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

428. Telegram From the Embassy in India to the Department of State¹

New Delhi, March 28, 1967, 1320Z.

13991. For President and Secretary Rusk from Ambassador Bowles.

1. Mrs. Gandhi’s new government stands at critical crossroads in domestic economic policy and in its relationship with USG. Variety of forces including determined and substantially strengthened parliamentary opposition, persisting food crisis, slow down in industrial growth, lag in exports and need to decide finally on size and shape of fourth plan, are forcing GOI to undertake fundamental reappraisal of its economic goals and policies required to achieve them.

2. That this reappraisal should occur on heels of recent election setback is neither surprising nor contrary to our interests. Indeed, on the plus side, we will be dealing with a strong Finance Minister who is favorably inclined toward us and generally well-disposed to economic policies we have been urging. Moreover, very magnitude of problems facing GOI has created a badly needed sense of urgency.

3. Major question mark among new leadership is ability and willingness of USG to support GOI’s effort to speed rate of economic growth and particularly push forward with liberalized economic program which was adopted following devaluation.

4. Unfortunately, atmosphere in which estimate of future US stance is being made is heavily fogged by widespread public and parliamentary uneasiness regarding admitted and alleged CIA activities,² persistent rumors about renewed US military supplies to Pakistan,³ and general concern about ability of USG to maintain required level of assistance here in view of demands in Vietnam.

5. Against this background it is important for us to make it clear to GOI and its leaders that we mean to do all we can to assist new government to get India on the move. Since leadership can move towards more liberal economic policies only if they feel confident about resources available, a US declaration of intent, perhaps by Gene Rostow in consortium context or in personal letter from the President to the Prime Minister, will provide a major shot in the arm.

6. In concrete terms I am hopeful (a) that we will be as forthcoming as possible at the critical India consortium meeting early April and (b) that we will make earliest possible decision in regard to additional food shipments before public and parliamentary anxiety again becomes focused on diminishing flow through pipeline.

7. Regarding consortium I am keenly aware of problems in respect to aid legislation. However, I believe that it is essential, in addition to non-project assistance required to sustain import liberalization program, that we provide a substantial amount from Ex-Im Bank for projects. (Note: until 1965 the Ex-Im pledged India about $50 million per year; since then it has contributed next to nothing.) Ex-Im project loans of say $150 million for each of next two years, on top of adequate [garble] non-project assistance to sustain import liberalization, would help give Indian economy and national confidence boost they urgently need at this stage.

8. In regard to food shipments pipeline appears assured through early June. While I recognize that additional 3 million tons approved in Congressional Joint Resolution are tied to appropriate assistance from other nations, I believe we should somehow come through with our full share early enough to avert another food price crisis which would have grave impact on central government and state-center relationships both of which are now extremely fragile. Three million tons would take India through the middle of September. By that time we expect that more normal rains and new technology will assure harvest which, with additional assistance from other nations (hopefully including Soviets), should cover all or almost all of rest of 1967.

9. While fragile is appropriate word to describe present situation here and while Mrs. Gandhi’s government faces acute new political problems on top of perennial economic ones, I believe ingredients for dramatic economic progress are also at hand. Such progress will require our timely, substantial and astute assistance. It would, in turn provide a new and I believe more stable and mutually satisfactory basis for Indo-US relationships.

Bowles

1. Source: National Archives and Records Administration, RG 59, Central Files 1967–69, POL 15 INDIA. Secret; Priority; Exdis.
2. Bowles attributed the political furor that developed in India over alleged CIA activities in part to Soviet-sponsored forgeries designed to exacerbate U.S.-Indian relations. (Telegram 13640 from New Delhi, March 21; ibid., POL INDIA–US) CIA Director Richard Helms sent a letter to Rusk on March 24 in which he noted that during the course of a debate in the Indian Parliament on March 23 on the CIA in India, several members of the Lok Sabha referred to statements made by former Ambassador Galbraith in his article on the CIA in The Washington Post on March 13. In that article, Galbraith wrote that CIA activities in India “were generally known to and involved no conflict with local authorities.” (Ibid., Rusk Files: Lot 72 D 192, Secretary’s Misc Correspondence) Helms sent a memorandum to the President on March 28 in which he noted that he had discussed with Galbraith the impact of his article in India. He told Galbraith that that article had “raised unshirted hell in India and has provided the central point of an acrimonious debate in the Lok Sabha.” Galbraith professed surprise and dismay, and promised to be more discreet in future. (Central Intelligence Agency, Job 80–B01285A, DCI (Helms) Files, Chrono Jan-July 1967)
3. In telegram 13994 from New Delhi, March 28, Bowles added the following observation: “I am assuming that we do not intend to embark on a policy which would provide lethal military supplies to Pakistan. If we should do so we would utterly destroy the very real hope of negotiating the Indo-Pak arms ceiling which we have been pressing for so many months. In present atmosphere of doubt and suspicion engendered by sharp public and parliamentary reaction to CIA revelations, it would also jeopardize our relations with a new government which, with our support and a little luck, could emerge as more realistic and U.S.-oriented than any since independence.” (National Archives and Records Administration, RG 59, Central Files 1967–69, AID (US) 15 INDIA)