Technical assistance and limited amounts of capital may have to be supplied for some years before the country is technically and politically ready for the take-off—the concentrated effort to launch a growth process that will be self-sustaining.
But there does come a time when the stage is set for the big push.
The country finds itself in a position to launch simultaneously a wide variety of interdependent activities which reinforce each other, and whose combined effect is to produce for the first time a substantial forward movement in all major sectors of the economy at once. India is, in our judgment, at this critical turning point. For a decade or so, during this take-off, requirements for foreign capital are at a maximum. Then, if the process is successful, the country's own rising income increasingly provides the new resources which can be plowed back into investment to stabilize growth as a regular feature of the economy; and the fact of regular growth itself permits the country, once the take-off has occurred, to acquire external capital from private or other orthodox sources.
The evidences that India is ready for the take-off—indeed has already started it—are many. Over the past eight years her output of goods and services has grown by about 25 percent. This growth has occurred in agriculture, in large-scale industry, in small-scale industry, in transport and services. In all these fields there are investment projects on the drawing boards, Indian designed and engineered, to continue the expansion.
There is a growing class of competent administrators, both public and private, to undertake the work. There are clear signs of growing domestic markets to buy the new output when it is ready. There are many more things which Indian leaders must do vigorously if they are to accomplish the take-off, but they now have it in their power to take most of the necessary steps themselves.
There is, however, one major economic threat to the maintenance of momentum which can be met only by action outside India: there is a shortage of foreign exchange with which to acquire the resources needed from abroad for the investment program. The drain which India has recently suffered on her foreign exchange reserves has been caused not, as in the case of some countries, by a decline in her export earnings nor, as in others, by an expansion of domestic consumption. Rather it has come about mainly by an import of capital goods, primarily for the private sector, much larger than anticipated by Indian government planners. This
drain has been accentuated by two relatively poor harvests; but the essential reason that India's foreign balance is in trouble is not that her development efforts have not been succeeding but that investment has gathered more momentum than anyone anticipated. The problem facing India today is how this momentum can be preserved.
The availability of help and resources from outside is important at all stages of the growth process. But there is a peculiarly critical moment in that process, which India has now reached, when external capital in adequate amounts and over a long enough period becomes the key determinant of what happens. After the take-off, as in Mexico, the external environment is important, but non-governmental sources of capital can carry most of the load. Before the take-off technical assistance and some outside capital for social overhead are necessary; but the critical bottlenecks are the needed transformations in the social, political and economic structure of the nation for which its own leadership must take prime responsibility. A time comes, however, when the domestic prerequisites for success have been largely met and when the availability of substantial external resources on an investment basis is the single most important condition of success. India is the prime case in the year 1958 of a country in this position. No one can, of course, guarantee that if the foreign exchange bottleneck is removed, success is assured. Development is always a gamble. But the risk in the Indian case appears eminently worth taking from the American point of view.
We have taken a first step toward meeting India's immediate needs by arranging for a series of credits with the Export-Import Bank, the Development Loan Fund and our agricultural surplus disposal program. They aggregate $290 million for the current year. In our judgment this requires extension of three sorts. First, the annual volume of American loans needs to be increased to at least $500 million; second, a serious effort needs to be made to find substantially more capital from sources other than the United States, such as Western Europe; finally, India requires some assurance that she can count on this general level of new credit for a period of some years.