The Price of Aid: The Economic Cold War in India

THE PRICE OF AID

The Economic Cold War in India

DAVID C. ENGERMAN

Cambridge, Massachusetts · London, England

2018

Copyright © 2018 by David C. Engerman

All rights reserved

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Jacket design: Annamarie McMahon Why

978-0-674-65959-9 (alk. paper)

978-0-674-98606-0 (EPUB)

978-0-674-98607-7 (MOBI)

978-0-674-98608-4 (PDF)

The Library of Congress has cataloged the printed edition as follows:

Names: Engerman, David C., 1966– author.

Title: The price of aid : the economic cold war in India / David C. Engerman.

Description: Cambridge, Massachusetts : Harvard University Press, 2018. | Includes bibliographical references and index.

Identifiers: LCCN 2017036333

Subjects: LCSH: Economic assistance—Political aspects—India—History—20th century. | Economic assistance, American—Political aspects—India—History—20th century. | Economic assistance, Soviet—Political aspects—India—History—20th century. | Cold War—Influence. | Cold War—Economic aspects. | Geopolitics—India—History—20th century. | India—Economic conditions—1947–

Classification: LCC HC433 .E54 2018 | DDC 338.910954 / 09045—dc23

LC record available at https://lccn.loc.gov/2017036333

For Stephanie

Contents

Introduction: Foreign Aid and Development Politics in India

PARTI: LEARNING DEVELOPMENT, 1947–1955

1.

Debating Development and Discovering India

2.

Inventing Development Aid

PARTII: THE HEYDAYOFTHE ECONOMIC COLD WAR, 1955–1966

3.

The Geopolitics of Economic Expertise

4.

The Aid Project and Cold War Competition

5.

Free Money and the Tilt toward the West

6.

Military Supply and the Vicissitudes of Aid Politics

PARTIII: THE BITTER FRUITSOF DEVELOPMENT POLITICS, 1960–1974

7.

Bets, Bargains, and the Price of American Aid

8.

Soviet Aid from Inspiration to Armory

9.

India’s Double Crisis and the Price of Aid

Conclusion: Development Politics and the Price of Aid

Note on Sources

Abbreviations

Notes

Acknowledgments

Index

India, circa 1960. Map created by Isabelle Lewis.

INTRODUCTION

FOREIGN AID AND DEVELOPMENT POLITICS IN INDIA

In February 1960 a delegation of American atomic scientists headed to India to discuss American technical and financial aid for Indian atomic energy. Upon landing in New Delhi, they were immediately and inexplicably dispatched on an impromptu excursion to the Taj Mahal—a remarkable site, to be sure, but not part of their original schedule. Only when they returned to New Delhi did they learn why their plans had changed. Newspapers reported that they were only one of two high-powered official delegations—no pun intended—invited to discuss atomic matters; a Soviet delegation was also in town. Both groups were hosted by Homi J. Bhabha, the entrepreneurial head of the Indian atomic establishment. Each superpower hoped to win an exclusive deal to provide technology, materials, and financing for India’s civilian atomic programs, and Bhabha hoped the dueling visits would stoke competition and help him extract better terms for India. He did not mind if the delegations knew of each other’s presence, but did not want them to cross paths. The Americans’ hastily arranged sightseeing trip prevented a minor scheduling glitch from becoming an international incident.¹

Bhabha’s nimble diplomacy, at first glance, suggests the leverage that recipient states could use to vie for superpower aid during the Cold War. Nations like India, Bhabha believed, should invoke the Cold War battle for hearts and minds to obtain more aid on better terms—meaning lower prices, cheaper financing, and fewer restrictions on use. He was hardly alone; the great Polish economist Michał Kalecki (who went on an extended advising mission to India) viewed nonaligned nations as the proverbial clever calves that could suckle two cows. The competition, Kalecki predicted, would spur each bloc to provide more assistance.²

But Bhabha also had a second, less obvious motive in bringing the superpower delegations to India. He pursued external assistance not simply to get a better deal but also to advance his position in internal battles over how to power the Indian future. Ranking economic agencies did not share his vision of a nuclear-powered India, so Bhabha spurred international competition in the hopes that foreign aid could help him convince—or, alternatively, outmaneuver—skeptics in Indian officialdom. American diplomats quickly grew wise to this effort. Even before the Taj Mahal episode, they worried that the Indian scientist was trying to turn the U.S. embassy into a middleman between Bhabha and his own Government.³

Bhabha’s efforts to play donor nations against each other ultimately bore limited and even bitter fruit. The American offer of atomic aid came years after he began his campaign, and was so tightly tied to American technology and materials that it outraged some of Bhabha’s colleagues. The superpowers’ competitive spirits ran high, but so did their mutual interest in preventing the spread of nuclear weapons. When Bhabha pressed the nuclear powers to relax the safeguards that restricted use to civilian purposes, they collaborated to stymie Bhabha’s plans. Ironically, the pursuit of aid to establish energy independence undermined the self-sufficiency that Bhabha and many of his compatriots had sought. Economic aid promised opportunities for transformation but came at a steep price.⁴

Meanwhile, Bhabha’s use of external assistance to fight domestic battles had unsettling internal consequences. The interpenetration of the international and the domestic politics of aid affected much more than the sightseeing diversion of a group of American scientists; it changed all countries involved, and especially India. International aid often rendered new nations’ pursuit of autonomy quixotic or even counterproductive. It also weakened Indian political institutions and ultimately constrained the nation’s exercise of sovereignty. Though competing donors celebrated their aid programs—in identical language—as a way to help new nations get on their own two feet, their assistance often had the opposite effect. Development aid came with constraints that increased dependence and limited the prospects of national autonomy. More than 90 percent of such aid, for starters, came in the form of loans, often denominated in foreign currencies. The first generation of aid in the 1950s, furthermore, focused on support for individual projects; donors chose which nations and which projects to fund.⁵

The availability of external aid also intensified existing internal disputes and reinforced institutional rivalries within recipient nations. Bhabha was one of many trying to leverage external aid to promote his own agenda. He and many others sought donors’ resources—symbolic, technical, and not least financial—to fight domestic battles. Such resources fueled and even intensified existing divisions over economic policies. The aid relationships that grew over the 1950s and 1960s first built and then relied upon tight connections between superpower aid agencies and individual ministries in the recipient countries. As these relations deepened, individual ministries gained power and operated more and more independently of central decision-making bodies. External assistance, in the end, came about through the efforts of one or another group of policy makers—not necessarily the Government of India writ large—to utilize their connections to advance their own economic visions and interests. I call this dynamic—the competition for external aid and its entanglement with domestic politics—development politics.

Development politics exerted a major if unquantifiable influence on the trajectories of Indian policy and politics. All of the major economic debates in India—about broad strategies and specific investments, about broad priorities and narrow bureaucratic configurations—took the shape they did in relation to external agents and agencies. To be clear, economic decision making in independent India was not the property of foreign powers, stray accusations to the contrary. But there was no purely domestic economic policy in independent India; the opportunities and constraints that came with external assistance shaped every major economic decision and many minor ones as well.

Development politics turned the quintessential nationalist pursuit, building a national economy, into an international enterprise. External assistance influenced the scale, scope, and shape of Indian economic development in the decades after Independence in 1947. Over many decades, foreign aid provided recipients with crucial—if constantly renegotiated and highly unpredictable—sources of food, machinery, investment capital, industrial materials, and military equipment. Those resources paid for new facilities and programs all across India, constituting as much as 3 percent of gross domestic product. The road to economic independence, officials in India and across the Third World discovered, ran through foreign aid agencies.⁶

Events in India had worldwide impact. The country s