NATIONAL INTELLIGENCE · 2019-09-06 · varying approaches aimed at maintaining Indian preeminence...

NATIONAL INTELLIGENCEANALYTICAL MEMORANDUM

INDIA'S LIKELY INTERNATIONALROLE AND ITS IMPLICATIONSFOR THE UNITED STATES

DECLASSIFIED A/ISS/IPS, Department of State E.O. 12958, as amended October 11, 2007

CONТENТS

PagePRECIS

DISCUSSION 4

INTRODUCTION 4

I.MRS. GANDHI AND DOMESTIC СОNIDЕRATION 5

II. sоuтн ASIA 6

III. THE INDIAN OCEAN AND THE PERSIAN GULF 7

IV. INDIA'S RELAТIONS WITH THE USSR AND CHINA 9

V. UNITED STATES-INDIAN RELATIONS: PRINCIPAL ISSUES 10

Financial Issues 11United States Rupee Holdings 11Aid and Aid Repayments 12

The Issue of Emergency Food Needs 13The Issue of Indian Nuclear Weapons 13India and South Asia 14

VI. INDIA AND THE UNITED STATES: PROSPECТS 14

ANNEX


INDIA'S LIKELY INTERNATIONAL

ROLE AND ITS IMPLICATIONSFOR ТНЕ UNITED STATES

PRECISIndia perceives itself as a major international power, but is viewed

by many as a hollow and feeble state. It must give weight to its needs,as well as to its aspirations, in making its principal policy decisions.

— India seeks security against the contingency of an attack byPakistan, China, or both. It is concerned that these states mightbe aided by outside powers, particularly the US and Iran. Indiawill ensure that it retains the strongest armed forces in thesubcontinent, through domestic arms production and acquisi-tion of outside—principally Soviet—sophisticated equipment.It has developed close ties with the USSR, and receivesstrong political support from it against China. India couldalso explode a nuclear device if it so chose.

— India seeks considerable material (principally financial) as-sistance to foster economic development. On occasion it needsadditional large amounts of food aid to prevent famine. Indialooks to the major non-communist countries for economic aid,and especially to the US for food.


India regards its political/military ties with the USSR as at leastas important as economic ties with the Western nations. In any caseit will seek to guard its independence of action with respect to anygreat power.

Despite a rising crescendo of domestic troubles, Mrs. Gandhi re-mains in firm control of the government and will continue to directforeign policy, though it will often (if not most of the time) be a sec-ondary consideration for her. She and any likely successor will pursuenationalist India-first goals.

With South Asian and Indian Ocean states, New Delhi will pursuevarying approaches aimed at maintaining Indian preeminence in theregion:

It will not try directly to control the affairs of such small neigh-bors as Sri Lanka unless it comes to believe that its securityinterests would require active intervention.

— India's relations with Pakistan will remain taut and subjectto further strains for an extended period, but major hostilitiesnow seem unlikely.

— The danger of Indian rivalry with Iran (though probably notof open confrontation) will increase. Mutual suspicions betweenTeheran (looking to the US, supporting Pakistan and hostileto Iraq) and New Delhi (looking to Moscow and extendingits ties with Iraq) have risen.

Sino-Indian tensions may ease, but basic disagreements will remain.

Ties between the USSR and India will remain quite close. The .twoare linked by a limited security commitment and a shared antagonismto China. But India will not become a Soviet client; nor will it permitoperational Soviet military forces to be based on Indian territory savein times of extreme national peril.

Indo-US relations are emerging from a period of strain to one ofrelative calm, but a number of specific points of contention will in-hibit close ties. This will be especially the case with respect to finan-cial matters. The US, as India's former largest aid donor and currently


as its largest creditor, will figure prominently in New Delhi's negotia-tions with the principal Western countries:

India now owes the US over $3 billion in hard currency ofwhich it is chronically short. At the same time bilateral USaid programs are declining sharply, though there is substan-tial US assistance to India through such multilateral bodiesas the World Bank. The issue of Indian debt repayment to theUS will remain outstanding and difficult.

— Among other matters which could be at issue between Indiagand the US are: US relations with Pakistan, with China, andwith Iran; the disposition of US holdings of $900 million worthof rupees generated mostly by local sales of PL-480 commod-ities; Indian efforts to procure very large amounts of US foodgrains in the event of a monsoon failure; and the possible ex-plosion of an Indian nuclear device, even as part of a peacefuluses program.

In the broadest terms, the basic interests of the US and India—e.g., area-wide stability, peace, amicable bilateral relations—are infact compatible, but the definition of these general objectives andthe means of achieving them will often be the source of friction. Rela-tions will frequently be clouded by accumulated suspicions, differingattitudes or by conflicting perceptions of each others' interests. Inshort, the areas of friction in the relationship are likely, for some timeto come, to predominate over those conducive to harmony.

1 The Director of Intelligence and Research, Department of State, believes that this para-graph overemphasizes the potential for frictions between India and the US and fails to givesufficient attention to the opportunities for cooperation. He believes, therefore, that a moreaccurate assessment would read as follows:

Relations between India and the US will often be clouded and there will be issues onwhich the interests of each will diverge. But the US and India share common interests ona wide assortment of fundamental issues and, while we will often find ourselves at odds overthe means to achieve common objectives, there will be opportunities to reach common posi-tions or at least to keep differences manageable.


DISCUSSION

INTRODUCTION

1. India's international role is an anomalousone and reflects that nation's peculiar strengthsand weaknesses. On the one hand, India is theworld's second largest country in terms ofpopulation; its armed forces are the fourthlargest. Only nine other states have a grossnational product greater. Its large and di-versified industrial plant produces commod-ities as complex as jet aircraft; it could makenuclear explosives if it chose to. India is nowthe principal military power in the IndianOcean area, adjacent to petroleum supplyroutes from the Persian Gulf to the FreeWorld. Its leaders have traditionally beenprominent among the major spokesmen of theThird World. An Asian power, it figures im-portantly in the strategic calculations of theUSSR and China. A major disruption or radi-calization of India could have unsettlingeffects far beyond its own borders or eventhe Asian continent.

2. On the other hand, India can also beviewed as a hollow and feeble state. Itshuge and rapidly growing population mostlylives in extreme poverty—now as throughoutmodern history. Its industry and its govern-

ment are often characterized by inefficiencyand ineptitude. It has been chronically de-pendent on foreign aid, not merely to gen-erate economic development but also on oc-casion to avoid mass starvation. Its locationgives it a kind of strategic isolation whichcan be argued to limit its importance to theUS. Its role in international trade is not sig-nif icant, and it exports no vital commodity likepetroleum or copper.

3. Over the years, US policy has at timestreated India as a force to be reckoned withand at others as one to be ignored. After aperiod of strain which developed during thePakistani civil war of 1971 and persisted forsome time afterward, US-Indian relations areentering a time of relative calm, with neitherclose involvement nor total alienation. Prin-cipal matters of bilateral concern will be eco-nomic—aid, debt repayments, food shipmentsand trade. Political and military issues willgenerally come in a broader multilateral con-text, e.g., Indian ties with the great powers,with the non-aligned countries, security prob-lems in the Indian Ocean and Persian Gulfarea, and relations with Pakistan and China.


4. The basic objectives of Indian foreignpolicies have long been matters of emotionaldispute to many outsiders. For years, Indianespousal of non-violence and non-alignmentbetween the contesting powers in the ColdWar were taken at face value by many out-side observers—particularly Americans andEuropeans. When it appeared to Westernersthat New Delhi was behaving differently, theIndians were accused by many of being hypo-crites. self-righteous denunciations by bothsides became frequent. The invective hasclouded India's relations with a number ofWestern countries. The Indians are in factneither more noble nor more cynical than thepeoples of most states. They will continueto advance what they believe to be theirnation's interests with a calculating and un-sentimental realism. They will also often con-tinue to demonstrate a moralistic style thatantagonizes many foreigners.

1. MRS. GANDHI AND DOMESTIC

CONSIDERATIONS

5. Prime Minister Gandhi remains in con-trol of the central government. She will facedomestic problems of so serious a naturethat foreign affairs will often ( if not most ofthe time) necessarily be a secondary con-sideration for her. Her popularity and do-mestic political strength have been erodingsince reaching a peak in 1971 and early 1972.In the short term, she must cope with quiteserious internal difficulties, including foodshortages, inflation, a conspicuous failure toshow progress in her program to "abolishpoverty," serious bickering in her own Con-gress Party, and widespread popular dissatis-faction. Disruptive political tensions have beenmanifested in major rioting, a police revolt inone state, and the collapse of several stateCongress governments.

6. But Mrs. Gandhi's administration willprobably continue to handle these problemswithout itself being seriously disrupted. While

her position is weaker than it was two yearsago, she has no serious rivals. Her control ofthe Congress Party remains effective. She re-tains a large and working Parliamentary ma-jority and is likely to keep it until the nextscheduled national elections in 1976.

7. Mrs. Gandhi tends to view with suspicionthose capitalist nations whom she thinks im-poverished and degraded such underdevel-oped colonies as India. Like many Third Worldleaders she fears that independence did notend all colonial or "neocolonial" exploitation,and is concerned that the old imperial powerscontinue both to meddle in India's politicalaffairs and to use their great economic powerto enrich themselves at her country's expense.In this context, Mrs. Gandhi is particularlywary of the US, and tends to view Sovietpositions as more congenial.

8. Though these biases do play some rolein India's decision-making it is important notto exaggerate their impact. Mrs. Gandhi's per-sonal views are important, but Indian foreignpolicy would be essentially unchanged wereanother leader of the dominant Indian Con-gress Party serving as Prime Minister. Indianleaders are strong nationalists with residualsuspicions of all foreigners. Respect for theUSSR has not eliminated suspicions of itsmotives nor prevented countless frictions inthe relationship, which has led to considerableSoviet annoyance with Indian ingratitude andpetulance. And wariness with the capitalistUS and the West has not prevented numerousamicable and cooperative relationships in mili-tary, political, and economic fields.

9. In sum, Mrs. Gandhi and any likely suc-cessors are India-firsters, generally acting onand making decisions in accord with

calculations of India's national interests. Roughly,India's foreign policy seeks military securityagainst a threat from Pakistan, China, or both;to this end, it has developed close ties withthe USSR--even at some cost to its relations


with the US and other states—and has workedfor amicable relations with most of its im-mediate neighbors. It has also developed thelargest and best-equipped armed forces inSouth Asia.

10. India's international relationships aredetermined by more than a quest for militarysecurity. It tries to expand its world influenceby supporting measures which strengthen therole of Third World countries in internationalaffairs. India also continues to seek—on ac-ceptable if not favorable terms—as muchmaterial assistance from the developed powersas it can get. In this search, the US figureslarge, and the establishment of a cordialclimate in dealing with Washington on thesematters continues to be important to mostIndian policy makers. But national securitycomes first.II

. SOUTH ASIA

11. The 1971 Indo-Pakistani war conclu-sively demonstrated Indian military superior-ity on the subcontinent, a situation whichis unlikely to change. Although India has longaspired to a position of preeminence in SouthAsia, it does not see its role as assuming directpolitical control over its independent neigh-bors. But it is far from indifferent to what goeson in these states; India has intervened activelyin their internal affairs in the past and is pre-pared to do so again to protect what it con-siders its security interests. In 1949, in orderto defend a strategic area in the Himalayas, itoccupied Sikkim. In 1950 New Delhi executeda treaty giving it complete control over thatstate's defense and foreign affairs. In the 1950sand early 1960s India did intervene in Nepal;following the 1962 war with China, New Delhiadopted its still existent policy of friendshipand non-intervention in Nepali affairs in ex-change for Kathmandu's rigid neutrality in theSino-India confrontation.

12. New Delhi's stance towards these moun-tain kingdoms serves as a rough model of itslikely policies with respect to the other statesof the subcontinent ( except, of course, Paki- stan ) . So long as New Delhi believes thatsmall neighboring countries are relativelystable, troubled by no serious internal orexternal threat, and are not pursuing hostilepolicies, then it will leave them alone. On theother hand, if it felt its security intereststhreatened, it would feel compelled to takesteps—supporting or opposing existing gov-ernments even by active military moves—torectify the situation.

13. Within this context, New Delhi's rela-tions with each of these states will vary con-siderably. The survival of Bangladesh—im-poverished, troubled, and of considerable stra-tegic value to India—will remain of greatimportance. So too will the continued rule ofthe popular Prime Minister, Sheikh Mujib. Tothis end, India will continue to give him politi-cal support and to advance some economicassistance. Relations with Nepal and Sri Lankawill remain considerably more distant in boththe political and economic field. Barring whatthe Indians consider a dangerous or provoca-tive development ( for example, a Chinese-supported insurgency), they will also be gen-erally amicable, despite quarrels over suchissues as trade and repatriation of Indian na-tionals.

14. Pakistan is an entirely different matter.Indo-Pakistani antagonisms are so deeplyrooted that the best the two can hope for is anuneasy modus vivendi. They will themselvesremain prisoners of mutual hatreds and fears;they will exaggerate both the strengths andthe hostile intentions of the other—often wellbeyond the limits of rationality. Islamabadsees the threat of India's overwhelming mightbeing directed to the destruction of Pakistan—something that the Indians certainly do notnow in fact seek. New Delhi does not see Paki-stan's refusal to acknowledge Indian pre-


eminence in the region as a harmless, quixoticact. Rather it views Islamabad's quest for closeties with and support ( especially military aid)from strong outside powers—particularly theUS, Iran, and China—as posing a direct anddangerous threat to India itself. This concernis a principal determinant in India's foreignpolicy.

15. Ideally India would like Pakistan to beconcerned principally with the stability of itsown domestic affairs and not to try to chal-lenge India on the regional or world scene.Thus Pakistan would reduce the strength ofits armed forces, leave in abeyance (if notrenounce) its Kashmiri claims, and foregopolitical-military ties with the US, China, andIran. In this situation India would refrain frominterference in Pakistan's domestic affairs,show an interest only in preserving the statusquo, and cooperate in matters—principallyeconomic—of mutual benefit.

16. This Indian ideal solution to the en-demic South Asian tangle is neither unreason-able nor far-fetched. Its achievement, how-ever, will be time consuming and fraught withdifficulties and may remain an impossible goal.Whether innate concerns on both sides canever be subordinated to the quest of commonaims and the desire to be good neighbors willremain problematical. Deep-seated fears andsuspicions on both sides of the border willcontinue for many years to militate againstthe climate of mutual trust needed for sucha relationship. Indeed, even when all imme-diate problems created by the 1971 war—e.g., the restoration of diplomatic and eco-nomic relations—are settled, relations willremain taut and subject to further strains foran extended period.

17. India and Pakistan fought major warsin 1965 and 1971; the latent antagonisms be-tween the two countries continue to exist, andcould in certain unpredictable circumstancesbring on another Indo-Pakistani war. Some

unforeseen event, e.g., an uprising in the Valeof Kashmir, could again lead the two disput-ing powers to or over the brink. As in the pastemotional miscalculation and self-deception bythe leaders of one or both countries could playa major role.

18. Another contingency, a long dormantdispute in the region, could also lead to height-ened Indo-Pakistani tensions if not open con-flict. The July 1973 coup in Afghanistan re-turned Muhammed Daud to power there.Until his removal in 1963, Daud had led theAfghans in a hard line policy of confrontationwith Pakistan. Demanding the creation of anautonomous or sovereign state of Pushtunistanout of large chunks of Pakistani territory bor-dering Afghanistan, Daud's actions led to arupture of Afghan-Pakistan relations, to someborder skirmishing, and to fears of an inter-national conflict. It is too early to say whetherDaud will revive the Pushtunistan dispute orwhether India will involve itself in it ( as itdid not in the early 1960s ). However, Daud'sinitial comments on this issue, and India'svery rapid recognition of his takeover havearoused apprehensions in Islamabad.

19. Beyond this, India might in certaincases feel compelled to intervene directly ininternal Pakistani affairs. This will be highlyunlikely so long as Pakistan remains free ofserious domestic strife and its government isin firm control. But were that country tosuffer sustained civil turmoil, Indian policycould well change. Thus if Pakistan were toerupt into a civil war on class or regional lines,and were this to continue for an extended andindecisive period, New Delhi could reluctantlycome to feel that it would have to interveneto preserve regional peace and stability.

III. THE INDIAN OCEAN AND THE

PERSIAN GULF

20. While expanding its own naval forcesin the South Asian region, India is activelytrying to discourage a great power naval


buildup in the Indian Ocean. It has pushedfor an "Indian Ocean Peace Zone" and wouldlike to limit deployments by both the US andthe USSR—or any other outside power. Bar-ring that, it would prefer that no other coun-try— particularly the US but also the USSR—achieve a position of measurable naval su-periority in the region. India has alreadydecried the establishment by the US of com-munications facilities on Diego Garcia, thoughit has not so far been very noisy about thematter. Were Diego Garcia to be built upsubstantially as a naval operating base Indiawould react with angry protests, but wouldprobably limit its opposition to these de-nunciations.

21. Iran, which in the past was a countryof peripheral importance in Indian foreignpolicy, has become a more central concern.Although the two nations have some im-portant mutual interests including sharedownership of India's largest oil refinery atMadras, problems have dominated the rela-tionship in recent months. The Iranians areconcerned that India wishes to dismemberor dominate Pakistan and bring Indian powerto Iran's border. They are particularly con-cerned in the context of the Indo-Soviet treatywhich Iran views as present or potential col-lusion against Iranian interests. The Indiansworry that the massive increase in Iranianarmaments and military power might be usedto bolster Pakistan in a military confrontationwith India.

22. The two countries' interests and con-cerns are beginning to overlap in a new andunfamiliar fashion. Both are extending theirpower and potential for influence. They prob-ably will continue to gauge their relationshipprimarily by observing the actions of the otherin third countries. Pakistan will be the prin-cipal area of contention. India will be hostileto any large-scale Iranian arming of Pakistan

or any formal bilateral security agreement. Itis concerned with the construction of a largenew Iranian military base at Chah Bahar onthe Indian Ocean and near the Pakistaniborder. Iran will be hostile to any Indianintervention, political or otherwise, whichwould impinge on Pakistan's sovereignty, orlead to the breakup of that country. Indeedthe Shah publicly insists on his commitmentto maintain Pakistan's territorial integrity.

23. Iraq is a second arena: Iran is worriedthat the similar Indian and Iraqi treaties withthe Soviets may form the embryo of an Indo-Iraqi-Soviet alliance against Iranian interests.These fears are aggravated by the presenceof a small Indian air force training mission inIraq. India argues that its training missionhas been in Iraq since 1960 and has neverbefore caused complaints. Further, India'srecent interest in Iraq has been primarily eсо -nomic; in particular it is seeking, throughoutthe Persian Gulf, sources of oil of which it iscritically short. Afghanistan is a third arena:Iran is worried that the Indians ( and Soviets )may encourage Daud to heat up the Pushtuni-stan issue as a means of weakening Pakistan.India on the other hand will be concernedthat Iran and Pakistan do not use their worryabout intentions as an excuse either to crippleAfghanistan's economy or to intervene directlyin its affairs.

24. Though there is some potential fordanger in this Indian-Iranian rivalry, the pros-pects for a direct confrontation between thetwo alone are remote. Neither is innately hos-tile to the other; both will try to resolve peace-fully any differences which may arise. Thearmed forces of both countries are large andimpressively equipped, but neither can mountsustained operations very far from its ownterritory. The Indian Navy ( including its oneaircraft carrier) would find it impossible toconduct sustained activity in the Persian Gulfarea. Nor could Iranian forces extend their


power to India in any meaningful way. Butthe two countries could find themselves inconflict in the contingencies of renewed Indo-Pakistani hostilities ( say arising from Afghan-Pak fighting) or of civil turmoil in Pakistan.Both Iran and India would be strongly in-clined to intervene in Pakistan itself werethe other to do so.

25. The fact of Indian and Iranian exten-sions of their reach in overlapping areas could,however, more imminently be the source ofsharpened rivalry involving several countries.India and Iraq—and possibly Afghanistan—supported by the USSR could come to viewthemselves as irreconcilable opponents of thearea's alleged US proteges, Iran and Pakistan.Such a perception would risk rivalry heighten-ing toward hostility, and could stimulate eachside to seek enhanced great power support.To some extent this has already happenedand depending on the reaction of the greatpowers, could intensify—bringing on onemore bone of contention between the US andIndia and providing the latter with a furthersense of solidarity with the USSR.

IV. INDIA'S RELATIONS WITH THE

USSR AND CHINA 2

for Indian objectives, shared antagonisms forsome of India's adversaries, willingness toundertake a limited security commitment, andextensive military and ( to a lesser degree )economic aid. The two are formally linked bythe 1971 Treaty of Friendship. Even thoughit restricts the commitment to consultationand the pledge not to commit unfriendly actsagainst the other, the Treaty is of considerablesymbolic importance as indicating the specialnature of the relationship.

26. Since the 1950s, economic ties betweenthe two countries have grown substantially.Total Soviet economic aid commitments overthe years amount to about $1.6 billion ( incontrast to over $9 billion from the US ) .3Nearly all has or is being spent on majorpublic sector industrial endeavors such assteel mills. With declining Indian desire orneed for more projects of this type, new aidextensions have halted, though old ones arestill being drawn down. Trade between theUSSR and India grew sharply in the lastdecade, but it may have stabilized and couldeven decline somewhat. In 1972, some 15percent of India's exports and 8 percent ofimports were to and from the USSR ( whenIndia's trade with other East European Com-munist countries is added the figures are 22and 11 percent ) . Issues with respect to futureIndo-Soviet economic arrangements will prob-ably not have much impact on overall po-litical relations. However much New Delhiwould like more Soviet economic assistance,it values the relationship principally for itspolitical and security aspects.

27. Soviet military assistances to India hasbeen substantial. From 1962 to the presentover $1.3 billion has been committed—usuallyon concessional terms—and mostly delivered.Indian dependence on the USSR in this field

з The other Communist East European states pro-vided an additional $367 million.


is likely to continue for the foreseeable future.The dependence is not complete; India stillbuys some weapons from the UK and France,and makes some of its own. Most Soviet mili-tary hardware delivered has been complex,sophisticated equipment like SAM missiles,submarines, jet fighters, and tanks. The In-dians, who already produce most or all of theirsimpler military items, e.g., small arms, lightartillery, and ammunition, hope eventually tomanufacture their own sophisticated ones aswell. They already have factories producingsuch items as tanks and aircraft. These stillrely on key imported components, however,and are for the most part assembly plants.An Indian capability completely to manuf ac-ture its own complex weapon systems is prob-ably many years away.

29. Despite this tangible dependence onthe USSR for weapons, India is by no meansa Soviet client. The Indians do feel the needfor Soviet military assistance and for politicalsupport against China. But as in their refusalto sign the Nuclear Non-Proliferation Treaty( NPT) or to provide Soviet-controlled shorefacilities for Russian naval forces, they resistSoviet urgings when they feel that acquies-cence would not be in their interests. Savein time of extreme peril to the Indian nation,New Delhi would not permit operationalSoviet military forces to be based on itsterritory.

30. China is the most important determinantof Indian-Soviet relations. The worse the re-lations are between India and China the moreneed India feels for close Soviet backing. Areturn to the Sino-Indian intimacy of the1950s now appears as a most unlikely pros-pect. India will still suspect a Chinese/Paki-stani axis ( supported openly or secretly bythe US ) directed against it, and it will con-tinue to look to Moscow for, and get, supportagainst Peking.

31. China is concerned that the politicaland military relationship between India andthe USSR represents an enlarged Soviet threatto China. Peking has committed itself to thedurability of the Bhutto government and hasstrongly supported Islamabad's strategy re-garding the pace of recognition of Bangladesh.But within the limits of these mutual suspi-cions there will be some scope for shifts inIndian and Chinese policies with respect toeach other. Thus Peking and New Delhi were,prior to the 1971 Indo-Pakistani crisis, movingtowards some easing of tensions. They willprobably do so again, particularly if the cur-rent India/Pakistan/Bangladesh impasse is fi-nally resolved. Even if some appearance ofoutward Sino-Indian cordiality is achieved,New Delhi and Peking will remain basicallywary of each other politically and will in-creasingly find themselves competing formarkets and products of the industrializedcountries.

32. In these circumstances, the relation be-tween India and the USSR will persist assomething less than an alliance but more thana normal friendship. Soviet dissatisfaction withIndia's economic performance, with its in-sistence on non-alignment, Indian xenophobia,complaints about the quality of Russian mili-tary equipment, and opposition to any sub-stantial growth in Soviet naval strength in theIndian Ocean will serve, among others, ascontinuing points of friction. India and theUSSR will continue to share so broad anarea of interest that they will generally wishto cooperate with one another. But wheretheir interests diverge, India will continueto take positions different from those of theSoviets.

V. UNITED STATES-INDIAN RELATIONS:

PRINCIPAL ISSUES

33. India's cultural, social, and economicties with the major non-communist countries( West European countries, Japan and the


US ) are close. The bulk of the economic aidIndia now receives comes from them. Mostof its trade ( both imports and exports ) iswith them. Ties with the UK are especiallygood. English remains the lingua franca ofthe political and economic elite, and Indiaremains firmly in the Commonwealth. TheBritish tradition of democracy and rule bylaw has struck deep and impressive roots.With some exceptions India's political rela-tions with most of these countries reflecteconomic and cultural realities. Acrimoniousdisputes are not common; dealings are busi-ness-like; there is neither intimacy nor hos-tility; disputes only occasionally take on po-litical or emotional overtones.

34. Indo-American relations are a conspic-uous exception. Over the past 25 years, therehave been wide swings from a close workingrelationship through a state of mutual indif-f erence to considerable tension. At the presenttime, India and the US are emerging froma period of strain into one of relative calm.But mutual cordiality is hardly the order ofthe day. Indeed there are major obstacles tothe development of close relations betweenIndia and the US.

35. A number of specific points of conten-tion emerge when US-Indian relations areconsidered. Whatever the current stated pol-icies, many Indians continue to fear or sus-pect that the US is, in some manner, sup-porting Pakistan at India's expense. TheUS-Chinese détente and the Iranian armsbuildup have excited Indian apprehensionsand made them concerned to retain good tieswith the Soviets. Certain disagreements derivefrom opposing basic views. For example, India,as one of the most important components ofthe underdeveloped world, presses for meas-ures favoring the less developed countries atthe expense of the richer ones, especiallythe US.

36. In addition, a brittle emotional climateremains in India itself with respect to dealingwith Washington. Some Indian leaders haveinnate suspicions that the US in an aggressivecapitalist neocolonialist power basically hos-tile to India. While high-level accusations ofanti-India CIA conspiracies are no longer con-doned by Mrs. Gandhi, American officials,scholars, and businessmen in India still find,on occasion, difficulties and obstacles placedin their way. The Indian Government con-tinues to criticize ( though in more mutedterms ) US activities in Southeast Asia and theUS stand in the Arab-Israeli dispute.

Financial Issues

37. The US has proposed several economictopics for discussion with the Indians: the dis-position of US rupee holdings, aid and repay-ments, bilateral trade, and investment matters.The outcome of each of these discussions willdetermine the atmosphere for succeeding ones.

United States Rupee Holdings

38. Negotiations have begun on the dis-position of the $4.5 billion equivalent rupeeclaims of the US in India. Of these, some$900 million equivalent is on deposit, unspent,in a US account in an Indian bank. Theserupees have resulted from agreements withIndia providing for Indian repayments inrupees rather than hard currency of US loansand PL-480 agricultural sales to India. Exceptfor operating costs of the US Embassy theserupees generally cannot be spent without NewDelhi's approval; nevertheless, the US couldcontinue to use rupees for its own operationin India indefinitely. New Delhi, however, hasviewed with concern the potential for USinfluence over the Indian economy which itsees these rupees providing. India was there-fore, pleased at a US initiative to negotiatea large reduction in these holdings.


39. The US has proposed that India repaythe $2.4 billion in principal due on outstand-ing debts with the US retaining $1 billionequivalent and granting the remainder toIndia. If the Indians choose to accept theUS prosposal, a rupee settlement could conicvery soon. Otherwise, the pace of the entireeconomic dialogue will be much slower.

Aid and Aid Repayments

40. India has been receiving aid from non-communist and communist countries for wellover a decade, mostly in the form of loans.As of April 1971 India had a total externaldebt of some $8.5 billion; these obligationshave grown; so have scheduled debt repay-ments and net foreign aid to India has fallensharply. Thus in 1972-1973, foreign aid dis-bursements from all sources to India totaled$895 million but debt repayments of $682million gave India a net aid transfer of $213

million.4

41. There are important potential points ofIndo-US friction in international financialissues. The US has been the principal donorof aid to India in the past. It no longer is,and future US aid programs to India are verymuch open to question. But it remains far andaway India's principal international creditor,being owed, in hard currency, well over $3billion. Most, though not all, US assistancehas been as a member of the Aid to IndiaConsortium. 5 Since the mid- to late-1960s,

4 The details of India's international financial posi-tions are discussed in the Annex.

5 The Consortium includes Austria, Belgium, Can-ada, Denmark, France, Germany, Italy, Japan, TheNetherlands, Norway, Sweden, UK, US, the WorldBank, and the International Development Association( IDA ) . The Consortium is neither a supernationalbody whose decisions are binding on its membersnor an institution engaging in aid programs of itsown. Rather, it provides such expert economic serv-ices as analyses and recommendations, and a forumfor mutual consultation and coordination of the aiddonors on the one hand and the Indians on the other.

the Consortium has been providing between$1-$1.5 billion annually in financial assistanceto India; at that time the US contribution wasroughly 50 percent. By the end of 1971, US

assistance had declined to $200-$300 milliona year. It was then suspended; $88 millionin uncommited funds were frozen. In thespring of 1973 the $88 million was releasedfor Indian use, but no new pledges have beenmade. Major domestic uncertainties, includ-ing public and Congressional dissatisfactionwith aid, hang over future US assistance pro-grams of any magnitude.

42. India's heavy debt obligations to theUS remain, however. Without new incrementsof US assistance or debt rescheduling, the bi-lateral US AID program to India will continueto entail a net bilateral transfer of resourcesfrom the recipient to the donor as occurred in1972-1973. In the spring of 1974, India willrequest long-term debt relief of perhaps $1.5billion from Western aid donors. The US re-sponce will of course be of major importanceto the future course of Indo-American rela-tions. Declines in the levels of bilateral US aidto India in the past two years have beenroughly compensated for by increases in com-mitments by the World Bank and the IDA,multinational organizations in the Consortium,much of whose funds come originally from theUS—thus making the US in fact a net donorof aid to India. This reflects in part a shift ofdisbursement of US aid from bilateral to multi-lateral channels. In the period April 1971-March 1973 the World Bank and the IDAmade new aid commitments to India totalingabout $780 million. In IDA's case this was 40percent of its total loans to the underdevel-oped countries. Some aid donors includingthe US have questioned whether India shouldretain its large share of IDA loans.

43. It is in these and other multinationalbodies that many US-Indian negotiations onfinancial issues are likely to take place in the


future. The questions of new increments ofConsortium assistance, of debt relief, and ofthe allocation of new Special Drawing Rights( SDRs—or their replacement) issued by theInternational Monetary Fund will be the prin-cipal ones. There is ample room for disagree-ment. India wants to maintain present levelsof World Bank and IDA assistance, to get debtrelief from the Consortium states and to haveall new SDRs allocated to the underdevelopedcountries of which it is so prominent a mem-ber. Most Consortium members take a morefavorable stand to India's claims and haveagreed to more aid. The US, to a greater orlesser degree, has been in opposition to theIndians in these matters. These differencescould be continuing sources of difficulty, es-pecially if an extreme balance of paymentsstringency—say resulting from a severedrought or major international dislocations—should force India to seek a debt moratorium.

The Issue of Emergency Food Needs

44. India, with its huge and growing popu-lation, has had periodic food shortages atleast since independence. 6 Despite thewell-publicized-and very real—achievements ofthe Green Revolution ( i.e., the expansion ofgrain output by use of improved seeds, con-trolled irrigation, fertilizers and pesticides ),Indian agriculture remains critically depend-ent on the weather. And the monsoon rainsremain unpredictable and variable. Majorfailures do occur every few years and bringon food shortages. Two consecutive monsoonfailures, as occurred in 1966-1967, can bringon a near disaster, with the threat of severefamine which can be averted only by heavyimports. ( In 1967 alone, India received 8million tons of US PL-480 food grains. )

б A detailed treatment of the extremely complexproblem of Indian agriculture—including alternativeinterpretation and projects of future growth will befound in NIE 31/32-70, "Long Term Prospects inIndia and Pakistan," dated 20 October 1970, SECRET.

45. The contingency of New Delhi's seek-ing a new form of concessional sales or grantsof US food in future years of crop failuresis a very real one. Indian officials now talkof buying more than 3 million additionaltons for delivery in 1973, and are seekingconcessional terms for much of this amount.But were there a series of monsoon failures,India's future food import needs would sky-rocket. Most of the enormous amount needed,if it were available at all and could be shipped,could only come from the US. India couldnot afford to pay for such huge quantities offood on commercial terms even by wiping outits reserves of hard currency.

The Issue of Indian Nuclear Weapons

46. India has the technology and know-howto set off a nuclear explosion. It could do sosoon after a decision to go ahead. Dependingon how far preliminary work had gone, Indiacould explode a device anywhere from a veryshort time to as much as a year after theorder is given. India could then fairly quickly,if it chose to, make a dozen or so additionalnuclear devices using existing stocks of plu-tonium. Were India to conduct a test ( almostcertainly underground) in the next severalyears, it would label it only a part of a peace-ful uses program. At the same time, Indiawould derive the political benefit of beingknown as a nuclear power; neighboring stateswould have to be concerned that New Delhimight have other devices—which could, infact, be used as weapons.

47. At least during the 1970s, however,India would be unlikely to opt for the develop-ment of a credible advanced nuclear weaponsand delivery system. Such a program wouldshow few results for several years, would bevery expensive, and would arouse domesticpolitical criticism. If adverse domestic opinionseemed to moderate, and if Indian capabilitieswith respect to nuclear and missile technology


developed considerably further, this course,say by 1980 or 1985, might appear more at-tractive to New Delhi.

48. The pros and cons with respect to con-ducting a test labeled as a peaceful nuclearexplosion would be much more closely bal-anced. The chances are roughly even thatNew Delhi will carry out such a test duringthe next several years, the pros and cons vary-ing with events at any specific time. In anycase, it will hold the option open. India wouldview entry into the nuclear club as a meansof achieving a more influential role interna-tionally. Achieving this would enhance theIndians' own sense of self-esteem and wouldbe popular at home.

49. At the same time Mrs. Gandhi wouldhave to reckon with some adverse domesticand foreign reactions to such a move. Criti-cism from various elements in India that allnuclear explosions are evil, and that a testwould only lead to more costly weapons pro-grams could probably be contained by offi-cial assurances as to the limited, peacefulnature of the program. The same cannot besaid of reactions from foreign countries.Neither Pakistan nor Iran, for example, wouldbe easily prone to accept such assurances, andboth would turn to the US for additional sup-port. New Delhi is aware that even a peacefultest would bring forth adverse reactions frommost if not all the principal world powersfrom whom India receives political, military,technical, and economic assistance.

India and South Asia

50. US/Pakistan relations will continue tobe matters of concern to India, and willvitally affect its image of Washington's policywith respect to the entire subcontinent. Islam-abad will continue to seek US support; it willalmost certainly renew its efforts to get addi-

tional military aid. This in itself will inspiresuspicion in New Delhi; any large new ship-ments of US military supplies to Pakistan,either directly or, say, via Iran, is likely toplace very severe strains on Indo-US rela-tions. Another Indo-Pakistani war, or Indianintervention in a Pakistani civil war wouldtrigger an international crisis of serious dimen-sions perhaps involving Iran, China, and otheroutside powers including the US and theUSSR.

51. Possible direct Indian military interven-tion in certain of its other neighbors wouldnot necessarily be a source of friction withthe US, and depending on the circumstancesmight well reflect compatible policies. Forexample, Indian support for the Sri LankaGovernment during the extremist 1971 insur-rection there and its preparations for majorinvolvement if required caused no problems.Nor would a military move into a troubledNepal or Bangladesh be likely in most casesto create serious difficulties for the US.

VI. INDIA AND THE UNITED STATES:

PROSPECTS

52. Developments in India itself could af-fect its ties with the US and other countries.India's weaknesses, its great poverty, severecaste and class barriers, regional antagonism,and widespread public unrest are manifest.Though Mrs. Gandhi's position seems secureuntil Parliamentary elections ( now scheduledfor early 1976), her sudden death could bringon an era of acute difficulty, and even turmoil.So could her defeat, without the selection ofany viable successor in 1976. Even Mrs.Gandhi might find India's domestic difficul-ties too great to cope with and become gravelyweakened. In any of these contingencies, theresulting governmental instability could leadto strains in India's international relations.


And in the unlikely event that this hugecountry were weakened to the point that itbecame an object of concern or temptationsto its neighbors and the great powers, theinternational community, the US included,would have a serious crisis on its hands.

53. In the broadest terms, the basic interestsof the US and of India—e.g., area-wide sta-bility, peace, amicable bilateral relations—are in fact compatible, but the definition ofthese general objectives and the means ofachieving them will often be the source offriction. Relations will frequently be cloudedby accumulated suspicions, differing attitudes,or by conflicting perceptions of each others'interests. For example, while both are seekingto improve bilateral relations, the settlementof India's accumulated debts to the US mayprove difficult to resolve. Heavy US supportof Iran in the strategic, oil-rich Persian Gulfarea will also periodically arouse the sus-picions of an India gravely concerned aboutthe already close ties between Iran and Paki-stan. In short, the areas of friction in the re-

lationship are likely, for some time to come,to predominate over those conducive toharmony.?

7 The Director of Intelligence and Research, De-partment of State, believes that this paragraph over-emphasizes the potential for frictions between Indiaand the US and fails to give sufficient attention tothe opportunities for cooperation. He believes, there-fore, that a more accurate assessment would read asfollows:

53. Relations between India and the US will oftenbe clouded by accumulating suspicions, differingattitudes and conflicting perceptions of each othersinterests. Moreover, on issues ( such as the NPT anddebt rescheduling) which divide developed, worldpowers and the developing regional powers, US andIndian interests will continue to diverge. But the USand India share common interests on a wide assort-ment of issues ranging from the most fundamental( e.g., the development of stable, independent, anddemocratic governments in Asia and elsewhere ) tomore day-to-day concerns ( e.g., narcotics, terrorismand hijacking) . Not least of these shared interests isa resolution of the South Asian problems remainingfrom the 1971 conflict toward which India has madesignificant contributions. The US and India will, asin the past, often be at odds over the means to achievecommon objectives but there will also be opportunitiesto reach common positions or at least to keep differ-ences manageable.


ANNEX

1. In the past 25 years, India has amassedan external debt of roughly $9 billion. Thetotal amount of foreign aid received by Indiahas, of course, been higher. It has gottensome aid in the form of outright grants or ofloans repayable in rupees. It has also repaidsome loans received. Of the present $9 billiondebt, the US is owed over $3 billion and theUSSR over $1 billion.

2. Though the total has since increased, thefollowing debt data are indicative. As of March1973, total US aid disbursements to India ( andIndian repayments ) were as follows:

HARD TOTAL

CATEGORY CURRENCY RUPEES ( Billions $ )Grants 1.4 0.5* 1.9Loans • 3.8 3.6 7.4Repaid , (—) 0.5 ( — ) 0.3 ( — ) 0.8

TOTAL 4.7 3.8 8.5

*Rupee equivalent granted to India from US PL-480rupee holdings held in India.

3. Nearly all debts to the Soviet Union arenot repayable in hard currency. Rather theUSSR ( and East European states ) maintainspecial rupee accounts in India into which re-payments are made. These rupees are used topurchase Indian goods—both raw materialsand manufactured goods—for export to theCommunist countries. Though these commodi-ties are not supposed to be then reexportedto Western countries for hard currency, suchdoes happen on occasion.

4. To a considerable extent, India has beenable to repay its debts to the non-communist,

Consortium countries through the receipt ofnew increments of assistance from them. Atthe present time, there is substantial Con-sortium ( and some US ) aid still in the pipe-line, i.e., money pledged and available butnot yet spent by the Indians. The figures areinstructive. On 1 April 1973, the total Con-sortium pipeline had about $1.6 billion in it.The US component of this, including the re-cently released $88 million, was roughly $124million. In the period April 1973-March 1974,India is scheduled to repay all Consortiummembers $573 million and annual repaymentswill continue to rise. In 1973-1974, India willowe the US $129 million, and annual repay-ments are scheduled to rise through most ofthe 1970s. Without new increments of US as-sistance or debt rescheduling, the US AIDprogram to India will continue a net bilateraltransfer of resources from the recipient tothe donor.

5. This actually happened the previousyear; in the period April 1972-March 1973( during which time funds were frozen) therewas a net transfer of $47.4 million from Indiato the US. This was also true in the sameyear of the World Bank and several othercountries including Austria, Belgium, Italy,Japan, and The Netherlands. Their overalltotal of net transfers was slightly higher thanthat of the US. But as noted in the text, de-clines in the levels of bilateral US aid toIndia have so far been roughly compensatedfor by increases in commitments by the WorldBank and the IDA.


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