How Much Aid for India?
RAMAN, N. PATTABHI
A QUESTION FOR THE WEST How Much Aid for India? By N. Pattabhi Raman India, said Prime Minister Jawaharlal Nehru recently, tried its utmost to remain free from war so that it could devote...
...Aid from other sources, including the Soviet bloc countries, is estimated at around $1 billion...
...But the Third Five-Year Plan, which began April 1, 1961, has had anything but a smooth start...
...is also helping defense-oriented and export-oriented projects...
...The Government has admitted only to the necessity of "rephasing" some planned programs, a project which it has already undertaken...
...This counsel has, however, been firmly rejected by the Government...
...And so the money must be found in India itself...
...If the Plan is not to be pruned now and if the Indian economy's existing industrial capacity is to be fully and efficiently utilized, the aid needs will be larger still...
...Only assistance untied to specific projects can be used to sustain "maintenance imports...
...General elections early last year apparently deflected attention away from essential economic tasks, and this helped compound difficulties in key areas of the economy...
...As this article is being written, the consortium is meeting in Paris...
...When a bandit enters your house," the Prime Minister observed in talking about the failed strategy, "you are not left with any choice but to face him and drive him out...
...As a result, even essential imports were curbed...
...A consortium of governments and institutions popularly known as the "Aid India Club"—consisting of the United States, Canada, Japan, Austria, Belgium, France, West Germany, Italy, the Netherlands, and the United Kingdom, along with the World Bank and the International Development Association—pledged aid totaling $2.4 billion for the first two years of the current Plan...
...The "Aid India Club," meeting in Washington on April 30 and May 1, reviewed the situation and came to three main conclusions: (1) India's economic development is moving in the right direction...
...soft loan of $240 million extended earlier this year as partial fulfilment of its consortium commitment is completely untied to specific projects and represents an increase in non-project assistance over that previously contemplated...
...This point has also been underscored by John P. Lewis, the Indiana University professor who recently was selected by President Kennedy to serve on the Council of Economic Advisers, in his Brookings Institute study...
...share of the consortium assistance during 1961-63 was $980 million...
...Naturally enough, all this affected the balance sheet of progress...
...By N. Pattabhi Raman India, said Prime Minister Jawaharlal Nehru recently, tried its utmost to remain free from war so that it could devote its time and resources to economic development...
...Not so the peacefor-prosperity strategy...
...2) India's people and Government are capable of handling their development programs quite efficiently...
...For its part, the Soviet Union also appears to be responding to India's new needs quickly...
...Thus, according to the Minister of Planning, Gulzarilal Nanda, steel, coal, machine tool and woolen textile industries are all being geared for increased output, while new priorities have been instituted for distribution of transport facilities and products like steel and cement...
...Yet, especially at the present stage, it seems illogical and unrealistic to say that, because the Western nations have to carry heavy defense budgets, they cannot afford to provide the requisite external finance for India's economic program...
...If the Chinese finally undermined this policy with their massive military attack last fall, it was presumably because India's strategy was proving somewhat successful: During the past decade, India made modest economic progress under a democratic system while China, resorting to stringent coercive measures, first leaped forward and then stumbled...
...Although India's non-alignment policy also got a slap in the face, it still survives...
...Unfortunately, the problem does not lend itself to quick solutions...
...that is, imports of materials and spare parts required to maintain industrial production near capacity...
...He has not only slapped on increases in direct and indirect taxes and import duties, but has also introduced a compulsory savings scheme...
...The cumulative total of American aid is estimated at some $4.8 billion—about $1.3 in grants and the balance in various types of hard, soft or local currency loans...
...The problem, therefore, is not one of diverting part of available resources to defense but rather that of enlarging these resources to cover the twin needs of defense and development...
...India has received, and has been further promised, substantial amounts of foreign aid for its development program...
...There is more to this, however, than merely building up strength and capabilities to resist aggression successfully...
...In assessing the future of the Plan, it is important to note that the burden of war will weigh most heavily on the weakest links in the chain of India's economic development...
...What is significant, too, is that this extraordinary burden has been thrust on the Indian economy at a time when it is somewhat lagging in its rate of advance...
...Moreover, production of foodgrains, which declined in 1961-62, increased only marginally in 1962-63...
...skilled manpower and capital resources...
...This means that the deployment of scarce resources and skills to the tasks of developing an adequate defense is no longer avoidable—if indeed it actually was at any time in the past...
...Despite substantial economic assistance from abroad, the exchange crisis could not be staved off...
...IN these circumstances, the deployment of scarce resources— money, materials and skilled manpower—to defense can only further sharpen what Nehru calls "the crisis of inadequate development...
...That program, after all, is basic to any positive answer India can give to Communist China...
...The Prime Minister has explained that between 80-85 per cent of the projects included in the Third Plan are essential for defense, that the nation's military strength cannot be viewed apart from its economic strength...
...These twin consequences of the Sino-Indian border confrontation have been made emphatically clear in the Government's budget for fiscal 1963-64, which was presented in the Indian Parliament earlier this year by Finance Minister Morarji Desai...
...It has offered economic aid to cover 15 projects in the Third Plan which have so far not been covered as regards their foreign exchange requirements...
...Many plants had to trim production, and this affected growth in overall industrial output, which fell short of projections...
...The immensity of this problem has led some sections of Indian opinion, particularly the business community, to suggest that the Third Plan be pruned and that financial outlay on development projects be reduced...
...It is definitely dead, and there is no prospect of Nehru's Government trying to appease China in the hope of buying more time...
...Equally unavoidable is the impact of this defense build-up on the nation's economy...
...There is little doubt in New Delhi—and least of all in Parliament House—that India must now build a costly system of defense and border patrol, for it is clear that the problem of a hostile Chinese dragon poised menacingly on the southern slopes of the Himalayas will continue for many years to come, cease-fire or no...
...Underlining this predicament, Braj Kumar Nehru, India's Ambassador to the United States, recently told me that it is as important to prevent an economic collapse within India as it is to defeat the enemy from without...
...When it materializes, the additional assistance offered, said to be about $113 million, would bring total Soviet economic aid to India to some $828 million...
...The budget provides for a steep increase in defense expenditures: from the initial provision of $790 million in the 1962-63 budget, and the actual expenditure of an estimated $1 billion, to more than $1.8 billion in 1963-64...
...Speaking in India, Finance Minister Desai pursued the same line of thought when he observed that any cut in the size of the Third Plan would be "suicidal...
...In fact, the indications are that not only more aid will be needed than was originally envisaged, but more of the nonproject variety...
...While the Desai budget proposes to tackle the problem of domestic finance, it also emphasizes the point that the pivotal scarcity is in foreign exchange...
...Despite some noteworthy progress made during the last decade in developing professional and technical skills, the defense preparations are already straining the supply of men and women trained in advanced techniques of production...
...Dollar for dollar," to borrow a phrase from the Clay Report, economic assistance given to India is likely to be as crucial a blow for freedom as investment in military programs anywhere in the world today...
...To cover this increase as well as the planned expenditures on development, Desai has raised the tax burden across the board to an unprecedented degree...
...This, plus domestic political and economic considerations, they point out, would make it difficult to continue to fulfill India's needs completely...
...Friendly foreign nations like the United States and the United Kingdom have come forward, and have already begun to provide help in defending India, but Nehru and his colleagues have made it clear (as witness the budget for 196364) that it is unthinkable to let others fight India's war...
...The First and the Second Five-Year Plans produced results which, on the whole, were satisfactory and in some ways quite remarkable...
...The extent to which the severity of India's foreign exchange problem is mitigated, and its adverse impact on overall economic growth is reduced, depends mainly on the amount and nature of assistance made available for the balance of the Third Plan...
...N. Pattabhi Raman reports on international economic affairs as U. S. and U. N. correspondent of the Express Newspapers of India...
...Armament factories have been put on a round-the-clock basis...
...Before the Chinese made it impossible for India to postpone building a truly effective Himalayan wall of defense to the north, it had been estimated that the implementation of the Third Plan would require some $5.5 billion in external assistance, even if exports increased according to expectations...
...Merely to meet immediate needs, New Delhi has initiated a crash program for training 60,00 skilled workers while also organizing a National Labor Corps for providing mobile units of skilled workers to carry out essential defense production jobs...
...For the abandonment or indefinite postponement of most Third Plan projects could conceivably undermine the already inadequate pace of economic development and lead to grave domestic problems...
...But, they add, many of the member countries carry extraordinary defense expenditures...
...Quiet Crisis in India...
...The United States is the major source of India's economic assistance...
...two recent American loans totaling $29.4 million, for example, are designed to assist two Indian firms in expanding their production of trucks, which under the present circumstances are more urgently required than ever before...
...This is what Desai has set out to tackle in his recent budget proposals...
...The problem of finance is even more staggering, both in its national and international aspects, for the bulk of the burden of defense has to be borne by the Indian people themselves...
...and (3) India's request for consortium assistance totaling $1.25 billion (including some $550 million in non-project loans) for the third year of the Third Plan is entirely reasonable...
...dollars and pounds sterling and marks and francs and liras are required to pay for the machines and materials that go into the industrialization process...
...The Economic Survey accompanying the budget proposals flatly states that there is no further scope for withdrawal from exchange reserves, that imports cannot be further restricted without constricting industrial production, and that the actual availability of more assistance untied to specific projects has become a major factor in preserving India's external viability...
...Whatever its final decision, it is relevant to recall an argument that delegates of some of the member countries have advanced in conversations about this year's aid...
...Crises developed in transportation, coal and power...
...and, as the need for development imports increased and exports remained virtually stationary, the nation's foreign exchange reserves dwindled to dangerously low levels...
...This strategy of "buying time" for development greatly influenced New Delhi's policy of trying to keep China happy over the years although many events made Peking's intentions in the Himalayan region suspect...
...The United States Government has shown ample awareness of India's efforts to sustain economic development and at the same time repel Chinese aggression...
...The U.S...
...The entire amount of aid indicated by India as essential for the third year of the Plan, they observe, should be provided...
...But at present most aid available to India is tied to specific projects...
...The economic danger, he said, cannot be ignored without peril to the future of democracy in India and the underdeveloped world in general...
...The U.S...
...The problem deserves a little closer examination...
...Evidently, he is acting on the premise that, given the emergency and the nation's determination to preserve its independence and integrity from external threats, it should be possible to raise the tax burden to levels which would strain the structure of democracy in peace time...
...The U.S...
...And some projects—doubtless those included in the fifth of the Plan not immediately essential for defense —have been deferred...
Vol. 46 • June 1963 • No. 12
