INDIA OVER THE NEXT FIVE YEARS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79R01012A007900010001-5
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• Document Creation Date: December 27, 2016
• Document Release Date: August 9, 2013
• Sequence Number: 1
• Publication Date: May 8, 1956
• Content Type: NIE

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NIELL
5 1 ? 5 6
8 May 1956
?wet
NATIONAL INTELLIGENCE ESTIMATE
NUMBER 51-56
(Supersedes relevant sections of NIE 79)
INDIA OVER THE NEXT FIVE YEARS
Submitted by the
DIRECTOR OF CENTRAL INTELLIGENCE
The following intelligence organizations participated in the
preparation of this estimate: The Central Intelligence Agency
and the intelligence organizations of the Departments of
State, the Army, the Navy, the Air Force, and The Joint Staff.
Concurred in by the
INTELLIGENCE ADVISORY COMMITTEE
on 8 May 1956. Concurring were the Special Assistant, In-
telligence, Department of State; the Assistant Chief of Staff,
Intelligence, Department of the Army; the Director of Naval
Intelligence; the Director of Intelligence, USAF; and the
Deputy Director for Intelligence, The Joint Staff. The Atomic
Energy Commission Representative to the IAC, and the
Assistant Director, Federal Bureau of Investigation, abstained,
1
the subject being outside of their jurisdiction.
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CENTRAL INTELLIGENCE AGENCY
DISSEMINATION NOTICE
1. This estimate was disseminated by the Central Intelligence Agency. This copy
is for the information and use of the recipient indicated on the front cover and of per-
sons under his jurisdiction on a need to know basis. Additional essential dissemination
may be authorized by the following officials within their respective departments:
a. Special Assistant to the Secretary for Intelligence, for the Department of
State
b. Assistant Chief of Staff, Intelligence, for the Department of the Army
c. Director of Naval Intelligence, for the Department of the Navy
d. Director of Intelligence, USAF, for the Department of the Air Force
e. Deputy Director for Intelligence, Joint Staff, for the Joint Staff
f. Director of Intelligence, AEC, for the Atomic Energy Commission
g. Assistant Director, FBI, for the Federal Bureau of Investigation
h. Assistant Director for Central Reference, CIA, for any other Department or
Agency
2. This copy may be retained, or destroyed by burning in accordance with appli-
cable security regulations, or returned to the Central Intelligence Agency by arrange-
ment with the Office of Central Reference, CIA.
3. When an estimate is disseminated overseas, the overseas recipients may retain
it for a period not in excess of one year. At the end of this period, the estimate should
either be destroyed, returned to the forwarding agency, or permission should be
requested of the forwarding agency to retain it in accordance with IAC?D-69/2, 22
June 1953.
WARNING
This material contains information affecting
the National Defense of the United States
within the meaning of the espionage laws,
Title 18, USC, Secs. 793 and 794, the trans-
mission or revelation of which in any manner
to an unauthorized person is prohibited by law.
DISTRIBUTION:
White House
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Department of State
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INDIA OVER OVER THE NEXT FIVE YEARS
THE PROBLEM
To assess India's probable strength, stability, and international position through
1960.
CONCLUSIONS
1. On the basis of .present information,
we believe that the Congress Party will
probably win the 1957 parliamentary
elections by a margin sufficient to retain
firm control of the central government.
Nevertheless, the Congress Party will
probably face difficulties in retaining
popular support, especially if it has to re-
sort to unpopular austerity measures in
connection with its economic develop-
ment program. These difficulties would
be greatly increased in the event of
Nehru's death or retirement. (Paras. 25-
28, 31)
2. The Communist Party of India, with
an active membership of 50,000-60,000
and a parliamentary strength of 23 (out
of 499), is unlikely to present a serious
threat to the government during the
period of this estimate. However, it will
probably be one of the chief beneficiaries
of any loss Of Congress Party strength,
and in any event will continue to have
considerable capabilities for exploiting
popular unrest and for sabotage. (Paras.
19, 29)
3. Indian leaders have placed great em-
phasis on reinvigorating and developing
the economy in order: (a) to meet the
demands placed on it by the steady
growth of population and related prob-
lems of unemployment; (b) to create a
powerful modern state; and (c) to satisfy
the growing popular demand for eco-
nomic improvement. They have made a
considerable start in raising agricultural
output under the first Five Year Plan and
are now launching an, ambitious second
plan ? more than double the size of the
previous plan ? in which emphasis is
placed on development of India's indus-
trial base. This plan calls for total pub-
lic and private expenditures of about $15
billion, more than twice those of the first
plan. (Paras. 37-42, 44)
4. India will have difficulty in financing
a plan of this magnitude. It will be diffi-
cult to raise the domestic resources re-
quired without risking potentially dis-
ruptive inflation. The plan assumes that
India will be able to obtain $1.68 billion
in foreign aid; more than twice that re-
ceived during the previous plan period.
There is an additional gap of $840 million,
potential sources of which are as yet un-
determined. (Paras. 43, 48-49)
1
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anetWW
5. If India is successful in obtaining at
the appropriate time the large amounts
of foreign aid called for by its plan, it
should' make considerable progress in
laying the foundations of a modern econ-
omy and should achieve a rate of eco-
nomic growth that would put the Indian
government in a favorable position to un-
dertake the further development efforts
necessary to cope with its basic, long-run
problems. Even if the plan is success-
fully carried out, however, living stand-
ards would still be extremely low and the
proportion of developed resources small
at the end of the plan period. (Para. 53)
6. Should India fall significantly short
of the projected expansion during the
crucial next five years and lose the mo-
mentum it has gained under Nehru's
leadership, it is unlikely to regain this
momentum during the foreseeable fu-
ture. A period of economic and political
decline would almost certainly set in,
popular support for the Congress Party
would diminish, dissension would grow
both inside and outside the Congress
Party, unrest would ensue, and the gov-
ernment might adopt repressive authori-
tarian measures which would still further
enhance its unpopularity. (Para. 57)
7. India will almost certainly retain its
basic foreign policy of noninvolvement
during the period of this estimate. India
will almost certainly continue to avoid
definite political and military commit-
ments to either the Western Powers or
the Soviet Bloc. It will probably con-
tinue to seek economic assistance from
both the West and the Soviet Bloc. (Para.
66)
8. Provided that the Communists con-
tinue their present conciliatory tactics,
further Indian economic and cultural ties
2
with the Bloc will almost certainly take
place. Should skillful Communist ex-
ploitation of this situation be accom-
panied by strong differences between
India and the W6st on such questions as
colonialism and military alliances, India
would probably beV ranged alongside the
Bloc on an increasing number of inter-
national issues, and some sense of identi-
fication with the Bloc as against the West
would develop. At the same time, in-
creased Indian-Bloc contacts Will prob-
ably be marked by at least some disen-
chantment and friction; also, even in a
peaceful and ostensibly friendly atmos-
phere, political and economic rivalry be-
tween India and Communist China may
become more evident. (Paras. 67-69)
9. India will almost certainly wish to re-
main on good terms with the US. At
best, however, differences and frictions
will probably continue to arise on various
international issues and over US special
ties with Pakistan and with Nationalist
China and the Republic of Korea. Pro-
vision of substantial US economic assist-
ance would not of itself eliminate such
differences, though it would reassure
India of continuing US interest in its in-
dependence and stability and would prob-
ably reduce the likelihood of greatly in-
creased Indian' economic relations with
the Bloc. (Paras. 71-72)
10. Although India will continue to play
an important role. in international affairs,
a lessening of the chances of war between
the US- and the USSR and a decline in
the threat of local clashes between Com-
munist and non-Communist forces would
give India fewer opportunities to inter-
vene dramatically as it did in the Korean
and Indochina settlements. Moreover,
India would encounter more difficulty in
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,.?.,44610tw-
establishing itself as leader of the Afro-
Asian Bloc, whose members tended to
accept Indian leadership when the danger
of war seemed acute. (Para. 73)
11. Indian military attention will prob-
ably continue to be directed mainly
against Pakistan rather than against the
the Communist powers. Its armed forces
are presently capable of effectively de-
fending Indian territory (including In-
3
dian-held Kashmir) against Pakistani
invasion and could also defend its borders
effectively against small-scale Commu-
nist attacks from the north and east.
India would not accept close military ties
with the West except in the event of
direct Communist attack on Burma,
Nepal, Sikkim, or Bhutan, and even then
might revert to nonalignment once the
crisis had passed. (Paras. 69, 78, 81)
DISCUSSION
I. INTRODUCTION
12. The Indian government inherited from
the British a competent Indian civil service,
a code of administration and law, a common
official language, a countrywide network of
communications and transportation, and a
well-trained, unified military organization.
Indian leaders were well grounded in British
constitutional concepts and techniques and
many are of outstanding ability. Since 1947
these leaders have demonstrated an ability to
conduct an independent democratic govern-
ment with effective control over the entire
country.
13. India is now a federal republic. Federal
legislative power rests in a bicameral parlia-
ment, the lower house being elected directly
by the people and the upper house by the state
legislatures. The executive branch of the
government is presently strong in relation to
parliament. The Indian constitution gives the
central government strong residual powers
vis-a-vis the states, including the right to
suspend a state government under certain
circumstances. There are now 28 states (in-
cluding Kashmir) , which range from those
with considerable governmental authority to
those administered directly by the central
government. Under the states reorganization
scheme scheduled to come into effect in
October 1956 there will be 15 states and seven
centrally administered territories. The na-
tional parliament, under certain circum-
stances, is empowered to legislate in the
states' sphere of responsibility, and state laws
must not contravene those of the national
government. The country's first national
elections took place in 1952; more than 100
million of the 176 million eligible voters cast
ballots. The more than 600 princely states,
which were nominally independent under
British rule and covered one-third of the coun-
try, have been absorbed into the present state
structure.
14. Nevertheless, the government still faces
formidable problems:
a. Racial, linguistic, and cultural diversities
continue to plague the Indian government.
Long standing antagonisms between north
and south still exist. There are in India 12
to 15 major languages, for the most part mu-
tually unintelligible, and the government's
decision to adopt Hindi as the official national
language to replace English' still arouses
strong resentment, mainly in South India.
Religious feelings occasionally flare into seri-
ous violence and hinder the present govern-
ment's program of secularization. The caste
system, which despite its gradual breakdown
still separates most of the Indian people into
well defined social and occupational classes,
accentuates the natural tendency of India's
predominantly peasant population to resist
change and modernization, and makes it un-
usually difficult for the government to imple-
ment some of its most urgent programs.
' According to the Indian constitution, this change
is to take place in 1964, 15 years after the con-
stitution went into effect.
42011SOXIOna.
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961406WEIT
b. India's population in 1956 is roughly
estimated at 385,000,000, and is growing at
the rate of over 4,500,000 a year. Indigenous
food resources do not quite maintain even the
present very low standard of living and fluc-
tuate widely depending on the adequacy of the
monsoon rains. Poverty, malnutrition, un-
employment, and disease are widespread. In-
dia has made only a small start toward utiliz-
ing its substantial resources for industrializ-
ing its economy.
c. The foundations for stable democratic
government are weak. There is a wide gulf
between the great bulk of the peasantry and
the small but potent educated elite, which
comprises about two percent of the population
and is the only group taking continuing
active interest in political issues. Three-
quarters of the population are illiterate, and
except among the comparatively small num-
ber who know English, even the literate have
no single medium of communication. A sub-
stantial number of young intellectuals are
vulnerable to Communist appeals. Finally,
India is still under the domination of the
political organization which led the fight for
independence and has still to develop a stable
party system.
15. The leaders of India are determined that
their country shall be transformed into a
unified, strong, and modern nation by demo-
cratic means. They feel that they are en-
gaged in a race against time, fearing that
democratic procedures may be rendered un-
workable by economic deterioration and the
factors of disunity inherent within the nation.
Unless India can achieve a sustained rate of
economic growth greater than the rate of
population growth, economic deterioration
and concomitant political instability appear
inevitable.
II. GOVERNMENT AND POLITICS
The Congress Party Government
16. The Congress Party, dominated by Prime
Minister Nehru, is in firm control of the na-
tional government which, in turn, is in firm
control of the country. Congress Party mem-
bers hold all the cabinet positions in the na-
tional government and in the 1952 elections
won 363 seats in the 499-man lower house of
4
the national parliament. The Congress Party
also dominates most of the state governments
and manages to control even those states
where its position is relatively weak. The
Congress Party is the only party in the coun-
try with active operating units in all the
states.
17. The Congress achieved its dominant posi-
tion because of its role as the party which led
the fight for independence. In the years fol-
lowing independence, however, the Congress
Party began to show a number of weaknesses.
The absence of the strong and unifying
stimulus of the drive for independence led to
a growth of complacency, factionalism, and
corruption at all levels of the party. The
excessive dependence on Nehru and his dom-
ination of the party discouraged initiative on
the part of others. Similarly, with old-guard
members secure in the topmost posts, there
was little incentive for young men to try to
rise in the party hierarchy. Despite all this,
the Congress produced a record of solid
accomplishments, and it still appears to re-
tain a fairly large measure of popular support
by virtue of Nehru's prestige, the appeal of its
middle-of-the-road program of social and eco-
nomic reform, and its success in increasing
India's stature in world affairs. During the
past few years, the Congress has been taking
steps to remedy its internal weaknesses, but
it is not clear how effective these steps have
been.
The Non-Communist Opposition
18. The non-Communist opposition parties
have had little success in capitalizing on the
Congress Party's difficulties and in some cases
have themselves suffered a marked decline.
The Praja Socialist Party, somewhat to the
left of the Congress Party, initially showed
some promise of becoming a major rival to the
Congress. It was formed in late 1952 as the
result of a merger of the Socialist Party and
the Kisan Mazdoor Praja Party which, in the
1952 elections, had won approximately 10
and five percent of the popular vote respec-
tively. Both of these parties were initially
offshoots of the Congress Party. Since 1952
internal dissension, culminating in an open
SitarSONTOP'
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split in 1955, has greatly weakened the Praj a
Socialist Party. It has suffered defections to
both Congress and the Communists, and now
appears to be losing its effectiveness as a na-
tional political organization. A new party
comprised of Praja Socialist Party dissidents
was launched in December 1955, but it has
thus far shown few signs of strength. The
small rightist Hindu parties, such local groups
as the Sikh Party in the Punjab area, and the
very small extreme leftist parties show few if
any signs of growth.
The Communist Party
19. The Communist Party is the second most
important party in the country. Its mem-
bership is estimated at 50,000 to 60,000, a drop
from a high of about 100,000 in 1947 but
double the low of about 30,000 reached in
1953. It polled 4.5 percent of the votes in the
1952 parliamentary elections and won 23 of
the 499 seats in the national parliament.
(Other pro-Communist groups won an addi-
tional four seats.) The Communist Party is
organized and operates in practically all the
states, but its strength is not uniformly dis-
tributed. For instance, the Communists are
strong in West Bengal and in certain areas of
South India. (See map.) On the other hand,
they have very little following or influence in
a number of areas, including Rajasthan,
Orissa, the northern districts of Bombay,
Madhya Pradesh, and extensive portions of
Uttar Pradesh.
20. There has been a long history of dis-
harmony and rivalry among Communist party
top leaders. The party has had persistent
difficulties in agreeing on a fully clear and
consistent party line. Moscow has apparent-
ly done little to help the party to compose its
internal differences or give it clear-cut guide-
lines, although it has provided guidance to
Indian Communists through British Commu-
nist leaders, through personal contacts and
correspondence with Indian party leaders, and
until recently through the Cominform jour-
nal. The party receives at least some indirect
financial assistance from Soviet sources. We
have no evidence of significant contact be-
tween the Chinese Communists and the In-
5
dian Party, and it is unlikely that the Chinese
Communists exercise any influence over the
latter.
21. In 1948-1949, when the Communists
attempted a program of violence, the Indian
government strongly repressed their activities.
The party has since adopted a posture of
moderation and has remained a legal political
body. With the post-Stalin effort by the
USSR to cultivate Asian neutrals and en-
courage nonalignment with the West, the
Indian Communists swung over to support
of most of Nehru's foreign policies, though
they still continue to attack some of his do-
mestic ones.
22. The Communists draw most of their sup-
port from (a) the educated urban population,
and (b) organized labor. Their only con-
spicuous success in mobilizing peasant support
thus far has been among the landless laborers
and small tenants of certain areas of south
and southeast India. (See map.) The un-
employed and low-paid among the educated
urban population are especially susceptible
to the appeal of Communism, and it is from
the educated urban group that the Commu-
nist Party draws most of its leadership. This
group also participates extensively in Com-
munist-front "peace committees," women's
and professional organizations, and student
associations. The Communists control the
All-India Trade Union Congress, the second
largest labor organization in India, which
claims a membership of over 600,000 repre-
senting some 20 to 25 percent of India's or-
ganized labor.
23. There is little firm information concern-
ing the extent to which Indian Communists
have penetrated and influenced the Indian
government. However, there are almost cer-
tainly enough Communist sympathizers hold-
ing positions in national and state govern-
ment departments to permit the Communist
Party to keep generally informed about gov-
ernment thinking. We believe that Indian
Communists are not in a position to have a
voice in the determination of government
policy.
24. The Communists have probably had their
greatest success in penetrating the Ministry
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of Broadcasting and Information and the
privately controlled but government-subsi-
dized Indian Statistical Institute, which used
Soviet Bloc as well as Western experts as ad-
visers and as aides in assembling the data for
the second Five Year Plan. The Communists
are especially active in newspaper, cultural,
artistic, and student activities. Communist
penetration of the armed forces is believed to
be very slight, although some state police
forces may be penetrated to a greater extent.
The party probably has no significant para-
military capabilities at present. It does not
at present pose a serious political challenge to
the government, but because of its strength
in key industrial and transportation installa-
tions it does have considerable capabilities for
sabotage and probably could seriously disrupt
the Indian communications and transport
systems if it chose to. The Bombay riots of
January 1956 demonstrated its ability to or-
ganize and exploit local discontent by pro-
viding leadership and intensifying popular
unrest.
Political Prospects
25. On the basis of present information, we
believe that the Congress Party will probably
win the national elections scheduled for early
1957 by a margin sufficient to retain firm con-
trol of the national government. It will pre-
sumably enter the electoral campaign with the
benefit of Nehru's prestige and the advantage
of being backed by the resources of the gov-
ernment. It is the only party with a nation-
wide organization and has itself been the chief
spokesman of nationalist and neutralist senti-
ment in the country. The Congress Party en-
joys the additional advantage of having an-
nounced early in 1955 that its goal is a "so-
cialistic pattern of society," thus undercutting
leftist opposition parties advocating the same
policy. Nehru and other leaders also appear
to be placing increasing emphasis on improv-
ing economic conditions, and there are signs
that Nehru intends to take personal charge of
the second Five Year Plan.
26. On the other hand, provincial elections in
East Pakistan in 1954 and national elections
in Ceylon in 1956 have demonstrated that the
6
criteria used in predicting election victories
for the ruling party were unreliable. The
leadership of a few outstanding political fig-
ures, a monolithic organization, and party
control of the government structure failed to
prevent a dramatic election upset by a coali-
tion of opposition groups whose chances of
victory had previously been estimated as ex-
tremely slight. It is possible, therefore, that
our present information may indicate greater
popular support for the Congress Party than
it actually enjoys.
27. In the likely event of a Congress Party
victory, India's present Congress leadership
will still face problems of such magnitude and
complexity that it will almost certainly fail
to satisfy the aspirations of certain elements
of the population and is likely to alienate oth-
ers in its very efforts to improve the situation.
In meeting the heavy financial obligations of
the second Five Year Plan, the government,
in the absence of a substantial increase in
foreign aid over present levels, will probably
be forced to resort to a number of unpopular
austerity measures, including more rigid eco-
nomic controls and possibly higher taxation
than are now in effect. In this event political
unrest would almost certainly increase and
the government be compelled to resort increas-
ingly to repressive and authoritarian meas-
ures. Such measures would stimulate still
further dissatisfaction, especially if, as would
probably be the case, the common man was
unable to perceive any significant improve-
ment in his personal economic status.
28. In addition to the political strains likely
to arise over economic matters, the govern-
ment will continue to be confronted with the
serious domestic political problem of satisfy-
ing the various groups who desire the reorgan-
ization of India's states to fit linguistic pat-
terns. Despite Nehru's present control over
the situation, numbers of voters remain dis-
satisfied, and disturbances such as the Bom-
bay riots of January 1956 may be repeated.
Even if present reorganization plans are ac-
cepted by all state governments, there will be
many opportunities for controversy over pre-
cise boundaries and administrative readjust-
ments.
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29. Should the Congress Party suffer a marked
decline in popular support during the period
of this estimate, the small but relatively dy-
namic Communist Party would probably be
one of the chief beneficiaries. It would have
opportunities for increasing its strength and
influence in the event of widespread disap-
pointment with the rate of economic progress
or dissatisfaction over austerity measures.
The Communists would also have a chance
to capitalize on a variety of local political is-
sues and on the absence of any other well-
organized national party attractive to voters
dissatisfied with the Congress. However, con-
tinued dissension within the Communist Par-
ty as well as close surveillance by the govern-
ment will probably prevent the Communists
from reaching a position sufficiently strong
to pose a serious political challenge to the
Congress within the period of this estimate.
Moreover, although the Indian Communists
may have acquired some new respectability
among the people as a result of the Bulganin-
Khrushchev visit in 1955, they are hampered
by the new Moscow line, which requires them
to give so large a degree of support to Nehru
and his policies that they have relatively few
issues on which to oppose the Congress.
30. Among the non-Communist parties, the
Socialists might win additional adherents on
both linguistic and economic issues among
those who did not wish to support the Com-
munists, but would have to develop a stronger
program and organization than they now have
to gain widespread popular support. Dis-
gruntled business and conservative elements
are more likely to swing over to the presently
small rightist parties. In addition, there
would probably be a proliferation of splinter
parties under individual provincial leaders
and the emergence of various locally prom-
inent men as independent candidates. Frag-
mentation and continued disorganization of
opposition elements might be of decisive ad-
vantage to the Congress Party, which capital-
ized on similar conditions in 1952 to win
approximately three-quarters of the seats in
the lower house of parliament on the basis of
only 45 percent of the popular vote.
31. Prime Minister Nehru's death or retire-
ment from the political scene would be a se-
vere blow to India and the Congress Party.
However, except for the Socialist leader, Jai
Prakash Narain, now in semiretirement, the
Congress Party would still have India's most
prominent and respected political figures on
its side. Although it is impossible at present
to foresee who Nehru's successor will be, there
are a number of able Congress Party leaders,
now somewhat obscured by Nehru, who could
assume control over the party and the gov-
ernment. The fact that most of these influ-
ential cabinet ministers and important state
government leaders are relatively conservative
in their views suggests that after Nehru's de-
parture the reins of government would by de-
fault fall into somewhat more conservative
hands. The almost total absence of "liberal"
leaders of national stature either inside or out-
side the government supports this thesis,
especially when it is considered that the
weight of the business community, its funds,
and its propaganda media would probably be
on the side of the conservatives.
32. Such a development, however, would be
unlikely to lead to an immediate change in
India's domestic or foreign policies and it
would not mean abandonment of the welfare
state principle. The government and the
Congress Party are far too committed to this
principle, and Indian conservatives have too
little popular support, to enable Nehru's prob-
able successors to attempt any such move.
The problems of the peasants and of growing
numbers of unemployed will be too acute to
be overlooked. There might be somewhat
greater freedom for private enterprise and
some improvement of relations with the West.
On the other hand, since many conservatives
are also strongly Hindu in their outlook, there
might be a drift away from secularism, of
which Nehru has been the outstanding cham-
pion, and there might also be a tendency to-
ward a narrower world view on the part of
the government.
III. ECONOMIC SITUATION AND PROSPECTS
Background
33. India inherited from the British the rudi-
ments of a modern industrial system, includ-
ing sizable mining and manufacturing facili-
ties, an extensive though overburdened rail
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leeirer
network, and a modern banking system. India
is one of the first 10 nations of the world in
industrial output, ranking behind Japan and
about on a par with Communist China among
the Asian nations. However, industry in the
Western sense still accounts for only a small
portion of total output and employment.
Even including the handicraft products of
the extensive cottage or village industries,
manufacturing contributes only about 17 per-
cent of national income. Of a labor force esti-
mated at about 170 million and growing at a
rate of about two million a year, only about
16.3 million are employed in manufacturing
and of these approximately 13 million are en-
gaged in cottage industries and only a little
over 3 million in organized industry.
34. Seventy percent of the population has re-
mained directly dependent on an agricultural
system in which primitive techniques, over-
crowding of land, and antiquated practices
regarding land ownership and rural credit
have remained the rule. In 1948, over 65 per-
cent of rural families owned or tilled less than
five acres each and over 45 percent less than
two. Many of those owning their own land
were so in debt to moneylenders as to make
their ownership little more than a legal for-
mality. Levels of productivity, both per acre
and per person employed in agriculture, have
remained among the lowest in the world. Al-
though 60 percent of India's cultivated land
is devoted to wheat, millets, rice, and other
foodstuffs (as against tea, cotton, jute, and
other cash crops) , India has normally had to
import some food, even in good years. When
the monsoons have failed, as has frequently
been the case, substantial imports of food have
been necessary.
35. Because of these circumstances, extreme
poverty is widespread in India. Available
statistics, though insufficiently reliable or
complete to provide more than a rough gauge
of Indian economic activity, indicate that in
1955-1956 India produced a national income
provisionally estimated at about $22.7 billion,
or approximately $59 per person. This low
level of output has provided little surplus for
investment; at the time of independence eco-
nomic growth was barely keeping pace with
the steady augmentation of the population by
8
about 1.3 percent, or over 4.5 million persons,
each year, and in the economically chaotic
years which immediately followed, it is prob-
able that per capita income actually declined.
Another major by-product of the poor and
stagnant condition of the economy has been
chronic unemployment now officially esti-
mated at between five and six million and
severe underemployment affecting many times
that number. Included among the unem-
ployed are about 10 percent of the urban labor
force and of rural nonagricultural labor.
36. At the time of independence, India had
total foreign exchange and gold holdings
equal to $3,354 million, of which the equiva-
lent of $3,248 million was in sterling balances.
However, India drew heavily on these reserves
in the first years of independence because of
food shortages and the need to make up for
wartime neglect of industrial and transport
equipment. These reserves now stand at
$1,789 million, mostly in sterling. The pro-
ceeds of India's exports (notably tea, textiles,
jute products, manganese, mica, and other
minerals) have consistently fallen short of
paying for the machinery, petroleum, raw
cotton, food grains, and miscellaneous other
items which India has had to obtain from
abroad. Bad crops have sometimes intensi-
fied these trade deficits. However, the trade
gap has been narrowing as a result of India's
improved agricultural position, increasing ex-
ports, and tighter import controls. The 1954
trade deficit was about $110 million (or about
four percent of total external trade). With
net invisible receipts of about $150 million,
India's international accolints in this period
show a surplus in the neighborhood of $40
million.
37. Indian leaders have from the start placed
great emphasis on reinvigorating and develop-
ing the economy, not only for purposes of
meeting the increasing demands placed upon
it by the steady growth of population but also
for purposes of creating a powerful modern
state. Their sense of urgency about accom-
plishing this task has been intensified by the
growth of popular economic expectations fol-
lowing independence. In accordance with
Nehru's welfare state philosophy, principal
emphasis has been placed on the role of the
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state, which under India's constitution is
specifically charged with developing a social
order which would provide "adequate means
of livelihood" for all and would ensure that
ownership and control of the country's ma-
terial resources are "so distributed as best to
subserve the common good." The govern-
ment has assumed over-all direction of the
economic development effort, taking over
direct responsibility for large-scale power proj-
ects and similar major tasks and utilizing
taxation, licensing and other controls to chan-
nel private investment along lines called for
under its plans. Moreover, the government
has shown increasing interest in pushing so-
cialization. In addition to retaining exclusive
operational control in such fields as railways,
posts and telegraphs, defense production, and
atomic energy activities, it has expressed the
intention of participating in all important
new undertakings in the mineral, petroleum,
and shipbuilding fields. While Prime Min-
ister Nehru has emphasized the continuing
importance of the private sector of the econ-
omy and has disavowed any intention to press
for full socialization of the economy under
present conditions, the government has re-
served the right to nationalize certain indus-
tries in the public interest and has recently
had new legislation passed empowering it to
take over existing industries which it judges
to be mismanaged. The life insurance busi-
ness, most of it British-controlled, was re-
cently nationalized in order to increase the
government's control over financial affairs.
The First Five Year Plan
38. For the first few years after independence,
the Indian government was preoccupied with
remedying the dislocations caused by World
War II and the partition. Some five million
refugees had to be resettled; the transporta-
tion system was on the verge of collapse; and
India's large jute processing industry was
disrupted. In 1951, however, with the econo-
my in the doldrums and per capita production
actually declining, the Indian government
laid the foundations for a systematic attack
on the economic development problem by
promulgating its first Five Year Plan (1951-
1956) . This plan, which called for total out-
9
lays equivalent to $7 billion, placed major em-
phasis on expanding the output of foodgrains
and other agricultural staples. Irrigation and
other projects for extending land utilization
were launched, production and use of fertili-
zers was stimulated, and an ambitious com-
munity development program was started to
teach new agricultural techniques and stimu-
late self-help projects in public health and
other community facilities. Efforts were al-
so made to assist the land reform programs
being undertaken by the states. Actual im-
plementation of the plan was slowed by
financing and administrative delays, and it
was not until 1953 that the projected levels
of investment began to be met. For the en-
tire five year period, though the private sector
apparently met its goals, the public sector
of the program fell short of meeting projected
investment targets by approximately 10 per-
cent. However, the Indian economy has made
considerable progress.
39. Over the last five years (1951 through
1955) , national income is estimated to have
risen by 18 percent, or an average of over
three percent a year. Per capita income,
taking account of the growth in population,
had risen by 10 percent by the end of the first
plan period. The industrial production index
(1939=100) rose to 145 in 1954, the most im-
portant gains being in cement, heavy chemi-
cals, and fertilizers. By 1954, cotton produc-
tion had increased 33 percent over 1951, per-
mitting a 50 percent cut in cotton imports.
Food grain production in 1955, though not as
high as during the bumper crop years 1953
and 1954, was about 10 million tons more than
in the "normal" year of 1950. Despite rising
population, this increase has facilitated a re-
duction in 1955 food imports to only 1.2 mil-
lion tons, as compared with a high of 4.8 mil-
lion tons in 1952 and an average of 3.3 million
tons annually from 1948 to 1953. The re-
sultant savings in foreign exchange permitted
increased imports of machinery and other de-
velopmental materials without producing a
serious foreign exchange gap. Finally, heavy
government expenditures in the last two years
of the plan period, coupled with good harvests,
led to increased confidence and increased in-
vestment on the part of the private sector of
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the economy, which had initially lagged far
behind the investment goals set for it.
40. However, even these fairly impressive
gains represent only a start at solving the
problem. Unusually favorable weather in
1953 and 1954 probably accounted for about
half of the spectacular advances in agri-
cultural output. The community develop-
ment program, which has now reached 80
million of India's population and close to a
quarter of its approximately half a million
villages, has provided some impressive local
demonstrations of what can be accomplished
through increased use of fertilizer, introduc-
tion of better seeds, and other technical
improvements. However, available figures,
though admittedly subject to error, as yet
show no significant increase in average pro-
ductivity per acre for the country as a whole.
Most of the permanent improvement in farm
production must therefore be attributed to the
bringing of marginal lands under cultivation
and the extension of irrigation to an addition-
al 17 million acres over the 50-million-acre
1951 base. Meanwhile, though per capita
consumption of food grains, the most import-
ant component of the Indian diet, is up from
about 14 ounces a day per person in 1950 to
about 18 at present, it is still low.
41. Industrial production, though showing
impressive percentage increases, is still low
in terms of the country's growing require-
ments. The basic problem of unemployment
and underemployment has grown rather than
diminished as a result of the failure of in-
creased job opportunities to match the growth
of the labor force. Finally, the increases in
national income, while stimulating some fur-
ther economic expansion, are not yet suffi-
ciently large to create the surpluses for in-
vestment required to assure a self-sustaining
rate of accelerating economic growth.
The Second Five Year Plan
42. Recognition of the need for more rapid
progress has led the government, in its second
Five Year Plan now being set up for the period
10
1956-1961, to more than double the $7 billion
of expenditures called for under the first plan.
Under the second Five Year Plan, the govern-
ment foresees total expenditures of about $15
billion, of which it expects to contribute about
$8 billion in investment projects and about
$2 billion for health, education, welfare, and
current administrative overhead. Private en-
terprise is expected to contribute $4.8 billion.
43. The government expects to finance rough-
ly half of the $10 billion total for which it is
responsible from current revenues, market
loans, small savings borrowed from the public,
and other budgetary sources. Some $2.5 bil-
lion it expects to raise through deficit financ-
ing. About $1.7 billion it hopes to receive in
foreign aid. This figure is over and above
foreign exchange requirements met by private
foreign investors and by drawing down India's
sterling balances, and is twice that of foreign
contributions received during the first plan
period. An uncovered gap of over $840 mil-
lion remains, for which no financing provision
has yet been made.
44. Agriculture and community development
are slated for almost double the expenditures
called for under the first plan, a major goal
being the expansion by 1961 of the community
development program, or at least some form
of agricultural extension work, to cover the
remaining three-quarters of India's villages.
As in the first plan, major sums will also be de-
voted to irrigation and power and to improve-
ment of transportation and communications.
However, the chief innovation of the new plan
is the substantial increase in funds allocated
to industrial and minerals development, which
Indian planners regard as the key to any sus-
tained economic progress. Four-fifths of the
funds allocated in this category are earmarked
for heavy industry. The remainder will go
to cottage and small-scale industry, which is
counted on to absorb some of the increased
consumer demand generated by the program
and to provide additional employment oppor-
tunities with a minimum of capital expendi-
ture.
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1?D?''
TABLE I
PUBLIC SECTOR FINANCING
DURING THE SECOND FIVE YEAR PLAN PERIOD
(in billions of dollars)
11
REVENUES EXPENDITURES
OUTSIDE THE PLAN
Current revenues Current governmental functions, including
defense
9.555 9.555
ON THE PLAN
Tax receipts and other budgetary
sources 2.520 Investment* 7.980
Domestic government borrowing 2.520
Deficit financing 2.520 Health, education, welfare, and admin-
External assistance 1.680 istrative overhead for plan 2.100
Uncovered gap 840
PLAN SUBTOTAL* 10.080 10.080
TOTAL 19.635 19.635
* The private sector of the economy is expected to contribute an additional $4.8 billion of investment to-
ward the Plan. This private investment will accrue mainly in the fields of construction and industry.
TABLE II
BREAKDOWN OF PLANNED PUBLIC SECTOR EXPENDITURES
First and Second Five Year Plans
1951-1956
First Five Year Plan
1956-1961
Second Five Year Plan
Expenditures* Percent
Expenditure Percent
(billions of dollars)
(billions of dollars)
Agriculture and community development
$0.78
16
$1.19
12
Irrigation and power
1.39
28
1.88
18
Industries and minerals
0.37
7
1.87
19
Transport and communications
1.17
24
2.91
29
Social services, housing, rehabilitation, etc.
1.15
23
1.99
20
Stocks and miscellaneous
0.09
2
0.24
2
TOTAL
$4.95
?
100
$10.08
100
* It is estimated that actual expenditures reached $4.45 billion.
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VIVECtRikliir 12
TABLE III
TOTAL EXPENDITURES (PROVISIONAL)
ON THE SECOND FIVE YEAR PLAN*
? (in billions of dollars)
Major Development Headings
Public Sector
Private
Invest-
ment
Total
Invest-
ment
Total
Plan
Expend-
iture
Total
Current
Outlay
Invest-
ment
(1)
(2)
(3)
(4)
(5)
(6)
(7)
1. Agriculture and community development
1.19
)
)
0.42
' )
)
)
0.42
) 1.73
) 2.15
) 2.5
2. Irrigation and flood control
0.96
)
)
)
)
3. Power
0.92
0.92
0.11
1.03
1.03
4. Industries and minerals
1.87
0.21
1.66
1.16
2.82
3.03
5. Transport and communications
2.91
0.32
2.59
0.10
2.69
3.01
6. Social services and construction (housing, edu-
cation, hospitals, etc.)
1.99
1.15
0.84
2.20**
3.04
4.19
7. Stocks and miscellaneous
0.24
0.24
0.84
1.08
1.08
TOTAL
10.08
2.10
7.98
4.83
12.81
14.91
?
* During the five year period total Indian governmental expenditures, including normal government
functions and defense, will amount to about $19.6 billion. The Plan thus accounts for slightly over half
of government expenditures. (Rupees have been converted to dollars at the rate of one rupee equals
$0.21.)
** The $2.2 billion is primarily "construction" in the private sector.
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tot/Wen
45. The over-all goal of the second Five Year
Plan is to raise national income from an esti-
mated $22.7 billion for 1955-1956 to $28.3 bil-
lion in 1960-1961, an increase of about 25 per-
cent or about five percent a year as against the
three to four percent achieved under the first
plan. On this basis, the rate of investment
could be increased from the present seven per-
cent of national income to 11 percent by 1960-
1961 and still permit an increase in total con-
sumption of 20 percent. Taking population
growth into account, this would represent an
increase in per capita income of about 18 per-
cent and an increase in per capita consump-
tion of about 12 percent by the end of the five
year period.
46. The greatest percentage increases are
called for in the industrial field, with steel
production scheduled to rise about 250 per-
cent to six million ingot tons,2 aluminum
listed for a 233 percent increase, and producer
goods up 150 percent. Partly as a result of
a projected 300 percent increase in production
of fertilizers and a 31 percent increase in the
amount of irrigated land, some continuing
gains in production and consumption of food-
stuffs are also planned. The new program
emphasizes increased production of milk, vege-
tables, and other nonstarches to round out the
diet. The plan's projections call for an in-
crease in employment of about 10 million, or
just about enough to absorb the expected in-
crease in the size of the labor force.
Economic Prospects
47. How close the Indians will be able to come
to the achievement of their ambitious plan
goals is highly problematical. Despite the
increase in skills and experience made possi-
ble by the first Five Year Plan, and current
plans for expanding the corps of trained ad-
ministrators, educators, and technicians, the
very magnitude of the venture will strain the
2A deal for the expansion of existing facilities has
been signed between the Tata steel industry and
the Kaiser interests in the US. Negotiations
have been completed for the purchase of steel
mills from the USSR and the UK, and for the
construction of an additional new mill by West
German interests. The new mills are of about
1,000,000 ingot tons annual capacity each.
13
managerial resources of the country and may
result in serious setbacks or delays. The un-
certainties of the monsoon, though somewhat
mitigated by the extension of irrigation, pose
a recurrent threat to India's ability to sus-
tain adequate agricultural production. Final-
ly, there remains the central problem of pro-
viding the unprecedented amount of funds
called for under the program ? and of doing
so without incurring potentially disruptive in-
flation.
48. The government will probably come close
to meeting its own goal of raising the equiva-
lent of slightly over seven and one half billion
dollars internally during the next five years.
The present outlook is that the private sector
will substantially achieve the $4.8 billion in-
vestment goal assigned to it under the new
plan. The capital market is now buoyant,
credit facilities are expanding, and an accel-
erated rate of government developmental ex-
penditures is assured. The incentives to pri-
vate investment have sharply increased in the
last year or two as the impact of the govern-
ment's investment program and of successive
good crops has made itself felt, and the tradi-
tional hesitation of Indian capital to take
risks for fear of failure or of nationalization is
apparently being overcome. However, future
business willingness to invest may again be
hampered somewhat by concern over national-
ization or government control, and should
there be major delays in implementation of
the government investment program or seri-
ous setbacks in the agricultural field, private
investment would probably again slump.
Moreover, even if the plan's targets for in-
ternal public and private investment are sub-
stantially met, the diversion of such sizable
funds to investment purposes, particularly
with the use of considerable deficit financing,
will soon raise inflationary problems which
may seriously challenge the stability of the
economy and the future course of the develop-
ment program.
49. Even more than under the previous plan,
India's success in obtaining foreign aid will
play a key role in its ability to carry out the
program. Even with a rigorous internal sav-
ings and tax program, which will call for the
plowing back of approximately 30 percent of
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each yearly addition to the national income,
foreign government aid and loans will be de-
pended upon to finance at least 15 percent and
possibly as much as 25 percent of development
expenditures in the public sector. About
$1.68 billion is to be obtained from abroad ?
more than double that obtained from various
foreign sources during the previous plan
period.3 This still leaves an uncovered gap
of an additional $840 million for which no pro-
vision has as yet been made.
50. The Indian government hopes that the
US can be persuaded to assume a major share
in underwriting the external requirements of
the program. The plan makes provision for
additional support from such sources as the
Colombo Plan and the International Bank for
Reconstruction and Development, and the In-
dians have already made efforts to stimulate
additional foreign private credits, notably in
the deals for construction of additional steel
facilities by West German, British, and US in-
terests. However, the Indians clearly recog-
nize that the large amounts called for under
the plan are beyond the resources of such
lesser potential Western sources.
51. At the same time, the Indian government
will probably be increasingly receptive to Bloc
offers of economic and technical assistance
along the lines of the recently completed deal
for Soviet construction of a steel mill in India.
The Indians have been strongly attracted by
such features of current Soviet offers as low
interest rates, the absence of political strings,
and Soviet eagerness to provide comprehen-
sive preliminary and on-the-job training to
Indians. Despite Indian distaste for Soviet
methods of political control, some Indian
leaders are probably of the opinion that many
Soviet economic methods and techniques are
Foreign aid made available to India during the
first Five*Year Plan period (1951-1956) was as
follows:
Source
US (including $190 million
Millions of dollars
wheat loan)
450
World Bank
83
Under Colombo Plan
95
TOTAL
631
14
more applicable in India than those of the
US and other Western Powers. Finally, while
the Indians will probably remain anxious to
avoid steps which unduly expose them to So-
viet influence or jeopardize their predominant
economic ties with the West, they will con-
tinue to recognize advantages in being able
to look to the Bloc as well as to the West for
economic help.
52. Indian failure to obtain the substantial
increases in foreign assistance called for in
the plan would greatly reduce the chances of
generating enough economic momentum to
overcome the basic problems of poverty and
population pressure. The government would
have insufficient foreign exchange to provide
the high level of imports of machinery and
other equipment required for its industriali-
zation goals ? the key to building the base
for further economic growth. The Indian
government would probably attempt to com-
pensate for the shortfall in foreign aid by
efforts to increase the domestic contribution
to the development program, notably through
increased resort to deficit financing, a tighten-
ing up of economic controls, and possibly some
increase in taxation. However, these meas-
ures would not make up for the shortfall in
foreign exchange, and there would have to be
a curtailment in the scope of the program.
Moreover, competition for the limited avail-
able funds would arise between private and
governmental interests, with the probability
that the economy would move in the direction
of greater governmental participation. The
net effect would be to dissipate much of the
enthusiasm and psychological impetus which
has developed behind the present program and
to reduce popular support for the government.
53. If, on the other hand, India is successful
in obtaining at the appropriate time the large
amounts of foreign economic aid called for
by its plan, we believe that Indian national
income will probably come close to attaining
the planned rate of increase (about five per-
cent per annum) . This would put the Indian
government in a favorable position to under-
take the further development efforts neces-
sary to cope with its long-range economic
problems. However, even if the second Five
Year Plan is successfully carried out, living
3411#6141161M.,,,,
.?
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standards would still be extremely low, and
severe population pressures would still make
themselves felt.
IV. THE LONGER TERM PROSPECT
54. India's long-term ability to carry on as a
united and democratic nation is still uncer-
tain. The disruptive potential of existing
regional, linguistic, and class and caste con-
flicts cannot quickly be eliminated. Even
after another five years, the Indian people's
experience with the democratic process will
still be limited. Finally, there will remain the
central problem of achieving and sustaining
a level of economic well-being which satisfies
the needs and desires of the Indian people.
All of these problems will place heavy leader-
ship burdens on a political system which is
still in process of growing up and in which
most of the present key figures will soon have
to be replaced by younger men.
55. Indian has the natural resources to sup-
port a very substantial increase in levels of
production. Its 10-billion-ton iron ore reserve
is the second or third largest in the world,
and an important part of it is of high quality.
Though India is short of high grade coking
coal, it has a total coal reserve of 60 billion
tons. Its paucity of known oil reserves is
somewhat counterbalanced not only by these
coal reserves but also by a hydroelectric power
potential of an estimated 40 million kilowatts
(more than 13 times presently installed
capacity) and the presence of significant
quantities of monazite and other radioactive
materials which might eventually be used in
development of nuclear power. Though de-
ficient in copper, lead, zinc, and tin, India has
ample supplies of other important industrial
minerals; namely, manganese, chromite, and
bauxite. There is still considerable oppor-
tunity for expansion of the agricultural base
by increasing the productivity of existing
acreage and some development of presently
uncultivated land. Supplies of manpower are
more than ample.
56. While these resources give India the po-
tential to become one of the great industrial
nations of the world, their effective develop-
ment will require a high level of sustained
15
growth not only over the next five years, but
for a generation or more. In terms of India's
own politico-economic requirements for alle-
viating poverty and eliminating chronic un-
employment and underemployment, even the
most dramatic increases in industry will over
the short term only slightly reduce the magni-
tude of these problems.
57. The next five years are likely to prove
crucial for India, as it is upon the degree of
success achieved in implementing the second
Five Year Plan and in coping with the attend-
ant political problems that India's long-term
course of development, political as well as
economic, probably depends. Nehru's leader-
ship, coupled with the achievements of the
last few years, have created an atmosphere of
optimism and developed a momentum which
would be difficult to recreate in the event of
a setback. Hence, if India fails to make sub-
stantial progress toward its objectives in this
period it is unlikely to be able to do so within
the foreseeable future. While even marked
failure to reach the goals of the second Five
Year Plan probably would not precipitate im-
mediate economic or political collapse, it
would almost certainly initiate a period of
economic and political decline. Indian morale
generally, and that of the Congress Party in
particular, would suffer greatly. Popular
support for the Congress Party would diminish
and opposition to present Congress policies
would increase both within and without the
party. Internal differences within the Con-
gress Party would greatly increase, and vari-
ous endemic political and social tensions
throughout the country would be exacerbated.
The Indian people, disappointed in their hope
for economic betterment and lacking the
prospect of such betterment in the future,
would become increasingly restive. Unrest
would be especially marked among the urban
population, but even the peasantry might
also, though to a lesser degree, be affected.
In the face of this unrest, India's leaders
, might begin to question the suitability of
democratic institutions for India and increas-
ingly to adopt repressive and authoritarian
measures which would still further enhance
their unpopularity.
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V. INDIA'S ROLE IN WORLD AFFAIRS
Objectives and Policy
58. Indian leaders believe that the principal
danger to India's security arises from the
continuing struggle between the Communist
Bloc and the Western Powers headed by the
US rather than from a direct threat by any
major foreign power. The Indian leaders
fear that this struggle will at some time lead
to general war, which at worst would directly
involve India and its survival as an inde-
pendent state and at best would severely re-
tard India's efforts to achieve political and
economic stability. Thus, in pursuance of
national security and the national interest,
India's foreign policy seeks not merely to
avoid involvement in general war, but to pre-
vent such a war from occurring.
59. Many other nations share India's concern
about general war and its consequences. Un-
like the governments of most lesser powers,
however, that of India believes that it can
play a major role in preventing general war.
It feels it can best do so not by joining in alli-
ances designed to deter hostile powers from
commencing the conflict, but by acting inde-
pendently in a mediatory capacity. India has
accordingly adopted a policy of nonalignment
with either power bloc in the cold war, and en-
deavors to persuade other nations to adopt a
similar posture. It views with disapproval the
formation of blocs and alliances and the build-
ing of military strength by the Communist
and non-Communist powers. India's leaders
believe that the USSR and Communist China
desire to avoid war and will not undertake
major military moves unless provoked by
Western actions. They therefore strongly ad-
vocate a conciliatory attitude on the part of
the non-Communist powers.
60. Accordingly, the Indian government be-
comes particularly active on the international
scene whenever any armed conflict, or any
acute threat of armed conflict, occurs. At
such times it becomes the overriding aim of
Indian foreign policy to assuage the situation
and thus to remove the immediate likelihood
of major war. Even when no immediate and
acute threat of war exists the Indian govern-
ment feels impelled to mediate between the
16
Sino-Soviet and Western camps, to damp down
antagonisms where possible, and to seek to
remove points of friction. While this policy is
believed by Indian leaders to be the most ef-
fective in furthering Indian national interests,
it is also true that the policy of nonalignment
and conciliation reflects the personal moral
convictions of Nehru and his associates.
61. Another, and related objective of Indian
foreign policy is to achieve a leading role in
Asia and Africa. India hopes that it can mar-
shal the influence of these areas with its own
to lessen international tensions, to eliminate
the last vestiges of colonialism, and to gain for
Afro-Asian peoples a voice in world affairs
commensurate with their numbers. To this
end, India has sought to establish itself at the
UN as the spokesman of Asian interests and
the leader of the Afro-Asian group. It has
made strenuous efforts to woo other neutralist
nations, particularly Egypt and, to a lesser
extent, Yugoslavia. It is attempting to build
Indian cultural and political influence among
the colonial peoples of the Middle East and
Africa and to protect the interests of Indian
nationals overseas.
62. The Commonwealth relationship is an im-
portant component of India's foreign policy.
India's economic connections are also mostly
with the West, and Indian leaders still look
primarily to the Western Powers for economic
assistance. They deplore the totalitarian
methods of Communist regimes, and they are
concerned over Chinese Communist subver-
sive and ultimate military intentions. India
is sensitive to Communist incursions and pen-
etration along its northern and eastern bor-
ders and to the Chinese Communist threat to
Indian influence in Southeast Asia. New
Delhi's attitude toward the Chinese has be-
come increasingly suspicious. Indian leaders
openly admit that India is engaged in direct
competition with China for economic leader-
ship in Asia. India is also probably concerned
over Soviet advances in Afghanistan.
63. Nevertheless, India's neutralism, anti-
colonialism, and aspirations in Asia (includ-
ing the acquisition of Goa) and Africa have
often brought it into conflict with the US and
other Western Powers. India opposes NATO,
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WIIIAW01/11* 17
SEATO, and the Baghdad Pact on the grounds
that such treaties are not conducive to peace.
It especially criticizes the Baghdad Pact for
having divided the Arab states and provoked
the USSR and probably blames the West even
more than the Bloc for increased tensions in
the Near East. It deeply resents the grant of
US military aid to Pakistan. It supports the
Communist Chinese claims to Taiwan and to
a seat in the UN. It regarded the Indochina
war primarily as a genuine independence
movement against French colonialism. Its
sympathies lie with the nationalists in North
Africa. It has generally been harsher in its
criticism of the West than of the Communist
powers, partly out of fear of provoking the lat-
ter, and partly because of a belief that the
Western nations share India's values and
hence are more amenable to moral pressure.
Most recently, India has become aware of the
advantages of closer economic relations with
the Communist world, made possible by the
new trade and aid policies of the USSR and
China. New Delhi, like other capitals, is also
aware of the opportunities thus opened for
playing the Bloc against the West.
64. Since the 1947 partition, relations between
India and Pakistan have been marked by con-
troversies involving: (a) the future status of
Kashmir; (b) the disposition of property left
behind by refugees during the mass migra-
tions accompanying the partition of India;
(c) the water supply for Pakistani irrigation
canals in the Punjab; (d) the more recent dif-
ferences over Pakistan's developing ties with
the US and its membership in the Baghdad
and SEATO Pacts; and (e) movement of refu-
gees into India from East Pakistan. While
the two nations have been able to iron out
problems in such fields as railway travel, trade,
and border crossings, relations continue to be
marred by mutual fears, bitterness, and mis-
trust inherited from the past. Elements on
both sides remain ready to stir up differences
for political reasons. Moreover, the conflict
between Nehru's strong desire to see the sub-
continent remain neutralist and Pakistan's
alignment with the West is a continuing irri-
tant.
65. Despite Nehru's avowed policy of concilia-
tion, he has openly rejected the mandate of a
UN Security Council Resolution of 1949, which
called for a plebiscite in mountainous Kash-
mir. The most desirable and productive part,
the Vale, is claimed by both India and Paki-
stan but is now occupied by India under the
terms of a cease-fire agreement signed in 1949.
Unwilling to risk a plebiscite in this Moslem-
populated area, which has been formally in-
corporated into the Indian federal system,
Nehru has in effect rejected the UN reso-
lution on the grounds that "conditions have
changed." There is little likelihood that this
dispute will be settled in the foreseeable fu-
ture.
India's Future Role
66. India's foreign policy goals are not likely
to undergo any basic change during the period
of this estimate. They are too closely asso-
ciated with Indian ideals and aspirations and
with what most Indians consider to be India's
national self-interest. Thus, India will almost
certainly continue to avoid definite political
and military commitments to either the West-
ern Powers or the Soviet Bloc. The external
circumstances which have influenced India's
attitudes and actions may, however, produce
some significant variations in the spirit and
manner in which the nonalignment policy is
carried out. India will continue its efforts to
promote a relaxation of international tensions,
to act as an intermediary between the two
great power blocs, to reduce Western influence
in Asia and Africa, to acquire greater influence
in those areas, and to enlist the support of the
Afro-Asian world in its efforts to preserve
peace. It will probably continue to seek eco-
nomic assistance from both the West and the
Soviet Bloc.
67. Provided that the Communist powers con-
tinue their present efforts to win the confi-
dence and friendship of India and other un-
derdeveloped countries, further Indian eco-
nomic and cultural contacts with the Bloc will
almost certainly take place. The USSR and
Communist China are therefore likely to en-
joy increased opportunities to develop the con-
cept of Bloc friendliness and reasonableness
among Indian officials and the Indian public.
Should skillful Communist use of these oppor-
tunities be accompanied by further Indian dif-
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ferences with the US and its Western asso-
ciates on such questions as Taiwan, military
alliances, colonialism, and economic aid, India
would probably be ranged on the side of the
Bloc on an increasing number of international
issues and Indian attitudes would probably
reflect some sense of identification with the
Communist world as against the West and its
Asian supporters.
68. In view of India's basic concern for its in-
dependence and freedom of action, however, it
is extremely unlikely that India would form
an alliance with the Sino-Soviet Bloc during
the period of this estimate, even in the event
of a strong emotional drift toward the Bloc
and away from the West. Moreover, it is prob-
able that various factors will serve to limit the
effectiveness of Bloc efforts to develop influ-
ence with India. Trade with the Bloc will
probably remain less important than that with
the West and, with the passage of time, in-
creased Indian-Bloc contacts will probably be
marked by at least some disenchantment and
some friction over economic and other mat-
ters. Finally, Indian leaders will probably
continue to have reservations about the Com-
munist way of life and underlying suspicions
about Soviet aims in India and Chinese Com-
munist ambitions in Southeast Asia and along
the Himalayan frontier.
69. Even in a peaceful and ostensibly friendly
atmosphere, rivalry between India and Com-
munist China for political and economic in-
fluence in Asia may become more evident. A
vigorous extension of Chinese Communist in-
fluence further into Southeast Asia through
use of subversive pressures would disquiet the
Indians and would probably lead them to take
a somewhat stiffer line toward the Commu-
nists and to increase their efforts to establish
closer cultural, economic, and perhaps even
military ties with Southeast Asian nations. If
the Chinese Communists undertook to extend
their influence in Southeast Asia by overt mili-
tary invasion, Indian disquiet would turn to
alarm. We believe that the Indians would
probably condone the use of United Nations
military forces to counter the Chinese aggres-
sion but would not commit their own troops
unless Burma or Nepal, Sikkim, or Bhutan,
were directly attacked. In this event India
18
would almost certainly accept Western mili-
tary support, and re-examine its fundamental
relationship to the two power blocs. Such
action would not ensure a permanent Indian
alliance with the Western bloc; India might
revert to a position of neutrality after the
crisis had passed.
70. A marked expansion of Soviet influence
in the regions west and northwest of India
would probably also cause concern to the In-
dian government. The establishment of ob-
vious Soviet control over Afghanistan would
be viewed by the Indians with grave misgiv-
ings, though such a development would prob-
ably not cause India to give up its policy of
nonalignment. Further extension of Soviet
influence in the Middle East would probably
arouse Indian alarm only if it raised the
threat of general war or resulted in the clear
alignment of important Middle Eastern coun-
tries such as Egypt with the Soviet Bloc.
71. India will almost certainly wish to remain
on good terms with the US even in the face of
some continuing differences over particular
international issues. India's leaders will prob-
ably retain strong cultural bonds with the
West. A prolonged reduction of tensions be-
tween the, Bloc and the West would make the
Indians less concerned about maintaining a
reserved attitude toward the West as proof to
the world, and especially the Bloc, that they
had not abandoned a position of nonalign-
ment. Should substantial progress be made
over the next five years in liquidation of such
colonial problems as those of Goa and French
North Africa, a collateral irritant in US-Indian
relations would have been removed. Should
the US and other Western nations continue to
provide substantial assistance in support of
India's development program and in addition
demonstrate increased sympathy and under-
standing for the nationalist aspirations and
the policy of nonalignment of India and other
colonial or ex-colonial countries, a significant
improvement in the tenor of Indian relations
with the US would probably take place. This
might lead India to believe that its consist-
ently pursued policy of neutralism had been
completely justified.
000111/404war'
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72. At best, however, differences and frictions
would probably continue to arise between the
US and India, particularly so long as the US
maintained special ties with Pakistan and
with Nationalist China and the Republic of
Korea. These differences and frictions would
intensify if Indian leaders became convinced
that the Communist nations honestly desired
peace and that the West, under US leadership,
was persisting in primary reliance on military
build-ups and armed alliances. While provi-
sion of substantial US economic assistance of
itself would reassure India of continuing US
interest in its independence and stability and
would probably reduce the likelihood of great-
ly increased Indian economic relations with
the Bloc, it would not prevent friction from
arising on other issues nor would it induce
India to abandon its policy of nonalignment.
On the other hand, US refusal to provide sub-
stantial aid on acceptable terms would be a
serious disappointment to the Indians. In
this event India would probably move closer
to the Bloc, though it would still take pains
to preserve its independence of action and its
access to Western circles.
73. Although India will continue to play an
important role in international affairs, devel-
opments over the next five years may signifi-
cantly affect the nature of its role. India's
stature and influence in international affairs
have grown materially in recent years, and
India's services as a mediator will still be in
demand, probably on the Taiwan issue among
others. However, a lessening of the chances
of war between the US and the USSR and a
decline in the threat of local clashes between
Communist and non-Communist forces would
give India fewer opportunities to intervene
dramatically as it did in the Korean and Indo-
china settlements. Moreover, India would en-
counter more difficulty in establishing itself
as leader of the Afro-Asian Bloc, whose mem-
bers tended to accept Indian leadership when
the danger of war seemed acute, but drifted
off in pursuit of their individual aims when
the danger lessened. Southeast Asian mem-
bers of the Afro-Asian Bloc also suspect India
of imperialist ambitions and are loath to tie
themselves closely to New Delhi. India will
have small capability for influence among
19
Asian nations if competition between the
Western Powers and the Bloc in underdevel-
oped areas increasingly takes the form of po-
litical and economic rather than military
action. Finally, India will have no significant
capability for directly influencing the outcome
of such matters as the Arab-Israeli dispute,
the North African problem, the Cyprus ques-
tion, or the German unification issue.
VI. MILITARY AFFAIRS
Present Situation
74. In relation to its size and population, In-
dia maintains a relatively modest though by
no means negligible military establishment.
In the last few years military expenditures
have averaged slightly over 26 percent of the
total revenue and capital budget, or some-
what under two percent of national income.
The 1955-1956 allocation of $474 million, in-
cluding $427 million for current expenditures
and $47 million in improvement of defense
plants and installations, is slightly higher
than previous years, probably mainly because
of price increases. The current strength of
the military establishment is about 430,000
men exclusive of reserves,4 or more than twice
that of Pakistan's armed forces.
75. The principal aim of Indian military policy
has been to maintain sufficient strength over
and above basic border and internal security
requirements to meet any Pakistani threat
in Kashmir or elsewhere. The bulk of In-
dian ground forces are stationed in Kashmir
and other areas close to Pakistan. The United
The Indian Army strength is now approximately
380,000 men. Its 155 infantry battalions, 30
artillery regiments, and 15 cavalry regiments
are organized into 2 corps, 6 infantry divisions,
1 armored division, 1 armored brigade, 1 para-
chute brigade group, and various independent
units. It is supplemented by 18,000 state forces
serving with the army and about 100,000 men of
the part-time Territorial Army. The Air Force,
with 21,000 men, has 763 aircraft, including 257
jet fighters, of which 105 are in operational units
and is organized into 1 light bomber, 8 fighter-
bomber, 2 reconnaissance, and 2 transport squad-
rons. Naval personnel strength is 11,000, includ-
ing naval air personnel, and the fleet includes
1 light cruiser, 3 destroyers, 3 escort vessels, 4
patrol escorts, and 6 fleet minesweepers.
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20
States' decision to supply military aid to Paki-
stan did not cause India significantly to in-
crease its defense expenditures. Pakistan's
subsequent adherence to the SEATO and
Baghdad Pact organizations led to some con-
cern in India but has not led to any important
increase in the military budget for fiscal year
1956-1957, already passed by parliament. In
the 1955-1956 budget increased expenditures
went primarily to the air force and navy and
were balanced to some extent by a cut in the
size of the army.
76. Indian leaders presumably recognize the
value of fairly substantial military forces in
bolstering India's power position against Com-
munist China, and have demonstrated some
concern over their northern and eastern
frontiers through their efforts to build up
border controls and to develop Nepal's military
defenses under an Indian military mission.
The Indian army has undertaken some staff
exercises contemplating defense of Burma
against attack from the east. However, there
has been no real shift in emphasis to prepa-
ration for defense against major Communist
aggression, which Indian leaders almost cer-
tainly consider remote.
77. The caliber of the Indian armed forces is
reasonably good. The professional standards
established under the British have been gen-
erally maintained, along with a system of
volunteer recruitment which has enabled the
services to obtain better-than-average person-
nel. Individual and small unit proficiency
and troop morale are high. However, the
Indian armed forces continue to be handi-
capped by the low level of literacy and techni-
cal knowledge among the population; most
recruits need extensive schooling, and there
are continuing shortages of qualified officers
and technicians. Equipment is also a prob-
lem; much of that of the navy and air force
is obsolescent, while the predominantly World
War II vintage heavy materiel of the army is
badly worn and in need of constant mainte-
nance, thus limiting training as well as lower-
ing combat effectiveness. Although India has
about 20 ordnance plants capable of produc-
ing some light and medium artillery as well
as small arms, ammunition, and miscellaneous
equipment, it is dependent on foreign sources
of supply for most major items and lacks ade-
quate spare parts and other reserves.
78. Indian armed forces are presently capable
of effectively defending Indian territory (in-
cluding Indian-held Kashmir) against Paki-
stani invasion, though such a campaign would
place very great strains on Indian stability.
India could also probably defend its borders
effectively against small-scale Communist
attacks from the north and east, though the
rugged and ill-defined nature of the frontiers,
together with the political unreliability of
many of the border peoples, will continue to
make it difficult for the Indian authorities to
prevent small-scale infiltration. For defen-
sive purposes, India regards Nepal, Sikkim,
and Bhutan as within its military perimeter
and is prepared to intervene militarily there
in event of an emergency.
Probable Developments
79. During the next five years efforts to
modernize and replace wornout equipment, as
indicated by the purchase in 1953 of 100 re-
conditioned Sherman tanks with a two and a
half year's supply of spare parts, the contract-
ing in late 1954 for the delivery of approxi-
mately 300 British Centurion tanks over a
three year period, and recent orders for several
new naval vessels from the UK, will probably
continue at a slightly increased rate. During
this period of time, the IAF acquired 90
Ouragon jet fighters and explored the possi-
bilities of acquiring high performance fighters
and light bombers from the UK, France, US,
and the USSR. More recently, the IAF
acquired 26 C-119 aircraft from US. It is
expected that the modernization program will
continue at a slightly increased pace, particu-
larly in view of the anticipated increase in the
combat capabilities of the Pakistan air force
as a result of the US MDA Program. India
is determined to maintain its military superi-
ority over Pakistan, and will probably con-
tinue to acquire military equipment from
abroad.
80. We believe no Soviet equipment has yet
been purchased, but, depending on political
and financial as well as military considera-
tions, purchases from Bloc sources may be
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Acitiatow
made. India's indigenous arms industry will
be strengthened in connection with the eco-
nomic development program, and some Soviet
Bloc industrial equipment may be utilized for
this purpose. India's modernization efforts
almost certainly will not include nuclear
weapons. Unless there are increased indica-
tions of a threat from Pakistan, India prob-
ably will continue the program of creating a
smaller, more balanced, and better equipped
army. At the same time, however, increased
21
emphasis will be placed on the development of
reserve forces, particularly the Territorial
Army.
81. Indian military attention will probably
continue to be directed mainly against Paki-
stan rather than the Communist powers. The
Indian government will probably take ad-
vantage of its ability to provide locally manu-
factured surplus arms to other Asian countries
and in some cases might be willing to provide
Indian military missions.
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PARLIAMENTARY ELECTION RESULTS-1952
INDEX TO STATES
A STATES
CONGRESS
POLITICAL PARTY
SOCIALIST
COMMUNIST
1. Assam
1,210,707
506,943
2. Bihar
4,573,069
2,087,677
39,272
3. Bombay
5,781,277
1,573,409
14,383
4. Madhya Pradesh
3,713,537
877,392
29,422
5. Madras
7,252,781
1,055,415
1,780,301
6. Orissa
1,601,687
563,462
211,303
7. Punjab
2,134,588
185,446
251,623
8. Uttar Pradesh
9,047,382
2,208,685
59,699
9. West Bengal
3,205,162
152,299
720,304
B STATES
10. Hyderabad
1,945,798
651,316
1,367,404'
11. Madhya Bharat
992,159
268,399
24,716
12. Mysore
1,509,075
181,430
73,322
13. Patiala and East Punjab
States Union (PEPSU)
492,408
38,222
41,030'
14. Rajasthan
1,460,998
118,287
5,490
15. Saurashtra
506,112
36,980
16. Travancore-Cochin
1,070,700
459,669
5
C STATES
17. Ajmer
89,761
25,128
18. Bhopal
?97,292
3,329
19. Bilaspur
20. Coorg
38,063
21. Delhi
324,214
.
22. Himachal Pradesh
117,036
16,780
23. Kutch
78,771
.
5,985
24. Manipur .
36,317
28,372
13,184 .
25. Tripura
40,263
96,458 .
26. Vindhya Pradesh
238,215
106,847
D. STATE
27. ? Andaman and Nicobar Islands
OTHER 'TERRITORY.
28. Sikkim
IOn/y the e/ection results of the principal politico! parties in India are shown.
2In most states where no results ore listed, the Communists were weak and ran no candidates; the9 efforts were concentrated
on winning seats in areas where they hod the greatest strength.
'The Communist Party of Indio was banned in Hyderabad State et the bine of the 1951 efections. The Communist candidates
ton under the People's Democratic Franc
'The Communists on PEPSU were represented by the Lot Communist Party
,The Communist Party of Indio was banned it, Travancore-Cochin State at tile time of the 1952 electoons Moot of the 'oorrt-
rnurtist candidates ran as independents.
64 S. S. R.i8
6P
32
72
76
BO
4
88
92
96
100
.0 1/ 'U.S. R, ? I
1 ,";-' .1e? CHINA
AFGHANIsTAN
e.? / s
JAMMU
... AND Wei
. V
' KASHMIR
/ (STATUS IN DISPUTE)
14
INDIA
PARLIAMENTARY ELECTION
RESULTS-1952
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?
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