Foreign Relations of the United States, 1955–1957, South Asia, Volume VIII

179. Memorandum From the Secretary of State to the President¹

Washington, November 4, 1957.

SUBJECT

• Aid to India

I believe that it is desirable to reach an Executive Branch decision concerning aid to India in the near future because of the impact of such a decision on budgetary planning and mutual security Congressional consultations. It would be helpful if a decision could be made before November 13 when I am to submit final official budget estimates to Mr. Brundage.

I enclose a brief memorandum which has been prepared in the Department setting forth our view that substantially increased aid should be provided India during the next three years. This proposal has already been discussed informally with Secretary Anderson and the Vice President, and we will make this memorandum available to them prior to the proposed meeting on this subject.

If an Executive Branch decision to provide India with such aid could be reached in principle, we could then give more detailed consideration to the method and timing of this aid and consult with interested allied governments concerning the proposed aid.

I recommend, therefore, that you meet with the Vice President, the Secretary of the Treasury, and myself in the near future to reach an Executive Branch decision, in principle, concerning aid to India.²

JFD

[Enclosure]

SUBJECT

• India’s Economic Problem

1. India has embarked on an effective economic development program, reflected in the Second Five Year Plan. The private business sector is responding with unexpected vigor.

2. There is a gap of somewhat over $1 billion between the foreign exchange required to complete even a reduced Second Five Year Plan and the foreign exchange which will probably be available to India during the next three years from all other sources, including foreign exchange drawdowns, the World Bank, other developed countries, private investors, and PL 480. Further study of the Indian economic situation is unlikely to alter this basic conclusion, which has been reached independently by the United States Embassy in New Delhi, the World Bank representative in India, and the Department of State. If anything, this estimate of the gap is believed by these sources to be overly conservative.

3. A National Intelligence Estimate of October 8³ states: “Failure of the (Second Five Year) Plan would hasten the disintegration of the Congress Party and threaten the continuance of democratic government. There is now no other coherent opposition force except the Communists, and they would stand to make important political gains from the collapse of the Congress Party. Success with the Plan would probably permit the Congress Party to retain power in the 1962 elections and would provide the kind of environment in which a moderate conservative party could emerge when and if the present Congress Party breaks up.”

4. This estimate is emphatically endorsed by the Department of State and by the United States Embassy in New Delhi. In the last elections, the Communists came to power in the economically depressed Indian state of Kerala. It is feared that if the second Five Year Plan fails they may extend their power to the more populous and strategically situated province of Bengal. This could trigger off a chain reaction which would lead to growing extremism and separatism in other parts of the country. The chances of chaos and a Communist advent to power in the sub-continent would be vastly increased. Loss of this area to Communist control would undermine the West’s position throughout free Asia.

5. This is the risk that the United States would run in not extending adequate assistance to India. For if the current gap cannot be covered from outside sources, the Government of India will have to reduce its imports to such an austerity level that the momentum for economic development will be lost and the second Five Year Plan will fall considerably short of its goals.

6. These considerations led the National Security Council to decide in January that it was in the United States interest that India be able substantially to fulfill the second Five Year Plan, and that the United States be prepared to extend substantial assistance to this end.⁴

7. If this policy is to be carried out, substantially increased United States aid will be required. That aid must be adequate to meet our objectives, if it is not to be wasted. To increase our aid to India somewhat, but not enough to meet the basic need, would be to choose the worst of the several alternatives confronting us.

8. It is concluded that it would be in the United States interest to provide India with somewhere around $250 million annually in assistance over the period of the second Five Year Plan, i.e., the next three fiscal years, over and above the approximate $100 million annually which can probably be secured from the Development Loan Fund. There are various alternative means of providing this additional $250 million annually, each of which would have the same effect on the FY 1959 budget and all of which would require approval by this or the next session of the Congress. A choice between these different methods need not, therefore, precede a decision in principle concerning increased aid to India. This choice can be made, on the basis of more detailed consideration of the alternatives, once that decision has been reached.

9. Once a decision in principle has been reached, it will also be desirable to undertake careful discussions with the governments of Pakistan, Turkey, and Iran. If necessary, of course, our decision could be reviewed in the light of those discussions.

1. Source: Eisenhower Library, Whitman Files, Dulles–Herter Series. Confidential. The source text bears the notation “OK” followed by the President’s initials.
2. See Document 183.
3. NIE 51–57, not printed. (Department of State, INR–NIE Files)
4. See Document 5.