How to Rescue India's Economy

...This trend in Indian thought can be encouraged if the U.S...

...The international agencies, which have been quite generous with the Indians, do not see their way clear to increase their help spectacularly...

...go to the aid of the Indian economy by advancing capital which can overcome the present foreign-exchange crisis...

...If the present import austerity policy is continued and tightened, it will mean that the private sector of the economy will bear the brunt of the sacrifice necessary to go ahead with the major portions of the plan...

...Birla, and the group of Indian manufacturers with him, hope to line up American investors willing to sell Indian businessmen machinery and capital equipment on easy credit terms...

...A program of aid to India must include the following points: • A major U.S...

...No economist—nor even a psychologist—can predict the precise effect of a further lowering of sterling reserves...

...The crisis can be stated fairly simply: India's Second Five Year Plan, begun so enthusiastically last year, has broken down...

...and his friends are willing to give American investors equity participation in Indian companies...

...Furthermore, the rigid control measures that New Delhi would have to adopt could have equally disastrous effects...

...One cannot help but compare his attitude with the similar disregard for the social and political conditions of the Indian economy by Professor P. C. Mahalanobis, the original drafter of the plan...

...tax laws might be amended to provide a moratorium on taxes remitted from overseas profits in areas designated as crucial by the President—perhaps with a proviso that 50 per cent be reinvested in the countries concerned...

...However, whether he can convince the notorious Calcutta speculators of this next year, when the sterling balances fall even further, is another question...

...It might still be possible, for example, for a group of Indian, British and U.S...

...loan...

...educational effort to aid the Indians toward sound planning...

...Krishnamachari says that what he faces is a foreign-exchange deficit of about $1.5 billion over the next two-and-a-half years...

...But past experience indicates that the Indian speculator is no more patriotic than speculators in the West, that such a decline in confidence could snowball and become a national catastrophe...

...But if it did make such a request, all the weight the President could bring to bear would be needed to swing it...

...The World Bank has a program, generally conceded to total 3700 million, to aid the Indian railroads...

...But he minimizes them, insisting that they may be inevitable to get India through this period of accumulating capital for further expansion...

...This is the most effective means the West has for transferring technology, capital and administrative abilities to underdeveloped countries...

...Krishnamachari wants loans —from international agencies like the World Bank and the International Monetary Fund in Washington and from U.S...

...The U.S...

...investors to take over one of the steel projects...

...That would be a reversal of traditional Indian business policy, which has long refused combinations with foreign businessmen...

...Such credits could be used to develop Indian raw materials resources—some of which, iron ore for instance, could be exported to Japan...

...American investment overseas gives India a low priority for many reasons...

...This crisis has dealt a serious blow to totalitarian planning concepts which stress heavy industry at the expense of food, housing, education and consumer goods...

...Government agencies—to tide his country over what he believes will be a short-term financial crisis...

...A major U.S...

...Since the Indian distribution system is primitive by European standards, price and rationing controls are even more difficult to impose—except by the most totalitarian methods...

...Many of the heaviest foreign-exchange payments lie in the immediate future, i.e., steel-mill equipment and hydroelectric installations...

...Birla, meanwhile, won't find much help among U.S...

...The Administration's performance in recent months does not offer great hope for what, in terms of the other problems facing it, would be a low-priority project...

...and Europe) in order to combat Soviet influences among Indian youth...

...policy which has been so dramatically posed by the Soviet sputnik threatens to obscure other pressing re-evaluations which American policy-makers must make...

...Failure to do so, though, can only mean that New Delhi will have to choose between carrying out the major projects in the plan and abandoning them —with the resulting political repercussions...

...The Eisenhower Administration has not yet refused to go to Congress with a request for a long-term $300-500-million loan...

...Indian sources believe that, despite heavy import cuts, the drain on sterling is likely to continue until the middle of 1958...

...Student grants and fellowships should be increased wholesale in the U.S...

...Krishnamachari admits that this program now compels him to seek foreign aid to carry the Indian economy through its ordinary foreign-exchange difficulties...

...These are debts owed New Delhi by London for services and goods rendered by India to the Allied cause during World War II...

...But the alternative is a major economic bust in India—one that might easily be the beginning of a road to inflation, panic and chaos...

...To do this may only help the Indians into a new round of commitments which will again overtax their administration and reserves...

...These sterling balances not only represent India's reserves available for industrialization: Together with India's $247 million in gold, they represent the currency backing for the rupee...

...All this places a great decision before policy-makers: Shall the U.S...

...In a letter to the Congress party earlier this month, Prime Minister Nehru redefined his version of socialism in humanitarian terms...

...The problem today is primarily financial and economic, but its outcome is so crucial that it must produce a fundamental decision on India's future...

...None of these suggestions is without complications and difficulties, and all demand a great deal of perseverance...

...Shortages will develop...

...Peace with Pakistan would permit New Delhi to trim its vast expenditures for conventional armaments, so pitifully small in the face of hydrogen bombs and ICBMs...

...At the end of September, only $700 million in sterling remained in India's London account...

...Raw materials for industry, as well as any machinery replacements and plant expansion in the private sector, will have to be sacrificed...

...A loan to the British equipment manufacturers outfitting the British-built steel mill might be underwritten by American steel manufacturers in exchange for equity in the Indian Government company operating the plant...

...Its own contradictions, coupled with adverse world economic developments, have placed the Indian economy in jeopardy...

...Until now, the great expansion of the Indian economy—in the private as well as the public sector—has been financed largely from the so-called sterling balances...

...private investors...

...on a government-to-government basis without an act of Congress...

...Krishnamachari apparently aims to compound the mistakes of the earlier planners...

...effort to settle Pakistani-Indian disputes...

...We must come to the Indians' aid, and we must do so in a manner that will not only help them through the present crisis but will steer them back onto the path of orthodox economic development which their own experience and inclinations dictate...

...Faced with these prospects, what will New Delhi do...

...He also insists that the rupee, because of India's infant industrialization, represents a purchasing power independent of sterling, that it can stand on its own feet...

...Through it, India undertook a program which concentrated large amounts of foreign exchange on heavy industry, which neglected agriculture (a heavy drain on foreign exchange has come from food-grain imports not charted in the plan), and which failed to recognize the energy of private enterprise...

...Krishnamachari acknowledges that economic disruptions are possible...

...A major effort to reinforce American private investment in India...

...it has been draining away at the rate of $40 million a week...

...But that is a long-term program and would not help the Indians now...

...should propose a 25-year acceptance of the present truce lines in Kashmir...

...has no choice...

...To my mind, the U.S...

...During the past few weeks, Indian spokesmen—Finance Minister T. T. Krishnamachari and industrialist G. D. Birla—have been in the U.S...

...If Administration spokesmen lay the Indian situation on the line to the U.S...

...is ready to supply economic experts (as it was not when this plan was drafted in 1952-55...

...This, in turn, will lead to more speculation...

...This hard core includes the three Government-owned steel mills (one Russian-, one German-, one British-built), the multipurpose river projects nearing completion, expansion of ports and railroads, and a program to boost coal production...

...A U.S...

...One of these is the future of our relations with India...

...The foreign-exchange crisis has also hit Indian students planning to study abroad...

...can also help Japan in expanding a program—apparently discussed last week in Tokyo by Prime Ministers Nehru and Kishi—of supplying credits for capital goods to India...

...Furthermore, Prime Minister Jawaharlal Nehru's vague "socialistic pattern of society" scares off other investors—even though it can be easily proved that the private sector of the Indian economy has, in fact, encountered only a minimum of difficulty with New Delhi in pursuing operations normal to any other capitalist economy...

...The U.S...

...Birla also suggests that he Sol Sanders is an Asian-affairs specialist at Business Week magazine...

...Whatever we may think, the present Indian atmosphere favors putting the projects through, no matter what the expense to the country's economic and social fabric...

...Ironically, its heavy imports for capital equipment are an important cause of the foreign-exchange crisis...

...He has remapped the plan and announced that he plans to save the so-called "hard core...

...But the end is in sight here...

...While the Government sector has faltered, the private sector has experienced an enormous boom...

...Such Government "subsidies" to overseas development might push American capital into the underdeveloped countries, particularly to India, where vast investment possibilities are available under better conditions...

...It will also be necessary to run some Indian industries at less than capacity, increasing the already staggering burden of unemployment...

...Congress and public opinion, such a loan is possible...

...New Delhi now faces a period of great stress...

...India cannot hope to get a substantial increase in aid from the U.S...

...He does have the argument that since the projects have already been initiated, and commitments made for them, he cannot abandon them...

...The simple fact is that, without it, India moves toward chaos that must, almost inevitably in Asia, end in Communism...

...West Germany, which has profited to the tune of some $300 million in Indian purchases in the past 18 months, should be asked to lend a helping hand...

...The chances of either mission making any spectacular success are dim...

...The most obvious is the un-familiarity of American businessmen with the Indian market and its possibilities...

...The Finance Minister says that he must do this, and that if he has at least the steel mills operating by 1960 he will be over the hump...

...Krishnamachari and some of his advisers argue that India does not need—and cannot afford—to have such huge reserves as New Delhi has maintained since the war...

...A program of encouraging other democratic powers to aid India...

...seeking aid...