465. Memorandum From the President’s Special Assistant (Rostow) to President Johnson1
SUBJECT
- Food Aid to India
As you instructed at last week’s NSC meeting, Messrs. Freeman, Gaud and Schultze have put into writing their joint proposal on wheat for India. Their memorandum is at Tab A.2 It argues for:
- —a six-month agreement providing for 3 1/2 million tons of wheat (plus minor amounts of other commodities as appropriate);
- —very tough self-help conditions;
- —acceptance of the International Grains Agreement formula as sufficient guaranty of matching by other donors;
- —an informal but tough line on commercial purchases, making it clear that it is important to us that the Indians buy American if they buy any wheat abroad;
- —no new approach to the Congress;
- —immediate commencement of negotiations. (Our negotiating leverage declines as the Indians move closer to a bumper harvest.)
Nick Katzenbach has reviewed and approved this proposal. Joe Fowler has decided to write a separate memorandum (Tab B).3 He argues that: [Page 906]
- —we should condition our PL 480 wheat on Indian agreement to buy at least 500,000 tons from us for cash;
- —we should not accept the Grains Agreement formula as fulfilling the matching requirement for the first half of 1968, since the Grains Agreement does not come into effect until July 1 of next year. In the meantime, if we can’t get any more matching resources, we ought to insist that our food be counted as dollar aid in the Indian Consortium.
The rest of us have been over Fowler’s points very carefully. He may well be right on his second count, but we don’t need to decide that issue here. If Passman & Company gut the AID appropriation bill, it is very unlikely that we will have to insist that at least part of our food be counted as dollar aid. (There are some costs to this—e.g., the Canadians and the Australians will take a similar stand and cut down their dollar aid accordingly—and there is a serious risk that the Consortium might dissolve under such pressure.) But we don’t need to face this question directly until we know how much AID money we will have. We will come back to you when that decision needs to be made, and Fowler will have a full voice in the recommendation. Making this decision now does not mean that you are overruling him on this point.
Joe’s first point is tougher. Everybody wants to sell as much grain as possible. Freeman would be delighted to back any tactic he thought was likely to extract more commercial sales. But the truth is that the Indians are very unlikely to buy any wheat abroad in a year of record domestic harvests and severe foreign exchange shortage. They certainly aren’t going to buy anything like 500,000 tons, and the leverage of this PL 480 offer is not nearly sufficient to get them to do so. They didn’t buy quite that much from us last year in the second consecutive year of the worst drought in recent history. This year’s Indian grain crop will be nearly 20 million tons more than last year’s. The prospect of another 3 1/2 million tons in imports just isn’t attractive enough to make them spend scarce foreign exchange on wheat.
Joe’s proposal has other drawbacks:
- —a flat condition such as he proposes would be a clear violation of our pledge in the International Grains Agreement not to tie any PL 480 sales to cash sales. (The language in the Freeman/Gaud/Schultze memo is already right on the borderline in this respect; some State lawyers are concerned that even this may be too strong.)
- —if such a condition became widely known in the diplomatic community—and it would become widely known—the Canadians and Australians, from whom we now expect upwards of a million tons of food aid to India, would either scrap those plans or insist upon the same conditions we impose. The result might well be no wheat sales for anybody, and the others, particularly Australia, would be very bitter;
- —such a condition would rob us of all our leverage to get the internal policy reforms we want from the Indians. They would see it as a straight commercial proposition which they would almost certainly [Page 907] refuse. But even if they bought it, they certainly wouldn’t feel they owed us anything on the policy front.
Thus, although everybody agrees with Fowler’s objectives, the rest of us would argue that his condition would: (i) keep us from moving the wheat we have to move if we are to meet our FY 1968 PL 480 targets and support domestic prices, (ii) weaken our influence on Indian internal agricultural policy, (iii) sour the other donors on helping India, and (iv) get us into international legal trouble which could sink the Grains Agreement before it is even ratified.
My vote is with the Freeman/Gaud/Schultze recommendation at Tab A.
Special Note:
In considering this decision, you should know that we have considerable evidence that the Indians are going back on their promise not to buy Soviet fighter-bombers. They told us last June that they would not buy Soviet planes if we let the British sell them 24 Hawker-Hunters. We gave the British the go ahead. It is now becoming clear that the Indians have some sort of bargain with the Soviets to buy a substantial number—perhaps 100—SU–7 fighter-bombers at about $1.7 million per copy. Secretary Rusk has already called in B. K. Nehru and sent Bowles in to Morarji Desai to demand an explanation. We haven’t yet got any straight answers.
If these reports are true, we will want to rethink our whole posture on aid to India—and the Congress may want to as well. But our position in the food negotiation gets less advantageous with each day we wait. Thus, I would suggest we:
- —start the food negotiation with the specific caveat that all bets are subject to change if the aircraft problem turns out as rumored;
- —hold off on the dollar side of our aid to India until we get satisfaction on the aircraft.
Start negotiations on basis Freeman/Gaud/Schultze memo (Tab A)4
Use Fowler’s formula—3 million tons in PL 480 if they agree to buy 500,000 tons commercially from us
Speak to me
- Source: Johnson Library, National Security File, Country File, India, India’s Food Problem, Vol. IV. Confidential. A handwritten “L” on the memorandum indicates it was seen by the President.↩
- October 17 memorandum from Freeman, Gaud, and Schultze to the President entitled “Food Aid for India.” (Ibid.)↩
- October 17 memorandum from Fowler to the President entitled “Food Aid for India.” (Ibid., Memos to the President, Walt Rostow, Vol. 46, Oct. 16–20, 1967)↩
- The President approved this option after adding the first four words by hand.↩