CABLEGRAM FROM EMBASSY IN WASHINGTON TO DEPARTMENT OF EXTERNAL AFFAIRS

Washington, 6 March 1951

1. RESTRICTED

In the course of general discussion on Economic Aid for South and South East Asia, Malenbaum,¹ Chief of the Investment and Economic Development Staff informally asked how we would feel if the United States were to consider any gift of food it may make to India in the next few months as being in part a contribution to the Colombo Plan. He Indicated that, while the present food plans were based entirely on emergency considerations, the Department has reduced to some extent (i.e., much less than the value of food) its preliminary estimate of a reasonable aid programme for Indian development in the financial year ending 30th June, 1952.

He also observed that if India had a dollar food deficit in subsequent years, development aid could logically be given in the form of food. Should Economic Aid be provided by way of food grains the corresponding amount of foreign exchange would be released and might be used for purchase of developmental equipment and supplies. Moreover sale of food grains in India would provide funds which might be used for financing internal costs of development and thereby relieve inflationary pressures. This would be the case whether counterpart principle adopted or not. Adoption of counterpart principle would have the advantage of giving the supplying country some say in the method of applying the proceeds of sale.

Malenbaum indicated that they gathered from preliminary soundings that the Indians might be agreeable. On the basis of departmental notes on London meeting of Consultative Committee it would appear that such a plan might not be inconsistent with Australian thinking.

We would appreciate your earliest advice as to what you think of the above American suggestion and also some indication whether Australia or other countries have considered the adoption of a similar method of extending aid to India.

[NAA: A462, 587/4]