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

184. Memorandum of a Conversation, Department of State, Washington, December 24, 1957¹

Washington, December 24, 1957

SUBJECT

• Aid to India

PARTICIPANTS

• Mr. C. Douglas Dillon, Deputy Under Secretary for Economic Affairs
• Mr. G.L. Mehta, Ambassador of India
• Mr. Frederic P. Bartlett, SOA

The meeting was arranged at the request of the Indian Ambassador who had only returned to Washington on December 19. The Ambassador opened the conversation by inquiring about recent developments in connection with United States economic assistance to India.

Mr. Dillon explained that the Executive Branch was continuing to consider the general problem and that the Export-Import Bank was making a particularly intensive study of it. Mr. Dillon had seen Mr. Waugh yesterday. The latter had told Mr. Dillon that he hoped to be in a position to talk with the Indian representatives about mid-January. Mr. Dillon understood that the Government of India had a group of experts who might be available to discuss the matter in Washington and believed that the Executive Branch might be ready to receive them about January 13. The discussions would involve developing a coordinated approach to India’s needs not only with the Export-Import Bank and the Development Loan Fund, but also with the IBRD.

Ambassador Mehta then outlined briefly the sequence of newspaper stories that had appeared in the Indian press while he was in that country, concluding that there was real concern in his country over the prospects of assistance from the United States and that he hoped we would be able to say something officially and publicly in the near future. Mr. Dillon replied that we might perhaps be able to say something to Prime Minister Nehru prior to the arrival of the Indian experts, but that this would require careful preparation, particularly in view of the fact that the Export-Import Bank, an independent agency of the United States Government, was of course involved.

Ambassador Mehta asked whether thought had been given to seeking a special appropriation from the Congress. In reply Mr. Dillon explained that certain Congressional leaders had been consulted and that, although there were differences of opinion among them, on balance the Executive Branch had decided that it might be best to attempt to cover India’s needs for this year from existing resources. This did not mean, Mr. Dillon continued, that we could not go to Congress next year. For several internal reasons it was believed that the general atmosphere might be better for Congressional consideration next year. Ambassador Mehta stated that he understood that every Government must, of course, consider its own domestic political situation, pointing out that in India certain political groups in opposition to the Congress Party were criticizing the Indian Finance Minister for having come back from Washington “empty-handed”. This group, which included the Indian communists, would be only too happy to have American aid to India not materialize.²

After again assuring Ambassador Mehta that we would consider trying to get a message to Mr. Nehru prior to the arrival of the Indian experts, Mr. Dillon stressed that it would be most important for the Indians to come prepared to discuss the commodities which India might be able to buy in the United States during the next fifteen months or so. He noted that this might require some changes in timing of contemplated future purchases in order to utilize all the funds within this period of time. Whether the Export-Import Bank’s contemplated assistance could be termed a “line of credit” was to some extent a question of wording. The Export-Import Bank, of course, was not anxious to set a precedent which could be seized upon by other countries, so that a method might have to be worked out whereby funds would be made available for lists of industries, for railroads, for highways, etc.

In reply to direct questions, Mr. Dillon explained that the Executive Branch was thinking in terms of Export-Import Bank loans of between 150 and 200 million dollars and projects under the Development Loan Fund which might total between 50 to 75 million dollars. The amount of Export-Import Bank loans, however, would depend upon whether India could suggest enough commodities to absorb the amounts contemplated. This, Mr. Dillon noted, was a question for negotiation. Mr. Dillon also confirmed that the Executive Branch would be talking to Congressmen about the conversion of India’s Wheat Loan repayments from a dollar to a local currency basis. He didn’t expect any real difficulty, however, for the Executive Branch had the authority to do this. However, this was one reason why the Executive Branch believed it might be better to postpone going to the Congress for a separate appropriation for India during this session. Any assistance under P.L. 480, Mr. Dillon concluded, would be in addition to assistance from the sources previously mentioned.

In connection with India’s foodgrain needs, the Indian Ambassador confirmed that India would receive about 7 million dollars worth of wheat from Canada under the Colombo Plan and was now negotiating with Canada for commercial purchases of 100 million dollars worth of wheat with payments deferred for five years. The Ambassador also stressed worldwide shortage of rice. He stated that in India riceless days were being instituted and that the Prime Minister was setting the example of cutting down on rice consumption by not including any rice dishes in his own menus.

Replying to a query whether he had talked with representatives of any other government regarding India’s economic needs while he was in Paris, Mr. Dillon indicated that United States representatives had discussed this question with the Germans. The Ambassador then noted that the Indians were also talking to the Japanese about it and that both India and Japan were now seriously pushing the Orissa iron ore project. He also noted that Mr. K.B. Lall, a very senior official in the Indian Ministry of Commerce, would be coming to the United States to discuss possibilities of barter arrangements under PL. 480 and of expanding tea and jute sales in the United States. Mr. Dillon said that he was extremely pleased to hear of these developments.³

1. Source: Department of State, Central Files, 791.5–MSP/12–2457. Confidential. Drafted by Bartlett.
2. Rountree told Mehta on December 30 that disagreements between the United States and India on a number of questions complicated the problem of a request to Congress to enact special aid legislation for India. (Memorandum of conversation by Smith; ibid., 601.9111/12–3057)
3. Mehta told Acting Secretary Herter on December 30 that India was at a crossroad. Should the Indian Government not be able to demonstrate to the Indian people over the next two years that it could make the second Five-Year Plan succeed then the danger loomed of a switch away from the democratic approach to both government and economic development. (Memorandum of conversation by Bartlett; ibid., Secretary’s Memoranda of Conversation: Lot 64 D 199)