The second characteristic of the Indian scene that gives it special urgency is the interesting relation between private and public economic activity that has begun to reveal itself in the last two years. The fact that public and private investment are not alternatives but can support each other in the early take-off stage of development has been nicely demonstrated by the Indian experience. In spite of an explicitly socialist governmental ideology, private investment in India has recently been booming. The private sector has, in the first 18 months of the Second Five-Year Plan, undertaken as much investment as the planners initially expected it to undertake over the entire five years. An analysis carried out at the Center for International Studies, M.I.T., of the composition of the unusually heavy volume of imports into India over the past two years reveals that the big increase has been in capital goods imported on private account. The purchasing power created by public investment and the improved transport, communications, power and other services resulting from the activities of the public sector have created an environment in which private investment opportunities have multiplied. As mentioned earlier, it is this buoyancy of private economic activity which has been principally responsible for the foreign exchange difficulties with which India now finds herself confronted.
These difficulties—essentially growing pains—pose a serious dilemma for Indian policy. If additional foreign resources are not forthcoming, India must cut down her imports by strict controls to much lower levels. Her leaders are now politically committed to a variety of public projects. But even if they were not so committed, technical economic considerations would suggest that a sharp cut in investment in social overhead might ultimately throttle private as well as public activity. Further expansion of the private sector is conditioned upon a steady rise in purchasing power and a continuing expansion of transport, power and other services. Even steel might become a bottleneck if present plans were sharply cut back. On the other hand, if the core of the public program is to be maintained, imports can be sharply reduced only by restricting severely the licensing of capital imports for private Indian business.
In short, the volume of public and private investment required over the next decade to make full use of visible Indian resources for growth calls for a supply of foreign capital substantially above current levels. If this supply is forthcoming, there is an excellent prospect that Indian productivity and output will expand sufficiently over the next decade or so to permit India to carry without difficulty the higher level of foreign indebtedness which would result. If the supply is not forthcoming, not
only will Indian development be threatened, but also a chance will have been missed for a practical demonstration of the complementarity of public and private activities which would be enormously persuasive in other underdeveloped countries with socialist preconceptions.
The conclusion might be drawn from this line of argument that what we need is not a more vigorous program of economic assistance in general but rather a special program specifically focussed on and tailored to Indian requirements. This, in our view, misses the essence of our case. A successful Indian program is important at least as much for the model it can set for political leadership in other underdeveloped countries as for its own sake. If our economic assistance program sets up the kinds of criteria for foreign loans that we believe desirable, emphasizing the productivity of such loans for domestic development, India will, over the next two or three years, qualify for a larger share than her population would suggest. But the program as a whole should be so designed as to provide maximum incentives for the leaders of countries less far along to concentrate their energies on preparing their countries to make similar take-off efforts at a later stage. Our attitude should be that we are ready to help any country that has demonstrated its determination to focus its energies seriously on the problem of meeting the economic and social aspirations of its people. This requires a Development Loan Fund with larger resources and a longer Congressional lease than exists under present legislation.
We should not be drawn by the exigencies of cold-war diplomacy into making investments which are unproductive and economically foolish from the standpoint of the development of the recipient. We will gain little long-run advantage from competitive blackmail. But we stand to gain a great deal as time goes on from a clear demonstration that we believe our interests and those of countries prepared to make a real development effort based on political consent are sufficiently common to justify sustained American investment.
India, under its present political leadership, has made the commitment to harness its nationalist aspirations to the tasks of modernization.
The American stake in India is that this commitment shall not fail of its purpose. The more difficult task for American policy is to use our limited but real margin of influence to make it as easy and attractive for other transitional nations to do likewise. Among the many aspects of American policy which can contribute to this outcome, not the least important are the actions we take at this promising but difficult period in Indian history.