Ambassador of Pakistan to the United States, has already made cordial statements of friendship for the United States and expressed his desire for close cooperation.

It is very important that he and his colleagues succeed in stabilizing the political situation in this country. Meanwhile Pakistan's financial position is deteriorating while its need for more rapid economic progress grows more acute.

Afghanistan and Nepal, although smaller than India and Pakistan, are in strategic geographic locations and are subject to border pressures and infiltration by subversive elements, while remaining as members of the free world. These countries need technical assistance to provide the base for increased food production, better health, and a higher degree of literacy.

The central consideration which supports the proposed economic aid to India, Pakistan, Afghanistan and Nepal for fiscal 1954 of $139.5 million is the great importance of increased stability in this pivotal region of free Asia. This amount includes special economic aid for India and Pakistan of $94.4 million which is in addition to aid normally considered as technical assistance.

The programs will of course be completely integrated in each country and under the administration of one team.

This committee has already stated concisely that United States military, economic, and technical assistance rests on certain propositions (H. Rept. 872, 82d Cong., pp. 26-27), and I would like to note the applicable portions:

(a) That it is to our interest to help the free nations of Asia in resisting Soviet dominance;

(c) That economic and political stability are interdependent and together increase the capacity and the will to resist internal and external Communist aggresison; and

(d) That American material and technical aid is needed to assist the people of the area in dealing with their urgent economic problems so that material resources of the area may be used to the benefit of themselves and the rest of the free world.

This brings out clearly the essential supporting element to stability-the necessity for economic progress in these countries as the base for both economic and political stability. Our people in the field and those working on the programs here are convinced that in our interests economic progress is necessary during the next 2 to 3 years. India and Pakistan, for which the special economic aid is being proposed, are using all they can of their own resources, of Colombo plan aid, and of loans from the World Bank. It comes down to a need for our help if they are to move forward in time.

The proposed assistance is planned for the specific needs of each country. The primary goal is to assist in the necessary increase of food supplies. This means better agricultural practices, including stepped up use of fertilizer and more water through new irrigation facilities and greatly increased numbers of tube wells. It also means assisting in improving health and sanitation, in providing better communication and transportation facilities, in establishing more educational services and in training more personnel.

It means measurable achievement in the next 2 to 3 years. The benefits to the United States will be found in greater stability in Asia,

continued hope for the future on the part of the hundreds of millions of people in the area, and proof that democracy works.

This is not a 1-year proposition. Economic development takes time and requires continuous effort. It should be evident that the minimum period for which special aid to India and Pakistan will be necessary, if important goals are to be reached, is 3 years, and our intention in this regard should be made evident to the peoples of these countries. Mr. WOOD. Now, Mr. Loftus, will you proceed?

STATEMENT OF JOHN A. LOFTUS, COUNSELOR FOR ECONOMIC

AFFAIRS, AMERICAN EMBASSY, NEW DELHI, INDIA

Mr. LOFTUS. My name is John A. Loftus. I am the counselor for economic affairs at our Embassy in New Delhi. I serve concurrently as economic adviser to the director for technical cooperation in India.

Chapter IV, section 404, of the bill now before this committee would authorize a program of special economic assistance to India and Pakistan. This program is integrally related to the programs in India and Pakistan which merit special examination. In my statement I will try to go into these special facets.

My statement is confined to India but is generally applicable to Pakistan. In that statement I shall try to cover:

(a) The scope and nature of India's 5-year plan of economic development in India;

(6) The interrelationships between that plan and what is commonly known as the Colombo plan;

(c) The interrelationships between the proposed program of technical assistance to India (which is in the amount of $30.1 million) and the proposed program of special economic assistance to India (in the amount of $79.9 million;

(d) The relationship of both of these programs to the Indian 5year plan.

The executive branch of the Government has given careful consideration, in this regard, to the thoughtful observation of your special study mission which, under the chairmanship of Mr. Merrow, examined closely the nature and the underlying premises of India's economic development planning.

On page 59 of the study mission's report, it is recommended that a—

further careful analysis be made of India's 5-year plan. This is especially important since every form of United States assistance to that country is geared to the plan. If the Congress is asked to render assistance to India by way of meeting the deficit in the 5-year plan, it should be one of the major functions of the legislative branch to make certain that it is not underwriting an overambitious program.

India's 5-year plan can best be understood in the light of its historical background. The course of India's history before independence made it necessary for the new independent Government of India to map out and to execute plans for achieving visible progress in an economy that had previously been at best stagnant, and in many respects deteriorating.

The people of India feel that economic progress and economic development were denied to them before independence. They believe that with their national affairs now in their own hands, they can and must move forward. No Government that fails to achieve some perceptible progress can long be tolerated.

Any government hoping to continue in office must declare to the people what it proposes to do in this regard, must state what targets it intends to reach by what future dates. Hence in this sense it is politically imperative in India that there be a plan of economic development.

India has such a plan. It is known as the first 5-year plan. It was published in draft outline form in the summer of 1951 and in final form in December 1952. It covers the period from April 1951 through March 1956 and it specifies what projects of economic development will be undertaken during that period, how much they will cost, where they will be located, who will carry them out, how long they will take to be completed, and what benefits they will entail for the Indian people.

This plan is a good plan. Many observers think it is the most remarkable job of economic-development planning that has ever been done anywhere. I am not in a position to make such sweeping comparisons. But over a period of more than 2 years, I have had a close personal acquaintance with the Indian officials who were responsible for this planning effort.

I have, at their request, consulted with them and discussed with them various aspects of the plan-not as an official representative of the United States Government but as one economist to other economists. Thus I came to know much about the kinds of problems they encountered and the ways in which they dealt with these problems. I have come to have a very high regard for the competence and the integrity of these men, for the realism of their thinking, for the painstaking care and the ultimate precision with which they have examined each project put before them and rejected the impracticable, refined and improved the good projects, and made their forecasts of cost and benefit in an area where forecasting is very difficult indeed.

The plan is loosely said to "cost" 20.7 billion rupees or roughly $4.25 billion. This is a little misleading. This figure is the computed cost of all development projects that will be financed and executed by government-whether central or State. This figure therefore does not reflect the cost of all economic-development activity that the Government hopes and intends shall take place during the 5-year-plan period. In addition to what the Government will do and will spend, private industry and private people will, it is anticipated, invest the equivalent of about $3.5 billion.

Since the Government does not control this "private sector" (as they call it), it is not possible to state precisely how much will be invested in precisely what production facilities.

Of the $4.25 billion total planned governmental expenditures, 17.5 percent will be used for agricultural projects and community development.

Another 27.1 percent will be for irrigation and power projects. Of this subtotal, 12.9 percent is for river-valley projects involving both irrigation and power (as well as flood control); another 8.1 percent is for irrigation projects without a power component.

Another 24 percent is for transport and communications. Only 8.4 percent is for industrial development. The remainder-23 percent-is for social services, health, education, and for miscellaneous, rehabilitation of refugees, and so forth.

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This is a distribution pattern of proposed expenditure that conforms to the observed pattern of immediate development needs in the Indian economy.

India expects to finance this planned expenditure in the following manner. It is expected that 12.6 billion rupees-roughly $2,600 million-can be raised by taxes and borrowing within India.

Another 1.56 billion rupees-about $320 million-has already been received as aid from abroad, from us, from the International Bank, and under the Colombo plan.

Another 2.9 billion rupees-about $610 million-will be drawn down from India's sterling balances, which incidentally will exhaust those past savings except for what needs to be kept for a currency reserve and for minimum "working balances."

If these various amounts are added together and if their total is subtracted from the total planned expenditure, the balance of 3.65 billion rupees (a little over $750 million) is what is sometimes called "the gap.

It is the amount by which the cost of the plan exceeds the financial resources now in sight. Further foreign aid will reduce this gap. The International Bank and the Colombo-plan countries and other sources of assistance will be available; aid it is reasonable, I think, to assume that something between $100 million and $250 million may be forthcoming from these sources. Whatever help we make available will further reduce the gap.

The gap however is still likely to be, in the aggregate, about $600 million-certainly not less than $500 million. If the total help India receives from all sources, including the United States, is less than the amount of the gap, the difference will still have to be met somehow if this plan is to be fulfilled.

The Indians are determined that the plan must be fulfilled. It represents the absolute minimum of what needs to be done. It might be possible, however, for the Government to stretch out some of the projects, thus postponing a part of the cost.

But there is not much scope for such "stretch out." For the most part, any "gap" for which finances were not available would, to that extent, confront India with unpalatable alternatives:

(a) To abandon the plan-which would be political suicide for any elected government;

(b) To resort to authoritarian coercion-which would equally entail the end of democratic government in India; and

(c) To resort to the printing press. This latter course would involve very great risks for an economy like India's where the income structure is both rigid and low.

But the risks of not achieving the minimum goals of the plan are greater. Therefore, the risks of inflation might be faced even though they threatened disaster, both political and economic-economic disaster because inflation could drive the plan targets completely out of reach and political disaster because inflation itself might disrupt the fabric of Indian society.

It is sometimes contended that India should not have formulated a plan that the country cannot afford; that, because the cost of the plan exceeds India's financial resources, then the plan must be too ambitious and grandiose.

The fact is, however, that the plan was constructed not from the top down—for example, by predetermining a total expenditure and spreading it out over projects-but from the bottom up by taking only those projects which had to be done because there was irresistible and legitimate popular demand that they be done.

Indeed, India's leaders, having screened out and refused to sanction many development projects, still fear that they will face insistent political pressures to undertake those projects anyway.

Therefore, it is the conviction of the Indians and all of us at the Embassy who have studied this problem closely agree with themthat the plan is, if anything, too small to meet the real needs and the political imperatives existing in India. At the very least, responsible Indian officials are convinced-and again we agree with them-that all of the planned projects must be done.

There is insistent popular demand for them. In most cases they are projects that have been wanted by the people and talked about and hoped for over a period of years, indeed decades. But nobody heretofore did anything. Now the people insist that this government do something. If this type of government, which is essentially democratic, is unable to do something effective, then the people will get themselves some other kind of government.

As a matter of fact, far from being grandiose, the plan is very modest indeed. It does little more than lay a sound foundation for progress in future 5-year-plan periods. It contains no luxuries whatever. It will raise per capita income by only a fraction over 1 percent per year.

What it holds out to the people of India is not the prospect of immediate abundance but only the opportunity to work hard and effectively so that in future decades their country can make up the ground that was lost while the industrial and agricultural revolutions passed India by.

In connection with India's efforts at economic development, frequent mention is made of the Colombo plan. There is some confusion about just what the Colombo plan is. I think the clearest way to state the matter is to say that the Colombo plan is really two quite different things—a little thing and a big thing.

The little thing is what is known officially as the Council for Technical Cooperation. This is a formal organization which has its headquarters in the city of Colombo in Ceylon. It has a staff and a budget. Its membership includes the United Kingdom, Canada, New Zealand and Australia, India, Pakistan, Ceylon, Malaya, and certain other countries of south and southeast Asia.

Its function is to serve as a clearinghouse for the interchange of technical assistance among the member countries.

Experts are provided from one country to another to advise on specific kinds of economic development activity; and training facilities are made available among the member countries.

By and large the member countries which are not a part of the south and southeast Asia area-for example, the United Kingdom, Canada, Australia, and New Zealand-are donor countries in the sense that they make available most of the experts and much of the training facilities. It is not accurate, however, to speak as if there were, in this organization, a rigid distinction between donor countries. and recipient countries. Several of the recipient countries, for exam