economic program. We said that the way GOI was approaching its problems meets our complete approval. We reminded Mehta of our inability commit our Congress and that what we could do depended on funds Congress made available. But we assured Mehta we recognized consequences of proposed Indian action and would do our part to best of our ability. We reemphasized importance we attach to peace on subcontinent and problem of military expenditures.

Comment: IBRD tells us informally that Indians have proposed economic policy changes to be accomplished over two year period which Bank finds acceptable. IBRD/GOI agreement is contingent on GOI working out suitable arrangements with IMF which are also acceptable to IBRD. This presumably to be done during coming week by Mehta associates remaining here. IBRD plans to communicate promptly with major creditors to transmit proposals and to seek assurances of support.

We are sending by separate telegram statement which we worked out with Mehta and which we agreed that he could make to Parliament on Friday May 13, if agreement with IMF consummated by that time. Our understanding that no public statement of this kind be made prior May 13. In intervening period Indian comment is expected to be to effect that Mehta had useful talks here and is now reporting to GOI. Essential that no substantial comment be made prior to May 13 as we will be consulting with Key members of Congress.

We hope Mehta statement will meet Prime Minister Gandhi’s political requirements for the present. You should clearly understand that IBRD/GOI agreement is contingent on subsequent agreement with IMF and on success of consultations with creditors.

Rusk

1. Source: National Archives and Records Administration, RG 59, Central Files 1964–66, POL 7 INDIA. Secret; Priority; Exdis. Drafted by Coon, cleared by Macomber and Rostow, and approved by Handley. Repeated to Karachi and Rawalpindi.
2. Document 325.
3. On May 5, Mehta met with Rusk, Bell, Handley, and Laise . A memorandum of this conversation is in the National Archives and Records Administration, RG 59, NEA/INC Files: Lot 70 D 314, India 1966, Visits—Asoka Mehta.