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Embarrassment of riches

India desperately needed foreign aid to finance the Second and Third Plans,but was reluctant to ask the US.

Written by Inder Malhotra |
April 11, 2011 12:09:22 am

Towards the end of 1957,the much-hyped Second Five Year Plan had been cut drastically,(‘A Plan With Empty Pockets’,IE,March 14). Yet,there were fears that India might not be able to muster enough foreign exchange to sustain even the truncated plan. On the other hand,the planners — Jawaharlal Nehru,above all — were insistent that not only must the “hard core” of the Second Plan “go through” but also there must not be any diminution of the ambitious goals of the Third Plan,then in the making,and due to start in April 1961. “Under all circumstances,” said Nehru,“we must leap across the mighty moat of poverty.” Needless to add that he also underscored that social justice must be an integral part of economic development.

From this determination flowed an agonising dilemma. There was no way the stupendous amount of foreign exchange needed to salvage the curtailed Second Plan and finance the Third could be raised through the traditional methods of export earnings and commercial borrowings. The third device of rescheduling the repayments of debts owed to foreign countries was not available for the simple reason that this country hardly had any foreign debt at that time. The only viable option,therefore,was to seek and secure foreign aid,and this was “anathema” to the prime minister who firmly believed that donor countries,particularly the United States,would demand “a price”. When told that West European countries had received massive Marshall aid from the US without compromising their independence,he countered: “Aren’t they having to follow America’s foreign policy?”

Ultimately,however,he swallowed the bitter pill but only after long and painful consultations and arguments. Two fortuitous circumstances greatly smoothened the process. The first was that the man whose job it was to balance the country’s foreign exchange needs and available resources was B.K. Nehru,then economic affairs secretary in the finance ministry,who had earlier spent several years in Washington as minister (economic) in the Indian embassy and enjoyed the friendship of the honchos of the World Bank and the International Monetary Fund.

Far more importantly,he was the prime minister’s cousin,20 years younger,and could speak to him more freely than most other advisers. For instance,on one occasion when the PM asked B.K.,“do you think we would get the aid we need,” he replied: “I think so,sir,but I hope you would stop abusing the Americans.”

“I never abuse the Americans,” retorted the PM. B.K.: “I know,sir,but your agents do.” The prime minister understood the allusion to Krishna Menon but made no comment. Menon,of course,became even more hostile to B.K. than before.

The second helpful factor was that Nehru had developed a liking for President Eisenhower since 1956 when the two had met in Washington and agreed over the Suez War. The bond was strengthened after Ike’s visit to India three years later. Even so,the prime minister thought it necessary to declare in public and emphasise in private that he would “never alter his foreign policy even for the sake of foreign aid”.

In response to this,B.K. Nehru proposed a strategy that the prime minister approved. It was that India would not approach any country directly for the assistance it needed but would do so through the World Bank,that would use its influence to drum it up. Satisfied with this,Nehru asked B.K. to go and consult “Pantji”,Govind Ballabh Pant,Union home minister and the number two in the Nehru cabinet after Maulana Azad’s death. After discussing the issue with his usual erudition,Pant agreed that the only alternative to seeking foreign aid was to give up maintenance or development or both.

Fortified with this,Nehru called a cabinet meeting at which he asked Pant to speak first. According to B.K.’s account of this meeting,confirmed by at least two other sources,the subsequent proceedings were hilarious. Pant argued lucidly that the available foreign exchange would mean forgoing the maintenance of the economy or its development. But he didn’t say a word about the need for foreign aid. Every other minister was asked to give his views. Not knowing what the prime minister’s preference was,“each one of them waffled”. At the end of it,the PM said: “Bijju (B.K.’s pet name),you’ve got your instructions,proceed.”

“Sorry,sir. I have got no instructions,” was his reply. “Your plane is at five,” said the PM,“come and see me at three.” At this meeting he told B.K. that he was India’s commissioner-general in Washington whose unstated task was to secure maximum foreign aid in minimum time. B.K. said he wanted to take with him two of the “most brilliant men in the finance ministry,I. G. Patel and C. S. Krishnamoorthy,” and this was agreed to.

To cut a very long story short,the World Bank president,Eugene Black,was most helpful. He gave B.K. sound advice on what to do and,for his part,promised to “persuade,cajole,pressure and arm-twist” whoever necessary to get India what it needed. Black also sent to India a delegation of “three wise men”,headed by Sir Oliver Frank of England,which gave this country a fulsome report and backed to the hilt its claim to foreign aid.

The biggest encouraging factor,however,was John F. Kennedy’s election as president of the US. His commitment to India was strong. As a junior and relatively unknown senator much earlier,he had joined Senator Sherman Cooper to move a resolution in the Senate recommending financial assistance to India,but it had fallen. Now things had changed. Early in 1961,the World Bank-sponsored group of countries,nicknamed Aid-India Club,vowed to provide India with a billion dollars a year for the Third Plan period. The money needed for the Second Plan had been given much earlier. B.K. informed his government that his work in Washington was finished,and privately asked for “another job”. As always,John Kenneth Galbraith’s pithy comment was eminently quotable: “Since Genghis Khan,no one man has carried so much gold from one part of the world to the other.”

The writer is a Delhi-based political commentator

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