APPRAISAL OF U.S. MILITARY , POLITICAL AND ECONOMIC INTERESTS IN SOUTH ASIA

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP78-01617A000200260005-3
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 43
• Document Creation Date: November 16, 2016
• Document Release Date: March 9, 2000
• Sequence Number: 5
• Publication Date: November 15, 1948
• Content Type: IS

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I z, m COPY NO 18
APPRL~ISAL OF U. S. MILITARY, POLITICAL
AND ECONOMIC INTERESTS IN SOUTH ASIA
INDEX
THE PROBLEM . . .
FACTS BEARING ON THE PROBLEM. . . . . . . . . . . .
DISCUSSION. . . . . . . . .
1. Effects of British withdrawal from South Asia. . . 6
2. Soviet interests in South Asia
3. Importance of South Asia to US national interests. 10
a.
b.
c.
Strategic importance. . . . . . . . . . . . . . 11
Military (manpower) potential . . . . . . . . . 11
Economic potential.. . . , , . . . . . . . . . 12
(1) General commercial and financial
importance of the area . . . . . . . . . 14
() Labor supply , . , . . . . . . . . . . 16
(3) Agriculturre. . . , . . , 17
Minerals and mines 19
5) Petroleum. . . . . . . . . . . . . . . . . 21
(6) Industry and manufacturing , . . . . . . . 21
4. Present economic and financial requirements of
South Asia . . 26
5. Present military requirements of South Asia. . . . 31
6. Inability of the British to meet military
requirements . . . . , , . 39
7. Necessity for regional approach by US. , . . . 39
8. Desirability of regional cooperation 40
9. Importance of recognizing continuing need for
military replacements . . . . . . . . . . . . . . . 110
10. Financial considerations , . . , , . , . . . , * 41
CONCLUSIONS . .
RECOMiLENDATIONS 3
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E N C L O S U R E
APPRAISAL OF U. S. MILITARY, POLITICAL
ND ' E OIL OM C INTERESTS IN SOUTH ASIA
THE PROBLEM
1. To re-examine the U. S. national and strategic interests
in the countries of South Asia (Afghanistan, Pakistan, India,
Burma, Nepal, and Ceylon) ; and to determine the means which are
available, and the measures which should be undertaken in the
implementation of established U. S. foreign policy for cooperat-
ing with these countries.
FACTS S BEARING ON THE PROBLEM
2. See Appendix "A".
DISCUSSION
3. See Appendix "B".
CONCLUSIONS
4. The foregoing appraisal of the strategic, political
and economic importance of the emerging South Asian countries
to the U. S. national interest indicates that their over-all
potential is so great, and political developments in these
countries are moving so swiftly, that our basic objectives in
the area should be fully defined and vigorously pursued by all
the means at our disposal consistent with our commitments in
other theaters. At present, although the orientation of the
governments and people of South Asia toward the U. S. and away
from the USSR is an essential element of our political and
economic objectives with respect to these countries, the basic
policy decisions as to the material means at our disposal, and
the measures other than moral and diplomatic support which we
are prepared to undertake in achieving this orientation, remain
to be determined. Moreover, our strategic and military objec-
tives in South Asia do not seem to have been clearly defined.
(1) Enclosure
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5. In these circumstances, and in view of the approaches
that have been made to us by the South Asian countries for mili-
tary and economic aid, it is imperative that our interests in
the South Asian area be thoroughly and urgently reappraised
along the following lines:
L. Thorough urgent consideration particularly should be.
given to the strategic and military. objectives of the U.S.
in South Asia in the foreseeable future, to assist in
determining the essential criteria for U. S. military sup-
port to the South Asian countries, and to indicate such-
ocher cooperation as may be necessary to promote the
realization of these objectives.
b. At an early date an exchange of views should take
place between U. S. and British military authorities to
ascertain the extent to which the British may be able to
furnish future military aid to the South Asian countries
and their attitude toward any U. S, program of military
assistance to these countries.
e. The extent of U. S. military assistance to these
countries should be determined on the basis of their re-
quirements for internal security and elementary defense
against external threats, their ability to help themselves,
the extent to which the British may be willing or able to
support them, and our ability to help them in view of our
own requirements and commitments in other theaters.
d. In entering into any commitments for providing mili-
tary equipment the U.S., in line with presently approved
policy, should. clearly recognize the continuing need of
the recipient countries for military replacement equipment.
e In addition to military assistance we should at an
early date appraise more specifically the economic needs of
South Asia, and the extent to which the scope of our
economic and financial assistance to these countries can
and should be broadened, taking into account, also, the
fact that in the case of certain of these countries the
(2)
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financial burden for essential U.S. munitions may be so
great as to retard economic development which in our own
interests should continue.
f. To promote greater regional solidarity, which is
essential both for the economic health and military defense
of the region, plans should be formulated to use as far as
is practicable any U.S. assistance that may be extended to
these countries as an instrument to effect cooperation and
solidarity within the region.
RECONMENDATIONS
6. It is recommended that SANACC approve the foregoing
conclusions and transmit them to the National Security Council
for consideration.
(3)
Enclosure
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*l~1
APPENDIX "A"
FACTS BEARING ON THE PROBLEM
1. Until very recently the military and other requirements
of the South Asian countries were either the direct or indirect
responsibility of the British Government. Direct British control
of most of these countries assured the British Commonwealth of
Nations of access to the military potentials of the area; and
the British--controlled Indian Army provided for its defense.
Soviet influence was negligible in all the countries of South
Asia, except Afghanistan where Russian pressure had been tradi-
tionally held in check by the balance of British military power
in India. U. S. national and strategic interests in the area
were in some measure safeguarded by our close relation with the
British.
2. With the transfer of British power to independent regimes
in India, Pakistan, Burma and Ceylon during the past year direct
British control of, and responsibility for the South Asian
countries was eliminated; although through the continued member-
ship of India, Pakistan and Ceylon in the British Commonwealth
of Nations, and through specific defense provisions in the Anglo-
Burmese treaty of October 1947, the British continue to play an
important role in South Asia. Since the reduction in British
control and the consequent weakening of the safeguards upon which
the U.S. formerly relied, Soviet influence has increased in these
countries and the USSR is offering some of them opportunities of
purchasing arms and light industrial equipment from Czechoslovakia.
The leaders of South Asia have, how ever, turned mainly to the
U.S. for support in their military planning and have consistently
indicated, in general terms, their desire to obtain a greater
share of capital goods from the U. S. and other Western countries
than is now available to them. Accordingly, as a matter affecting
(4)
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the maintenance of friendly relations with those countries and
to serve our national interests, it is clear that we must take
serious account of their claims to our assistance, both economic
and military.
(5)
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BE 0R]..T
APPENDIX "B"
DISCUSSION
1. Effects of the British withdrawal.
The deep-rooted political uncertainties which effected.
the British withdrawal of power from the South Asian countries
have led to an over-all situation of near-chaos in many parts of
the area. Burma is presently embroiled in civil strife. India
and Pakistan have just passed through unparalleled communal dis-
orders and are still engaged in undeclared warfare in Kashmir,
Pakistan has inherited responsibility for the defense of the
strategic North West (Afghan and Iranian) Frontier, but is with-
out the military means of providing an adequate defense... Afghan-
istan, whose position has always rested on the balance of Russian
and British power, has been left isolated on the Soviet frontier
without the counterbalance, of British power behind her; while at
the same time Afghan leaders have raised issues with Pakistan,
regarding the status of the North West Frontier tribes, which
may well invite Soviet claims to Afghan territory.
In the process of this political upheaval the economies,of
these countries have been seriously set back, recovery is handi-
capped by the resulting trade dislocations, and the need for
outside assistance in many fields has become strikingly apparent.
Concurrently with this political and economic deterioration
the nationalist movements in the South Asian countries have grown
strong enough to make it clear that the British will probably
never again attempt to impose their will by force. In a negative.
sense, therefore, these nationalist movements must be considered
the military equals of British power within this area, since
they can deny access to their territory and resources. Whether
the present membership in the British Commonwealth of Pakistan
and, more particularly, India, will continue remains to be seen;
but in any event this new balance of power is leading to new
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political and economic patterns and possibly to tacit military
alliances outside the British Commonwealth of Nations: Old
values are being changed and new ones sought. New friendships
are being formed. The new political leaders are seeking assis-
tance and support and it is largely on the basis of the responses
which they receive that. friendship is being measured, and that
new alliances will come into being. Some of the leaders of the
South Asian countries have assumed, unrealistically, that their
power to force the British to negotiate with them was proof
they could stand alone as independent states and discharge all
their national and international obligations. The past year
has shown, however, that. they must of necessity either turn for
assistance to the Western powers, of which they now accept the
U.S. as leader, or that eventually they might be drawn into the
Soviet orbit. Even if they were.to create the. regional bloc
for which there is some popular demand in South Asia, and attempt
to adhere to a neutral course between the U.S. and the USSR,
such a regional organization would probably in time be drawn
into the orbit of either the Western or the Soviet power groups.
As in other theaters of the world, therefore, whether we will
or not, we are here becoming engaged in a competition with the
USSR for the favor and resources of South Asia. The leaders
of the South Asian countries are presently looking in both direc-
tions. It is in the light of these de :Telopments, and of the
very considerable military potential. of South Asia which is
now at stake, that U.S. national and strategic interests in, and
policy towards these countries should be critically re-examined.
The concentration of considerable power in the hands of inex-
perienced leaders in these countries demands of us the greatest
wisdom and forbearance in dealing with them. The great danger
to us is in not taking a clear-cut position ti-lat will assure us
of their friendship and support.
(7)
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2. Soviet Interests in South Asia
In telegram No. 3304 of December 1, 1947 the Embassy
in Moscow, in discussing a lengthy lead article in the important
Soviet publication "World Ecomonics and World Politics", high-
lighted the possibilities with respect to Soviet interests in
India and South. Asia as follows:
11 This authoritative restatement of Communist 7
doctrine may well portend a shift in ma or
Kremlin efforts towards the East. It seems
to reflect loss of confidence in imminence of
an economic crisis in USA and in possibilities
of further Soviet gain in Europe in the face
of Marshall Plan developments and growing
European antagonism to Soviet aggressive
tactics. If Europe can indeed be held firm
and if we become deeply committed on the
continent in the process, we may then see
the Kremlin turn to direct development and
exploitation of what Stalin termed the 'great
reserves of the revolution in the colonies,
and dependent countries'".
More recent developments tend to bear this out. Within
the past year the USSR has established an Embassy in India, and
has entered into agreements to establish diploma-.tic missions in
PakListan, and Burma. It continues to maintain an active Embassy
in Afghanistan. Trade and barter agreements have been concluded
between the USSR and Afghanistan, a Czechoslovakian technical
mission has visited India, Pakistan'and Afghanistan to arrange
for the setting up of Czech industries, and a number of Czech
nationals have recently been employed in Afghanistan-and Pakis-
tan. Acoounts have reached the Department of State indicating 7
that Koscow has set up a Cominform,17--,in,-h for Southeast
and that the Soviet Embassy in New Delhi. has become a focal point
of contact with subversive Communist elements in India. Soviet
provacateurs have been intermittently active in northern Afghan?-
istan, and agents of the Soviet Embassy in Kabul reportedly have
been in contact with the Afghan tribes of the North West
Frontier.
In various organizations of the United h"cL';ions, Soviet repre-
sentatives have attempted, often with a degree of success, to
(S)
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create an alignment between the USSR and. the South Asian countries
on various UN questions pertaining to racial discrimination, im-
perialism, trusteeship, etc.
ti Through its instruments, the various Communist Parties in
the South Asian countries, the USSR has concentrated its efforts
in South Asia on a campaign of virulent anti-Western propaganda
aimed paxwticule.rly against the U. S. and Great Britain. This
propaganda is widely circulated in South Asia and appears in
various expressions of public opinion, ranging from the extreme
left to considerably right of center. All possible means have
been utilizd to build up popular support among workers, peasants,
and communal refugees to achieve Communist objectives and dis-
credit political leaders not amenable to Soviet aims. In India,
industrial strikes and unrest, coupled with increasinly hostile
attacks on the Nehru Government, have been manifestations of
Communist activity; while in Burma the Communists are engaged
in open insurrection against the Government of Burma.
The Soviets have advantages over us in this developing
struggle for South Asia. The political foment and economic dis-
tress obtaining in most of the South Asian countries, combined
with their weak military defenses, make this area particularly
susceptible to Communist penetration. Soviet authorities are
keenly aware of the issues involved and of the temper of the
people. Since there was no direct Soviet involvement in any of
these countries, except Afghanistan prior to the withdrawal of
the British, no disillusion or suspicion of Communist doctrine
has matured among the people. To most of these people, there-
fore, Communist propaganda still glitters untarnished and
attractive.
We also have advantages over the Soviets. Among the more
enlightened of these peoples our traditional sympathy for de-
pendent countries has left a legacy of trust and good will,
though the positions we have found it necessctry to take with re-
(9)
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spect to recent national movements in Indochina and Indonesia
have weakened the effectiveness of this legacy, Among the ed-
ucated classes, particularly in India, many of the younger
leaders were educated in the U.S. and have retained an affection
for this country. The U.S. is at present the outstanding or
only source of the capital goods, technical know-how, and fin-
ancial support which these countries desire for their economic
development. In the military sphere the principal armies of
South Asia are now equipped largely with British and U.S. mater-
ial, thus having effected military standardiz.tion with the
Western democracies; and so long as they remain dependent upon
us for their continuing requirements it is unlikely that they
would or could turn against us. Due to their traditional
religious-social order, which is the antithesis of Communism,
many of the peoples of South Asia are naturally resistant to the
Communist doctrine. This influence is being revealed in India
where some of the provincial governments have recently declared
the Communist Party illegal and arrested Party leaders, and in
Burma and Pakistan where recent government pronouncements have
taken a more anti-communist turn.
3. Importance of South Asia to U.S. National Interest,
While it is beyond the scope of this paper compre-
hensively to estimate the military and economic potentials of
the South Asian countries, we believe that their magnitude is
such than the loss to the U.S, of access to the military bases,
manpower, raw materials and present and possible productive
capacity of this area, or Communist control of the area and its
vast population, would gravely affect the security of the U.S.
Such an eventuality would prevent the development in these
countries of political and economic principles compatible with
our own and would thus adversely affect our future trade and in-
vestment relationships with these countries. Tht following facts
appear to support this generalization.
(10)
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"B"
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a. Strategic Importance.
The geographical position of South Asia is such
that, if the military and economic potentials of the
area were more fully developed, it could dominate the
region of the Indian Ocean and exert a strong influence
also on the Middle East, Central Asia and the Far East.
The Indian subcontinent, with its several good ports
in India and Pakistan, is readily accessible to us by
sea. The sea lanes leading to these ports are through
waters which are presently presumably fairly safe to us
from attack by Soviet air or natal forces. The best
rail, motor and air transport system in Asia leads
from these ports and serves the zone of the interior.
The defensive position of the interior, against ground
movement of Soviet forces from Lentral Asia, is.relative-
ly secure behind mountain ranges which form one of the
most formidable natural barriers on Earth. The strategic
passes through these mountains, most of which occur in
Afghanistan, a.re presently controlled by an armed popu-
lation which alone Is capable of creating some delay
against Soviet military penetration, During the recent
war the air bases of eastern India and Burma proved of
importance in carrying the war to the enemy in the Far
East; and so long as the defense of the Afghan Frontier
remains secure to us the air bases at Karachi, Lahore,
Rawalpindi and Peshawar might prove equally important
in conducting air operations against the industrial
areas of the Soviet Heartland, or in defending Middle
East oil.
b. Military Manpower) Potential..
The South Asian countries provide a great re-
serve of military manpower. Out of a total population
of more than 440,000,000 which is considerably greater
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than that of the USSR, the U.S. and the U.K. combined,
it is estimated that upwards of 20,000,000 recruits are
available. Many sections of this population have a
strong military tradition. During World War II the
Indian Army alone, with more than 2,000,000 troops was
the greatest single military manpower component in the
British war effort; and since before the First World War
India alone provided the essential military manpower
reserve of the British Empire. Regardless of the tech-
nological developments of modern warfare, the friendship
and availability of this manpower reserve may well prove
a critical factor in any future conflict requiring the
eventual employment of large ground forces.
c. Economic Potential.
Unlike-the more highly-industrialized nations
of the West the productive capacity of the South Asian
countries remains largely undeveloped. As indicated
below, however, the actual productive facilities of the
area are of substantial importance to the U. S. and world
economy, And will naturally acquire greater significance
as means can be found to increase them, With reference
to the economic potential of (undivided) India alone,
the Board of Economic Warfare in March, 1942 estimated
its importance in the following terms.
"India has become a vital and possibly
indispensable factor in the strategy
of the United Nations. India is the
largest Asiatic arsenal of the. (Democracies),
and enjoys better access to petroleum
supplies than any other Far Eastern
base, India has already become a
great supply base for the Allies because
of her vast resources in raw materials
and manpower. Since the outbreak of
war she has made great strides in adjusting
her economic systems to the production
of war materials. Her factories have
contributed large amounts of war equip-
ment and general stores to the armies
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in the Middle and Far East even as they
were meeting to a considerable extent the
needs of her own continually expanding
military forces. Some items essential
to modern armies (e.g., heavy ordance)
she will probably not be able to fabricate
for the duration of the war. But India
could increase considerably the volume of
military equipment she could produce
internally if she were able to secure
from outside sources such material and
technical assistance as would permit her
to exploit further her great reservoir
of natural and humcn resources."
The Department of Commerce; Economic-
Strategic Study of India, also prepared
in March, 1942, concludes in part: "No
one can deny that India's resources are
potentially great and therefore worth
fighting for. These resources, when
developed after the war, may make India
perhaps the leading industrial nation
in the Far East'."
These appraisals ere made two and a half years
before the end of World War II, and therefore before
India's greater industrial and economic contribution to
the U.S. war effort in the CBI Theater; and they have
not taken into account the added resources of the other
South Asian countries peripheral to India, Since the
war, despite the serious economic setback resulting from
,political unrest, India remains, with the possible ex-
ception of Japan, the most highly-industrialized non-
Soviet nation in Asia and the Far East, and presently
ranks eighth in the world. Moreover, since the war,
the South Asian countries have assumed a new importance
as the source of strategic materials which are in short
supply from other regions. On this subject the Working
Group on Strategic Materials of the Executive Com-
mittee on Economic Foreign Policy, in a recent study
(SM D-15/48, September 7, 1948) of 22 materials urgent-
ly needed for stockpiling, lists the following which
are available from South Asia:
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Manganese
Mica
Beryl
Kyanite
Talc
Ohromite
Graphite
Asbestos
Tin
Lead, zinc, cadmium
Rape seed or oil
Castor beans or oil
Coconut oil
India
India
India
India
India (Afghanistan)
Pakistan, (Afghanistan),
India
Ceylon
(Afghanistan)
Burma
Burma
India
India
Ceylon
Considering the region as a whole, and look-
ing at it broadly' from the point of view of what
it could contribute to us in a future world con-
flict, or what it could contribute to our enemies
if we lost it, the economic potential of South Asia
assumes an even greater importance. The le'J,ding
factors that go to make up this potential are
summarized below.
(1) General Commercial and Financial
Importance o the Area
Although American trade with South
Asian countries has historically constituted
only a small part of the total commerce of the
U.S., the volume of this trade increased dur-
ing the war. The highest percentages of total
U.S, foreign trade reported for these countries
were 5.97 for 1944 U.S. exports (including
lend-lease items and exports) and 6.6 for 1945
U.S. Imports; this compares with 1.5% of U,S.
exports and 3.5% of U.S. imports on the
average, from 1936-1940. It is possible that
future U.S. trade with the countries will re-
main at higher levels than before the war,
both because of the increased raw material
imports required by the expanded postwar U.S.
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economy and because the demand for many pro-
ducts, especially capital goods obtainable only
in the U.S., will persist in South Asian
countries in order to provide consumer goods,
replacements and equipment for development
projects. For supplies of specific commodities,
these countries have always been of greater
Importance in U.S. trade than the relative
total volume of trade would indicate.
Countries of this area also make import-
ant contributions to the economic stability of
other nations and regions to which the U.S.
has specific commitments and in which U.S.
interests are greater than in South Asia.
Burma has contracted to provide substantial
amounts of rice to China and both India and
Pakistan are negotiating with SOAP to provide
Japan with raw cotton, jute, iron ore and
even coal (already in short supply in both
Dominions) in exchange for machinery, cotton
yarn, and various textiles. With the exception
of Afghanistan (which is not a sterling country),
these countries carry on a great part of their
foreign commerce with the UK and other members
of the sterling group. Most of this trade
is not intra-regional, except in the case of
Burma., which carries on almost 60% of its
total foreign commerce with India. Though
Imperial preferences apply to most of the
foreign trade of the South Asian countries,
and though restrictive Import policies have
been found necessary in order to reduce the
hard currency trade deficits prevailing for
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the last few years, it is possible that these coun-
tries will provide larger markets than in the past
for American products, as indicated above. Future
U.S. economic relations with these newly independent
countries will, in any case, involve more direct
dealing with them which cannot be based solely on
sterling area issues. Most of the air and sea
traffic between the countries of South Asia and the
rest of the world is handled by European and Ameri-
can carriers.
From the financial standpoint, India, Pakistan
and Ceylon hold approximately one-third of the sterl-
ing balances owed to foreign countries by the U.K.
and thus these countries have a particular interest
in British financial stability, also of primary
concern to the U,S. British investments in India,
Pakistan, Burma and Ceylon are still very large
(possibly totaling the equivalent of 42 billion)
despite some transfers of capital to local private
investors and governments within the last few
years. According to the most recant detailed sur-
vely by the U.S. Treasury (1943), American invest-
ments in South Asia amounted to 487,9 million;
almost all of this amount represents investments
in.distributing or assembly units of U.S, auto-
mobile and petroleum companies in India and Pakis-
tan, accounting for approximately 11.5% of U.S.
investments in Asia as a whole and less than 1%
our total foreign investments of $18.5 billion,
(2) Labor Supply.
The large population of the region which
affords so great a reservoir of military manpower
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provides also an abundant source of labor for econcm
is mobilization. Most of this labor force is pre-
sently engaged in agriculture. In India, which is
practically the only partially industrialized
country in South Asia, pre-war estimates were that
about 75% of the total population were engaged In
agriculture, about 15% were in some form of other
industrial activity, while only about 2% were fac-
tory workers. This reservoir of unskilled man-
power, however, may well provide a labor supply
adequate for the demands of expanding economies, as
many of the South Asian peoples readily adapt them-
selves, when properly trained, to technical skills
and industrial work. After an extensive study of
this question in India in 1942 the Grady Mission
reported that:
"The Mission was impressed with the good
qualities of Indian labor. The Indian is
skilled with his hands and, given satisfactory
working conditions with security of employ-
ment, is dependable and industrious. The
Mission believes that India can rapidly
develop a body of skilled labor adequate
for the expanding program of war production."
This has been borne out by the records of exist-
ing industry in India, and by the experience of the
U.S. and British Armies in the employment of Indian
industrial labor during the war.
(3) Agriculture
Agricultural raw materials are among the
principal products and exports of South Asia.
Primitive methods of cultivation, population pressure,
and. waste of land, however, have prevented the area
from becoming self-sufficient in food! Production
may be increased to the point of self-sufficiency
when modern techniques are employed, proposed
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irrigation projects are completed, and more effec-
tive distribution (involving inter-country coopera-
tion) between surplus and deficient areas can be
organized. The main food crops of the region are
rice, wheat, millet, barley, maize, gram, sugar,
and fruits anal vegetables, in approximately that
order. In war, if the normal production and dis-
tribution of these crops is maintained, large im-
ports of food would not be necessary unless. large
numbers of troops were moved into the region. With
regard to other agricultural and related products
the region now supplies most of its own needs and
provides important exports of textile materials
(jute, short-staple cotton, wool, coconut fiber),
oil seeds and vegetable oils (peanut, sesamum, cot-
ton seed, linseed, rape and mustard seed, castor
seed, coconut, cinnamon, citronella), rawhides
and skins, fur (karakul), tobacco, coffee, tea,
rubber, teak, nuts, s ices and other items. Im-
portant items which do not appear among the :listed
exports are various forest products and silk,
Forests cover about one-third of India and over
one-half of Burma, and provide an abundant source
of timber and other materials. (Burma alone pro-
duces over three-quarters of the world's teak.)
India produces about 1,600,000 pounds of silk
annually, and during the war was an important
source of silk for parachutes. The importance to
the present U.S. notional economy of those items
which are exported is indicated by the table below
which shows the percent of our total imports during
1946 of some of the agricultural products we ob-
tained from (undivided) India alone.
(18)
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Per cent of total U.S.
Imports in 1946
Jute and Jute products
94.8
Short staple cotton
89.4
Cotton waste
61,4
Rattan articles
100,00
Cocoa-fiber mats
99.8
Sunn fibers
100.00
Ooir yarn
100.00
Carpets, rugs, mats
48.6
Carpet wool
25.3
Animal fiber
30.1
Shellac, unbleached
100.00
Lac, crude, seed
100.00
Kadaya and talka
96.3
Myrobalans fruit
100,00
Psyllium seed
96.0
Cashew nut oil
87,9
Sandlewood oil
81.0
Lemon grass oil
78,9
Sheep and lamb skins
5271.4
Goat and kid skins
45.3
Cashew nuts
93.0
Celery seed
89.4
Tea
52.9
Black pepper
24,7
(4) Minerals and Mines
The mineral resources of South Asia are
rich in variety, and as these countries become more
fully developed and their mineral resources more
fully explored the volume of their minerals pro-
duction may be expected. to contribute increasingly
to world requirements. Economic surveys prepared
during the war show that by 1942 India (then 3n-
cludipg; Pakistan) was mining more than 40 different
kinds of minerals and. ores. Indiat s coal reserves
are estimated at about 77,000,000,000 tons, of which
more than 25,000,000,000 are considered workable,
and 28,000,000 tons are being produced annual]y.
Indiat s iron ore reserves are estimated at
10,000,000,000 to 20,000,000,000 tons within the
producing areas, while extensive deposits await de-
(19)
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velopment in other areas. Its know reserves of iron
ore are about three-quarters of those of the U.S.
and they include ores of better quality; annual pro-
duction is about 3,000,000 long tons, or second
highest in the British Empire. India furnishes about
three-quarters of the world's supply of sheet and
block mica, and during the wo.r was the world's,
greatest producer of mica suitable for munitions
purposes. With an annual productive capacity of
nearly a million tons of manganese ore India has
accounted for about one-third of the world's produc-
tion of manganese, and is the world's second larg-
est producer of manganese, India is the world's
largest producer of ilmenite and monazite, and is
the world's principal source of strategic grades of
kyanite. Pakistan is one of the important producers
of chromite; and India (with Pakistan) has important
sources of bauxite, feldspar, gold, gypsum, iiiag-
nesite, potassium nitrate, steatite, zircon, anti-
mony, asbestos, barytes, beryl, calcite, corundum,
graphite, and phosphorus. Af nistan has no im-
portant development of industrial minerals, but
recent surveys have disclosed deposits of chromite
which may rival the Pakistan deposits; and promis-
ing prospects of high-grade talc, asbestos, lead,
zinc and copper ores have been recently discovered
in Afghanistan. Burma, before it was ravished by
war, was the largest producer of wolfram (tungsten)
in the world, stood about fifth amont the world
producers of tin, sixth in the world.in lead, and
was an important world.producer of zinc. gfy on
now produces 2,500 to 3,500 tons of 97-98% high
carbon graphite. Nepal is reported to have deposits
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of quartz, beryl, corundum and other strategic
materials, although the mineral resources of Nepal
have never been fully explored.
(5) Petroleum
While the South Asian countries remain
almost totally dependent on outside sources of
petroleum, they are more strategically located with
respect to the rich Persian Gulf and East Indies
fields than any other region in Asia, and geological
exploration may yet reveal important petroleum
reserves in their own territory, In Afghanistan,
where there is yet no petroleum production, reliable
surveys have revealed a petroliferous province of
upwards of 35,000 square miles with an estimated
capacity of 10,000,000 barrels annual production.
In Pakistan vhere the only production at present comes
from the Attack field (330,082 barrels in 193?),
Burma Shell is.now actively engaged in oil explora-
tion and drilling over a wide area in West Pakis-
tan. In India, where about 85,000,000 gallons
(over 3,000,000 barrels) now comes from the Assam
fields, Burma Shell is also now hopeful of expand-
ing production. Burma, which before the.war.stood
first In the Eastern Hemisphere part of the British
Empire with an annual production of about 276,000,
000 gallons (over 10,650,000 barrels), will again
become an important producer of petroleum when
political conditions permit a reconstruction and
expansion of the Burmese oil fields.
(6) Industry and- ManufacturiDg.
Except for the wide variety and distri-
bution of cottage industries, handicrafts, etc.,
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which contribute importantly to the internal econ-
omy and trade of these countries, the principal
organized. industry and manufacturing of South Asia
centers in India. This, in addition to the min-
ing and plantation industries already referred to,
includes the production of textiles, iron and steel,
chemicals and medical supplies, electricity, leath-
er goods, rubber products, sugar, cement, paper,
machine tools, ships, aircraft, armored vehicles,
and miscellaneous war materials, These factory
industries employ a labor force of about 3,000,000
not including about 15,000,000 employed by the cot-
tage industries, and perhaps 11,000,000 employed
in other industrial work.
Since modern cotton, jute and woolen mills
were introduced about the middle of the last cen-
tury the textile industry has become the most im-
portant in India. The cotton industry during the
early part of the war was turning out about 4,000,
000,000, yards of cloth annually from 389 mills, and
about 2,000,000,000 yards from the hand loom in-
dustry, and. war production was increased until
India was supplying her own requirements of cloth,
producing clothing from eleven factories to
supply her own army, and contributing appreciably
to overseas demands for cotton cloth, clothing and
webb equipment, India's present (1947) productive
capacity is about 4,800,000,000 yards of cloth
from the mills, and 1,500,000,000 yards from
the hand-loom industry. The Indian jute industry
has always held practically a world monopoly. The
Indian woolen industry, which normally produces
blankets, rugs, carpet and felt for export,. was
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taken over by the Government during the war and by
1942 had dispatched overseas 4,200,000 pairs of
socks and 2,050,000 blankets. India's production
of Iron and steel has increased steadily in recent
years, and the production of semi-finished and
finished steel has also been increasing. The Tata
steel plant is the second largest in the British
Commonwealth. Present total Indian production of
pig iron is about 150,000 long tons in excess of
that used for steel production; the present steel
capacity is 1,264,000 long tons, as against 625,
000 In 1930-31; and the industry now produces a
long list of finished steel products including
rails, locomotive wheels, etc., high-speed steel
for machine tools, stainless steel, and special
alloy-steel for armor plate, rifles, etc. During
the war India's steel industry met nearly all the
requirements of India's defense force and supplied
600,000 tons of pig iron a .year to the UK.
The chemical industry is one of the most prom-
ising of India's recent developments. Although the
heavy chemical industry, production of dyes,
fertilizers, etc., still lags, the pharmaceutical
branch is well advanced. About 300 drugs and
medicines previously imported are now produced
locally, and India has become nearly self-sufficient
in medical stores. Of the chemical enterprises
recently introduced the most important are those
for the manufacture of caustic soda, chlorine, sul-
phuric acid, ammonia and ammonia sulphate.
According to a semi-official American estimate
(1947), India and Pakistan, with an estimated-total
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of 2,700,000 kilowatts, stand half way among the
countries of the world in the order of their hydro-
electric power potential. The topography and
climate of. these Dominions provide excellent
opportunities for increasing their installed hydro-
electric capacity, which totaled 1,300,000 kw in
1946. Plans to effect an increase of half a mil-
lion kw in India alone are going forward, and the
other South Asian countries are also contemplating
similar developments.
Since India possesses a considerable portion
of the world's live stock, and also has large
selections of tanning materials, the production of
leather and lenn.ther products has always been an
important industry.. During the war, in addition
to large supplies of military harness, saddlery,
etc., this industry produced upwards. of 3,000,000
pairs of army shoes and 4,000,000 pairs of half-
soles annually.
India, Burma and Ceylon produce annually a-
bout 119,000 tons of rubber. By 1941 India's rub-
ber industry supplied most of her own requirements
of tires for motor vehicles and p,3rmitted the ex-
port of several thousand tons of raw rubber. Dur-
ing the war production was expanded to meet large-
ly the requirements of her armed forces, and the
industry was developed to manufacture many other
items of industrial rubber.
India leads the world in the production of
sugar cane, and since the early 1930's sugar pro-
duction has become one of the lending industries
in India and now supplies most of the domestic
requirement.
(24)
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The capacity of India' s cement industry wL s
estimated at 1,000,000 tons a year at the beginning
of the war, and expansion since then has increased
this, by an estimated 25%.
India's prewar production of paper was about
64,000 tons annually, or about one-third of her
own requirements. By 1941 this industry had ex-
panded to produce 92,000 tons, a 42$ increase over
1939. The possibilities of further increase are
extensive.
Although the manufacture of machine tools in
India is still negligible, the war led to the begin-
ning of this industry, and by 1941 such items as
gauges, lathes, drilling, shaping, planing, slotting,
and. sawing machines, furnaces, power blowers, presses,
thread millers, tool grinders, optical and precision
instruments, etc., were being manufactured.
Indian shipyards are not yet equipped to build
large vessels, but they have produced a large num-
ber of small craft including trawlers, mine-sweep-
ers, corvettes, etc.
The Hindustani Airplane Factory in Bangalore,
with 252,000 square feet of floor space and aux-
iliary foundries and machine shops, was completed
in 1941 with an estimated capacity of 400 new
fighter aircraft per year not including engine
manufacture. The company's first contract was for
74 Vultee bombers, 48 Curtiss-Hawk fighters and
30 Harlow trainers for delivery in 1942. During
the war this plant was also used to repair British
Swordfish and Walrus seaplanes, and to assemble
large numbers of U.S. aircraft.
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While automobiles have not been manufactured
in India, Ford, Studebaker and General Motors have
important assembly plants there; and during the
war General Motors, in cooperation with the U. S.
Army, installed at Karachi a two-unit truck and car
assembly plant to turn out 6,000 units per month, a
truck and body plant to turn out 6,000 units per
month, and facilities for engine and general over-
haul. -
In 1941 India began the production of armored
cars and wheeled carriers built on imported Ford
chassis and armored with 6 mm to 14 mm plate pro-
duced in India. By middle 1942 production schedules
called for 600 armored vehicles per month, the
limitingfactor being availability of chassis.
Of other war materials, by 1942 Indian industry
is reported. to have been producing over 200,000
different military items in quantities sufficient
to supply the Indian army of about 1,000,000 men
with 90% of its requirements, and provide large
quantities of rifles, machine guns and ammunition
of all categories up to 6 inch shells to the British
armies outside of India.
4. Present Economic and Financial Requirements of South Asia
The hope of economic progress in the countries of South
Asia is generally related to their ability to mobilize their own
resources, and to their further needs for capital goods, techni-
cal skills, and dollars. These needs cannot yet be described
in detail in terms of the volume of imports or of the outside
financing required. The hopes and plans of these countries ap-
pear greatly to exceed the realities of early accomplishment.
More investigation and evaluation is necessary before the
(26)
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7, m
economic desires prevalent in South Asia can be formulated in
terms of individual needs and projects arranged in accordance
with practically conceived plans. Assistance in this task is
being provided by various working parties of the Economic Com-
mission for Asia and the Far East, of which the U.S. is a
member. Until this and related work is completed, there are
inadequate bases for determining; the magnitude of the economic
and financial requirements of the area.
In the case of India, in addition to the primary need for
capital goods, the most serious problem impinging directly upon
economic relations with the U.S. is the deficit whit,:: the Indian
economy is experiencing in its transactions with the dollar area.
Although historically India has exported more to the U.S. than
it has imported from the U.S., the post-war demand for consumer
and capital goods has reversed the pre-war trade pattern to the
point where India suffered an adverse balance of payments with
the U.S. In 1947 amounting to approximately $200,000,000. India
has attempted to meet this problem by restricting imports, by
drawing on the central dollar reserves of the sterling area,
nd by drawing against its International Monetary Fund quota of
X400,000,000. Of these practices a?. sev,:rely restricz.ted import
policy is counter to our concept of expanding multilateral trade,
and substantial drawings on the central dollar reserves of the
area are opposed to our desire to maintain the financial stabil-
ity of the U.K.
In Pakistan, as in India, dollar requirements are met out
of earnings plus drafts on the sterling dollar pool. In its
trade with the U.S., Pakistan is presently earning a small dol-
lar surplus; but this is due to import restrictions on all non-
essential goods, and this surplus would soon turn into a serious
deficit should Pakistan purchase more of the capital goods so
badly needed for essential developments. As in the ease of
India, the practice of restricting imports and substantial draw-
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ing on the sterling dollar pool is contrary to our concept of
expanding multilateraltrade and maintaining the financial
stability of the U.K. Pakistan's requirements differ from
India's in that Pakistan is primarily agrarian and, its basic
industry has yet to be established. Pakistan's need for capital
goods, therefore, is proportionately greater. This, plus its
military requirements, band the urgent desire to place their new
country on a firm over-all financial footing was the basis of
the Pakistan'Governmentts request in late 1947 for a U.S Govern-
ment loan of some $2,000,000,000. Pakistan's economic position,
being unbalanced as between industry and agriculture, also more
clearly emphasizes the need for inter-regional cooperation and
especially for Indo-Pakistan economic cooperation.
In Afghanistan, also, there is the problem of financing
the essential Imports of consumer goods and military stores while
proceeding with development plans. Afghan consumer goods are
normally imported largely from India and Pakistan, where they
are now being procured and. balances settled through the sale of
dollars because poor transport a;--.d marketing facilities have
recently impeded the sale of Afghan products and the accumulation
of adequate rupee exchange. Present development plans call for
an increase of agricultural output, establishment of light in-
dustries, development of natural resources, and improvement of
communications and transport; and several of these projects
have been undertaken by an American firm which requires dollar
payments. Nearly 95% of Afghanistan's dollar earnings is de-
rived from the sale of karakul furs in the U.S., and this
fluctuates with the fur market. In 1946 they received from
this source $34,000,000; in 1947 less than $2,000,000; and in
the first half of 1948 about$29,000,000. Their main economic
requirements, therefore, are for better inter-regional economic
cooperation, to provide the rupee exchange necessary to obtain
consumer goods in India and Pakistan with local currencies; and
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for some U.S. financial assistance to insure completion of
their development projects. It is mainly for this latter pur-
pose that the Afghan Government has approached us to determine
the prospects of a U.S. loan.
Since Burma has become so embroiled in civil strife result-
ing from the armed revolt of its Communist parties, the trend
in that country has been more toward economic disintegration
and requests for military supplies, than for the means of economic
rehabilitation andd~velopment. Pending the outcome of this
conflict, therefore, an appraisal of Burma's economic and
financial requirements, and of our interest in furnishing them,
cannot well be estimated. As a member of the sterling area
Burma now obtains most of its dollars from the central reserves
of the U.K. Since Burma is normally the largest world exporter
of rice, and may again become an.important world source of
tungsten, tin, lead and zinc - all of which are now in short
supply - this drain on U.K. dollars might be stopped if the U.S.
were to supply dollars for the purchase of these materials by
some suitable procurement method.
Nepal has announced. its intention to develop local indus-
tries and agriculture, and is negotiating with American firms
for an economic survey of the country as the first step toward
such development. Nepals principal economic requirement is for
the dollar exchange needed to carry out this program. Currently,
Nepal is dependent on India for such limited dollar exchange
as it obtains; and Nepal. now wishes to Enter into an arrange-
ment whereby all fcreign exchange arising out of the export of
Nepalese products through India would accrue to Nepal.
Ceylon's present dollar position is comparatively good, and
this country has requested several types of U.S. technical
assistance.
In accordance with our general policies of promotl.ng an ex-
panded multilateral world trade, of recognizing the world-wide
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need for accelerated economic development, and of upholding the
principles of international cooperation, this Government desires,
within the limits of its resources, to assist the countries of
South Asia to raise their standards of living and to increoo.se
their productive capacities. This desire is consonant with
one of the principal elements of our objectives in this area: to
maintain the orientation of these countries towards the U.S. and
western democracies and away from the USSR, It is likewise
consistent with our interest in obtaining, within the next few
years, maximum supplies of strategic materials from South Asia
and it reflects the belief that capital exports to these
countries can in some measure prove to be a stabilizing influence
on the level of U.S. production and employment by increasing or
retaining foreign markets for U.S. goods.
As yet we have not included the South Asian countries in
that limited group to whose needs we are giving specially favor-
able consideration, because the development needs of all areas
now carry a lower priori'U"y for short supplies than do recon-
struction and rehabilitation areas. Until now we have held that
private investment should be the principal means of U. S. fin-
ancial assistance to these countries for the further development
of their economy. We have held that, when private capital is
not available, we should lend support to their applications fo:c,
loans from the International Brink or the Export-Import Bank for
individual development projects, but that our interests in Soa~~~
Asia, in view of our broader commitments in other theaters, do
not warrant special treatment with respect to the supply of
capital goods or direct U.S. Government credits which require
Congressional approval.
It is present U.S. policy to permit the export of goods
subject to official quotas (none of which represents an obli-
gation on suppliers) in the largest possible quantities consistent
with the effective functioning of our domestic economy. The
(30)
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Secretary General of the Economic Commission for Asia and the Far
East will be informed of this policy, in answer to the recent
appeal by a majority of the Commission to make available to Asian
countries an adequate share" of our production of capital goods
and basic materials. Furthermore, an increased world production
of essential commodities (including capital goods) is expected
to result from the rehabilitation and recovery of Europe and
certain Far Eastern countries, to which the U.S, is now contrib-
uting an unprecedented volume of financial assistance, and such
an increase will materially help to establish the basis in South
Asia for economic progress, This progress, in turn, may result
in improved conditions. that will provide foundation- for stable
democratic governments, friendly to the U.S.
Meanwhile, as U.S.. resources are limited, it is urgent that
we reappraise the existing financial and other means at our
disposal and explore the possibilities of utilizing additional
methods of economic assistance to the area, in order to deter-
mine the extent and char: cater of the aid which is consonant with
our own interests.
5. Present MilitLq-_-,, Requirements of South Asia.
Out of a total pc=pula.tion of more than 440,000,000
the total strength of the ground forces of all the South Asiar
countries has recently stood only at about 526,000 regular
troops, plus various small irregular security forces. By cou11---
ries these forces are distributed approximately as follows:
Popula~t won
Ground Forces
Afghanistan
11,000,000
72,000
Pakistan
75,000.000
141,000
317,600,000
241,000
Burma
15,000,000
23;000
Nepal
5,600,000
45) 000
Ceylon
6,500,000
4)0()0
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Due to the political unrest which now pervades the area
and to the presence of militant forces within the area (Afghan
tribal forces, Indian States forces, Gurkha warrior castes, etc.),
which are not yet fully welded to the merging national author-
ities, these military forces. of the South Asian countries are
barely sufficient to meet the existing demands for internal
policing and maintenance of security. Yet the present trend,
due to lack of replacement equipment, spare parts, etc., is
toward a decrease of either the efficiency or strength of these
forces. None of these countries is yet able to fully supply its
own armies with equipment of its own manufacture. All are pre-
sently supplied. with material formerly obtained from British and
U.S. sources. To maintain their existing strengths, as their
stores become exhausted through normal attrition, the South Asian
countries are now turning mainly to the U.S, as the natural
source of supply. The requests so far received by us are as
follows:
a. Afghanistan
For all practical purposes Afghanistan is almost
totally dependent on foreign sources for its military re-
quirements. Up to now the Afghan Army has obtained from
the U.S. only surplus hospital and non-combatant equipment,
through the purchase for cash of U. S. surplus proprty in
India in 1945. In June of 1946 the Afghans approached the
U.S. for other military supplies. A further approach waE
made in 1947, at which time we were told in no uncertain
terms by the Afghan Prime Minister that unless his govern-
ment could be given some assurance of at least token
assistance from the U.S., which would indicate that we had
an interest in Afghanistan, they would be forced against
their will to turn to the USSR. In April 1948 they in-
formally requested a U.S. loan of $100,000,000 to finance
a 12-year economic development program and to provide for
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their military requirements, and although this figure has
since been reduced the request is still pending. As to
their military requirements alone, they informed our Em-
bassy in Kabul on July 29, 1948 that for internal security
they were presently in need of approximately 24 to 36 light
tanks, 120 4.2 inch mortars, 40 AT--6 type aircraft, and
materiel to equip one motorized division of 4,000 to 6,000
men. Since none of these Afghan requirements has yet been
presented to us as formal requests, no positive action
has been taken an these approaches.
b. India
At present India ie able to produce large quantities
of small arms and ammunition, uniforms and leather equip-
ment, but is largley dependent on foreign sources for
planes, tanks, ships, heavy ordnance, etc. Of these latter
categories the Indian Army is partly equipped with U.S.
lend-lease and surplus property material. During 1948 the
Indian Military Attache, Col. Kaul, approached the Depart-
ments of State and Army to obtain medium bombers and other
military equipment :,'or the Indian armed forces. He wished
to order 12 B-25 Mitchell bombers for delivery in May 1948
and 31 additional B-~25' s for subsequent delivery. He also
informally indicated the interest of the Government of Iild.i a,
in Long-term military collaboration between India and the LAS..
At the time of Col. Kaul's approach the Department of
State w,.a.s in the final stage of reaching its determination,
subsequently approved by the President, that in view of
the threat of war between India and Pakistan over Kashmir
it was not consonant with the foreign policy of the U.S.,
while this issue was under review by the UN, to authorize
the sale or transfer of combat material to either India or
Pakistan pending a clarification of the situation. At the
same time the Department of State was advised by the De-
partment of thv Air Force that no medium bombers of the
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type desired by India were then available as surplus to the
needs of the U.S. military establishment. It was according-
ly decided to discourage Cal. Kaul from making further re-
quests of this nature.
On April 2 the Deputy Foreign Minister of India, Sir
Girja Bajpai, called at the Department of State and stated
that, with the full knowledge and authority of Prime Minis-
ter Nehru, he would like to propose the sending of an
Indian military mission to the U.S. at an early date to
explore the possibilities of obtaining military equipment
in this country. In making this request he gave assurances
that the principles for which the U.S. and India both
stand are identical and that India would under no circum--
stances align itself with the Soviet Union in a war between
that country and the U. S. Sir Gir,ja was informed that the
proposal would be considered; but he was reminded that,
not only because of the present U. S. arris policy with re_.
spect to India and 'akistan but also because of our own
present arms requirements, it might not be feasible to do
very much for India,
Recently members of the Indian Embassy, including
the Indian Military Attache, have informally approached
the State Department to express a desire for a greater
exchange of military information between the two eountrit~;
This problem has been partly met by: (1) Having India
classified upwards to the category of countries receiving
"restricted" U.S. military information; (2) Making a
deliberate effort to furnish the Indian Military Attache
here with relatively harmless but somewhat impressive mia_-
ita.ry information; and (3) urging the U,S. Army to continue
Indian officer students in U.S. Army Service Schools.
On June 7, 1948, Mr. Chopra, First Secretary, Embassy
of India,. requested informally the probable reaction of the
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-U.S. Government to a formal request from India to import
arms and ammunition from the U.S. to be used exclusively
in the Indian military training program. He stated that
the Government of India would be prepared to give formal
assurance that the arms and ammunition imported would in
fact be used for training and would under no circumstance
be employed in Kashmir. The items requested included:
75 mm. how. . . . . . . . . 209,000 rounds
75 mm. gun.. . . . . . . . . . . . 100,000 It
75 mm. gun, smoke. . . . . . . . . 46,000 u
37 mm, HE. . . . . . . . . . . . . 150,000 "
37 mm. Canister. . . . . . . . 32,000
30 cal, Browning (mixed belts) .12,000,000
Grenade, rifle, practice. . . 17,000
The'Department of the Army has determined that these
quantities are completely reasonable and that they repre-
sent on a per capita basis approximately 75% of the amounts
normally required by U.S. troops for training purposes. In
reply to this request representatives of the Indian Embassy
were informed on July 29 that the supply of this ammunition
from U.S. sources could not be approved because it would
be in violation of the U.S. policy not to supply war
material to either India or Pakistan until the situation in
Kashmir had clarified.
On July 30, 1948 the Indian repr,esento.tives inquired
whether the U.S, included spare parts for out-dated Stewart
tanks among those items which were excluded for export from
the U.S. to India. In reply they were informed on August
17 that these items were no longer available. During the
discussion which followed the Indians stated that while
the Government of India now understood the U.S. position
with regard to such temporary situations as the Kashmir
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S E 0 R E T
problem, it was also faced with long-range as well as
short-range military planning, and the time was coming when
India, in order to evolve its long-range planning, would
have to know there it stood" with the U.S. Government in
the over-all evaluation of what international contribution
might be made by India in the event of further deterioration
in international relations in general.
c. Pakistan
The new Government of Pakistan, which came into
being with no munitions industry and only a modicum of
equipment fr^m Indian stores, approached the Department of
State in October-November 1947 with the request for U.S.
financial aid over the next 5-year period to include, inter
alia, the following defense items:
Army - $170 , 0OO LOO. To provide for a regular army
of 100,000 to consist of one armored division, five
infantry divisions partly motorized, and a small
cavalry establishment; and to rorovide for replacement
and remodeling of existing arms and equipment, sup-
plies and ammunition, equipment for ordnance factories,
raw materials and payment of personnel.
Air Force - X75,000,000. To provide for twelve fighter
squadrons (150 planes), four fighter reconnaissance
squadrons (70 planes), three bomber squadrons (50
planes), four transport squadrons (50 planes), four
training wings (200 planes), together with necessary
replacements, ground facilities, and payment of
personnel.
Navy - 60,000,000. To provide for four light cruisers,
sixteen destroyers, four corvettes, twelve coast guard
gunboats, three submarines, 120,000 tons miscellaneous
facilities with necessary ammunition, base equipment,
etc.
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yg '1"ti M
.It was obvious from this approach that Pakistan was
thinking in terms of the U.S. as a primary source of mili-
tary strength, and that this would involve virtual U.S. mil-
itary responsibility for the new dominion, Since no legal
authority existed for granting U.S. financial aid to Pakis-
tan for this purpose, and since the time was not considered
opportune for seeking such authority, our reply to this Pak-
istan request was negative. The military items contained
in this request were not considered because it was not yet
clear what role the British were to fulfill in the military
affairs of the new Dominions, nor what U.S. military policy
toward South Asia would eventually be. Of the other re-
quests received at that time for financial aid, however, a
WAA credit of $10,000,000 was granted Pakistan for medicine
and other material for refugee relief.
Since that time we have received requests from the
Pakistan Embassy for 30 AT-6 training planes, spare parts
for AT-6 planes already possessed by the Pakistan Air Force,
and for information regarding sources in this country where
the Government of Pakistan might obtain maintenance spares
for Stewart tanks, Sherman tanks, and tracked carriers which
are now possessed by the Pakistan Army. After considerable
deliberation, it was finally determined that, provided suit-
able guarantees were given, the sale of training planes
and parts of the type requested was not incompatible with the
informal embargo mentioned above in connection with India,
and accordingly the Department of State has approved. export
licenses for these items. Action on the inquiry for mainten-
ance spares for tanks and tracked carriers is pending.
In May 1948 the British Government requested that the
U.S. approve the transfer, from British Lend-Lease stores
to the Government of Pakistan, of 5,198,000 rounds of .30
caliber and 1,091,000 rounds of .50 caliber ammunition.
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This request was refused because it was considered that
such a transfer would. violate the informal arms embargo
mentioned above.
d. Burma
Burma has no munitions industry, and the Burmese
Government recently found itself lacking adequate supplies
of automatic weapons, small arms, ammunition, communications
equipment, and aircraft for its campaign against insurgent
Communists. In his telegram Nn. 130 of Aril 3, 1948, Am-
bassador Huddle informed the Department of State that the
Burmese Foreign Minister had requested U.S. assistance to
the extent of providing six fighter bombers, 400 field
wireless sets, 1,000 Thompson sub-machine guns or Sten
guns, and 30 armored cars. The Ambassador suggested that
the Foreign Minister try to obtain these supplies through
the British Defense Mission before calling upon the U.S.
for aid. The Foreign Minister followed this advice and was
successful in obtaining some of this equipment, at which
time, also, we consented to the British request to re-
transfer to Burma 12,000 rounds of .50 caliber Lend-Lease
ammunition. Since then, however, our Military Attache in
Burma reports that on August 18, 1948, our Embassy in Ran-
goon was again informally approached by the Burmese with the
request that the U.S. supply the Government of Burma immedi-
ately 10,000 carbines, 1,000 sub-machine guns., 1,000 Bren
guns or equivalent, 1,000 light machine guns, i!~~nd 300 heavy
machine guns. The British were also being asked at that
time to supply additional arms and equipment. On September
4, 1948, in an official note to our Embassy in Rangoon, the
Government of Burma requested to buy from the U.S. 5,000
carbines with 2,250,000 rounds of ammunition and 150 jeeps,.
stating that of their long list of essential needs these
items were available only from the U.S. and that most of
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the other items were being supplied. by the British. The
British Ambassador supported this request.
e. Nepal and Ceylon.
There have been no requests by, either Nepal or
Ceylon for military assistance from the U.S.
6. Inability of the British to Meet Military ReQuirements
Bearing in mind the commitments which the U.S, has made
elsewhere, it would appear to be in our national interest that
the British continue to bear the major responsibilities for
meeting the military requirements of the South Asian countries.
It is doubtful, however, whether Great Britain'can do this.
Uncertainties prevail with respect to the political relations
between Great Britain and her former dependencies which may
seriously limit the extent to.which military cooperation be-
tween them could take place. We gravely doubt whether the
British alone possess sufficient economic and military re-
sources for this task. In view of the actual requests which
have come to us in recent months from the South Asian countries
for military assistance and guidance, therefore, it is necessary
in our own self-interest now to determine what part of this
responsibility should be borne by the U.S. when the informal
embargo now In effect against India and Pakistan is eventually
lifted.
7. Necessity for Regional Approach by
We may defeat our own purpose if by extending military
assistance to any one country in this area we alienate the
friendship of one or more of the other South Asian powers.
Certain of these countries, particularly India and Pakistan, do
not yet enjoy good relations with one another. If U.S. military
assistance is made available to one the others will increase
their pressure for comparable aid. In considering any program
of military assistance to the area, therefore, a regional ap-
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proach is necessary, keeping in mind, of course, that internal
conditions in individual countries must always be taken into
account.
On the other hand, India is the natural political and
economic center of South Asia and aid given to the peripheral
countries would have to be adapted to conditions in India.
8. Desirability o~gional Cooperation.
Even If U.S. aid is extended to the South Asian countries
on a regional basis there remains the possibility, due to con-
tinuing internal and inter-regions%l conflicts, that the com-
bined power potential of South Asia may never develop in the
foreseeable future if the individual countries are left to
their own devices. U.S. military assistance to these countries
may not contribute to our own national interest unless it con-
tributes tothe improvement of their internal stability and
better relations with each other. Due to the momentum of move-
ments which are already set in motion in South Asia, a period
of internal and, inter-regional conflict is perhaps inevitable.
Whether this will eventually lead to greater regional solidarity
or greater chaos remains to be seen. The possibility of it
leading to greater chaos must now be accepted as a calouln,ted
risk. To mVinize this risk and tY r. eby gmcmote cur avn ob j Live s, argr plan for U. S.
assistance should be used as far as practicable as an instru-
ment to effect cooperation and solidarity within the region.
9. Importance of Recognizing Continuing Need for Military
Replacement s.
SANACC 360/5 (approved on July 26, 1948) points out
that U .S. foreign policy may be seriously impaired in some of
its principal objectives if the result of U.S. military assist-
ance should be the alienation of the recipient countries
through the breakdown of that assistance. This could come a-
bout by not considering the future need for replacement and
spare parts. After a foreign country receives U.S. munitions
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applies them to equip units, and employs these units in opera-
tions or training, there comes a time when spare parts which
originally came with the equipment are in the hands of troops
or exhausted. At this point there arises a stringent and legit-
ima..te demand for replacements and extra spare parts which usually
are to be had only.from the U.S, If in response to this demand
the U.S. offers nothing but sympathy, the foreign government will
be forced either to reduce its military establishment, attempt
local manufacture, or turn to some other country for help. Any
one of these alternatives would inevitably create ill will toward
the U.S.; while the latter, if the only choice is to turn to the
Soviet countries, would defeat one of the most cherished long-
range aims of the U.S. by defeating the concept of tacit mill-
tary alliances, and military standardization, between these
foreign countries and the non-Soviet powers.
We now face this situation with respect to India and Pakis-
tan. As a result of Lend-Lease and surplus property transfers
the armies of these countries were partly equipped with U.S.
materiel. The point of exhaustion of that materiel is now ap-
proaching, and India and Pakistan are turning to the U.S, for
replacements and extra spare parts. Due to the dangerous polit-
ical unrest in South Asia their requirements for internal and
regional security are too great to permit a reduction of the
military establishments at this time--nor would it be in our
interests that they do so. They are not in a position fully to
sup-ply themselves by local manufacture. Unless they receive re-
placement equipment from us, therefore, their only alternative
will be to turn to some other country for help, and recent re-
ports (Praha A-610, August 2, 1948) inc.icate that they are now
considering accepting the offer of this help from Soviet-domin-
ated Czechoslovakia..
10. Financial Gonsideratiofts.
It would oppose a fundamental objective of U.S. policy
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if the financial burden for U.S. munitions was ,so great on the
recipient countries as to retard the progressive development of
the resources and economic potential of South Asia (SANAOO 360/5).
When a foreign nation now attempts to secure replacements of
U. S. materials it usually receives a psychological shock occas-
ioned by the present high cost as compared with the original
cost of the same materials under Lend-Lease or surplus property
settlements. The tendency may be strong, therefore, to retard
or sacrifice essential economic development to the needs of the
military. If military assistance to the South Asian countries
is as important to the national interests of the U. S. as we be-
lieve it is, and if it is determined that some of these countries
cannot wholly or partly support the required program, financial
support of military assistance measures for these countries
through U.S. means should be given policy consideration. The
extent of U.S. financial assistance should be balanced, how-
ever, to prevent any unremunerative dissipation of U,S. re-
sources.
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