Foreign Relations of the United States, 1958–1960, South and Southeast Asia, Volume XV

270. Memorandum of a Conversation, Department of State, Washington, November 9, 1960¹

Washington, November 9, 1960

SUBJECT

• Aid to India

PARTICIPANTS

• Mr. B. K. Nehru, Commissioner General for Economic Affairs, India
• The Under Secretary
• ED—Mr. Sidney Schmukler
• SOA—J. Wesley Adams

Following a brief exchange of courtesies Mr. Nehru stated that the principal purpose of his visit was to urge the early approval of Indian loan applications currently pending before the Development Loan Fund. Mr. Nehru said he hoped that he had understood Mr. Dillon correctly on a previous occasion to indicate an expectation that India would obtain something between 25 and 40 per cent of DLF money. DLF approvals of Indian applications to date, he said, had totalled somewhat less than these figures. Mr. Dillon replied that this, in fact, had been the intention, for the reason that India appeared further along in its development and perhaps better able to use the money than some other countries and, also, on a population basis, this seemed to be about a fair distribution of DLF money. Mr. Dillon recalled, however, that his earlier remarks had been made with one caveat, namely, that the approval of Indian loans in this proportion would be subject to unforeseen heavy demands on the DLF resources.

The DLF appropriations, Mr. Dillon explained, had not been as large as the Administration had hoped for, and with reduced funds a few large projects had somewhat disrupted planned programming. Also, the development program recently advanced for Latin America had thrown an unexpectedly heavy demand on the DLF resources since there had yet been no appropriation to finance the Latin American program. The result was that the DLF now had on hand more than $100 million in prepared loans to Latin America. Mr. Nehru said that he had guessed that this was about the situation, and he appreciated the difficulties; he wished, however, to stress the urgency of the Indian needs.

Mr. Dillon went on to explain that Congress had previously limited the DLF funds on the grounds that there was then no need for more and that supplemental requests could later be submitted, if necessary. The Administration, he said, now contemplated requesting a supplemental appropriation for this fiscal year. He did not know exactly how much would be requested, but thought it would probably exceed the sum of $150 million, the amount by which the Administration’s request for FY 1961 had been reduced. Should such a supplemental be approved, the Indian requests, he said, would be given early consideration. Mr. Dillon also remarked that Mr. Hart Perry, of the DLF, had correctly represented to representatives of the Indian Embassy the current position of pending demands against available funds. It was possible, however, that not all of the loan applications from other countries, which the DLF contemplated approving, would in fact be approved. In that event, also, there might be some extra money for the approval of Indian loans.

Mr. Dillon also commented that the rapid use now being made of the DLF appropriations provided justification for a request of the Congress for larger appropriations in future years. While he could not predict what the next Administration might do, he felt that the DLF type of lending was widely preferred in the Congress to some other types of assistance. It was thus reasonable to suppose that the next Administration would favor an expansion of DLF resources.

Mr. Nehru handed Mr. Dillon a table setting forth the volume of loans for India approved thus far by the DLF.² Mr. Dillon said that these figures corresponded closely with ours, and asked Mr. Nehru if his figures on pending Indian loan applications compared with our figure of about $100 million. Commenting that the Indian figure was much higher than this, Mr. Nehru handed Mr. Dillon a list of Indian projects for which United States aid was being sought. Mr. Dillon noted that the list included a number of Export-Import Bank applications. He asked Mr. Nehru if the Indians attached a priority to any of the current applications before the DLF. It would be helpful to the DLF to have such a priority list, he said, in the event some money became available out of existing funds. Mr. Nehru replied that he was not aware that such priority had been assigned, but said he would see if one could be established.

Relationship between Export-Import Bank and DLF Financing

Mr. Nehru said that it would help his government if there could be some clarification of the respective fields reserved to the Export-Import Bank and the DLF in loan operations. The fact of an EXIM priority in project financing, he said, introduced a difficulty for the GOI. The GOI, he remarked, was sometimes unable to determine which institution it should approach first on loan requests. Mr. Dillon said that this was a problem on which efforts were being made to establish a consistent pattern. The Trombay fertilizer case, he added, was a reflection of these difficulties and of efforts to resolve them.

As between the EXIM Bank and the DLF, Mr. Nehru remarked, the GOI prefers the latter since every loan which it obtains from the EXIM Bank reduces by that amount the GOI’s ability to obtain dollar financing from other sources such as the World Bank. He also observed, with respect to the repayment period offered by the ExIm Bank, that he had just succeeded in getting the Germans to agree to extending a 20-year credit and the British a 25-year credit, with appropriate grace periods. Mr. Dillon thought that this was an excellent development, which should be brought to the attention of the EXIM Bank.

PL 480 Cotton

Referring to his government’s recent request for 600,000 bales of PL 480 cotton, Mr. Nehru sought Mr. Dillon’s personal support for its approval. Cotton prices in India, he said, had been going up, and the stock situation was poor. He understood that the U.S. Government was not favorably disposed toward the application in the belief that the situation was not urgent and that approval could await further developments. Mr. Adams explained that there appeared to be some question as to whether the GOI had yet imported all of its usual marketings for this fiscal year, and that a similar question arose with regard to cotton availabilities under the last PL 480 Agreement. Mr. Nehru remarked that imports on both accounts had been or were being made. Mr. Adams said there was the further consideration whether approval of this additional amount for this year might not bring protests from the East African exporting states. Mr. Nehru said there was no question of this since the Indians were acquiring their full quota of usual marketings. Mr. Dillon observed that the situation seemed to reduce itself to a question of fact, and said we would ask Ambassador Bunker for his comments.

Sugar Quotas for India

Mr. Nehru said he also wished the State Department’s support for his government’s request for a U.S. sugar quota of 500,000 tons to provide a market for India’s expanding exports. Mr. Dillon explained the workings of the quota system under the Sugar Act³ and said that, while no assurances could be given at this point, it might be possible for India to obtain a small quota should the Act be provisionally extended beyond its current expiration date next March 31. As for long-term possibilities, Mr. Dillon said that it was impossible at this time to predict what the Congress might do in the way of future sugar legislation and even whether it might treat the problem through quotas. Mr. Dillon suggested that the only thing to be done for the moment was for the GOI to present its case formally to the State Department, which would give it full consideration in any recommendations it might make to the Congress. He added that sugar was one field in which the Congress was frequently not guided by Executive recommendations.⁴

1. Source: Department of State, Secretary’s Memoranda of Conversation: Lot 64 D 199. Limited Official Use. Drafted by Adams on November 10.
2. Not printed.
3. Reference is to the Sugar Act of 1948, Public Law 388, approved on August 8, 1947. (61 Stat. 922)
4. On December 1, the Export-Import Bank authorized a $50 million credit to the Government of India for the purchase of capital equipment imports from the United States. (Telegram 1425 to New Delhi, December 2; Department of State, Central Files, 891.10/12–160)