Development Politics and the Price of Aid
Debates over foreign aid can seem strangely innocent of history. Economists argue about effectiveness and measurement — how to make aid work. Meanwhile, critics in donor countries bemoan what they see as money wasted on corrupt tycoons or unworthy recipients. What most ignore is the essentially political character of foreign aid. Looking back to the origins and evolution of foreign aid during the Cold War, David C. Engerman invites us to recognize the strategic thinking at the heart of development assistance — as well as the political costs. In The Price of Aid: The Economic Cold War in India, Engerman argues that superpowers turned to foreign aid as a tool of the Cold War. India, the largest of the ex-colonies, stood at the center of American and Soviet aid competition. Officials of both superpowers saw development aid as an instrument for pursuing geopolitics through economic means. But Indian officials had different ideas, seeking superpower aid to advance their own economic visions, thus bringing external resources into domestic debates about India’s economic future. Drawing on an expansive set of documents, many recently declassified, from seven countries, Engerman reconstructs a story of Indian leaders using Cold War competition to win battles at home, but in the process eroding the Indian state.
By the time the Indo-American and Indo-Soviet joint commissions convened in the mid-1970s, development politics had been well entrenched in Indian institutions and continued its corrosive effects on the union government in New Delhi. The process had come a long way since 1950, when pro-planning groups within the Indian government sought help from planning impresario Solomon Trone while those hoping for deeper engagement in the capitalist world economy invited a World Bank mission. The linkages between the Soviet Union and the Indian industrial ministries, and between the United States and the Indian Ministry of Finance, had grown stronger through the heyday of the economic cold war of the late 1950s and through the 1960s. The joint commissions, though hardly at the core of Indian state power, reflected the divisions at the highest reaches of government.
The Price of Aid has documented the many steps, from the one-off pursuit of outside support in 1950 to networks so firmly established that they appeared in organizational charts and official registers a quarter century later. The uneven flow of events, of bureaucratic and diplomatic moves and countermoves, created the circumstances of the early 1970s. Yet within this flow a few moments played outsize roles and would have disproportionate downstream effects. Of course, these turning points came after leading Indian officials accepted the need for external funding, which itself was a battle fought for the first half of the 1950s. Once the pursuit of aid became an element of Indian economic policy, the door to development politics opened up. But the doorway grew wider — and the scope and impact of development politics expanded all the more — thanks to efforts to expand and reshape aid relationships.
The first such turning point came as early as 1958, amid the foreign exchange crisis of the Second Five-Year Plan. Economic ambassador B. K. Nehru wanted to replace project-by-project funding in favor of what he called, alluringly, “free money” unattached to any particular project. And at the same time, he wanted to reorganize his government’s pursuit of aid, as he complained to his boss, Minister of Finance Morarji Desai: “We have suffered in the past from the feeling among those who are potentially our greatest source of external finance that the request for foreign aid really comes only from one Ministry and one Minister of Government without the rest of the Government, including the PM [Prime Minister], being greatly concerned about it one way or another.” Prime Minister Jawaharlal Nehru bristled defensively at his cousin’s accusation that he was inattentive to foreign aid. But the prime minister did not dispute B. K. Nehru’s description of the dynamics of aid, in which a donor built connections to one ministry rather than to the Government of India as a whole.
Though B. K. Nehru claimed to offer a critique of development politics, he really provided a well-played example of it. Though he mentioned a desire to make sure that aid did not become the exclusive province of subsidiary groups within the Indian government, his memorandum was ultimately a gambit to expand the aid relationships he favored — with the Cold War West — at the expense of those favoring closer ties to the Soviet Union. What appeared to be an effort to transcend development politics, then, was in fact a play to use foreign aid to win domestic battles.
B. K. Nehru won that round, but only by incurring unexpectedly high “non- financial” costs that came due at the next turning point: the American “Big Push” in India. The proponent of this effort, U.S. Agency for International Development (USAID) mission chief John P. Lewis, seized on the idea of providing so-called free money — but only at a price. Such aid might be liberated from projects, but it came tethered to new and more stringent conditions imposed by donors. The Big Push was ultimately not so much a single episode as the opening volley in a major effort to subject Indian economic policy writ large — not to mention key aspects of foreign policy — to negotiations. Over the course of the mid-1960s, the scope and instruments of U.S. leverage swelled. Lewis’s list of changes that aid could “buy” (termed the “Yankee Mogul’s fatwa” by the left-wing newspaper Blitz) was followed by Secretary of State Dean Rusk’s “Economic Bargain,” by President Lyndon Johnson’s “short tether” for food aid through Food for Peace (PL480), and by the efforts to promote devaluation and other reforms in the aftermath of Bernard Bell’s study for the World Bank. These efforts annoyed Indian officials sympathetic to the West, but the American failure to live up to its part of Rusk’s Economic Bargain infuriated them — and cost them dearly in political capital. This process exposed Indian officials to ever-increasing pressures, as American officials considered even the most fundamental aspects of Indian policy up for negotiation.
Meanwhile, the expansion of Indo-Soviet aid soon exposed Indian officials favoring publicly owned and centrally planned heavy industry to new pressures, providing a third turning point. While Soviet aid officials took offense at Indian requests for nonproject aid, they nevertheless expanded the scope of leverage and advice over the course of the 1960s. The call for political and economic payoffs for overseas aid predated the putsch against Nikita Khrushchev and in fact helped precipitate it. And Aleksei Kosygin’s reforms of the mid-1960s soon found their way abroad, as consideration of profit soon entered Indo-Soviet negotiations. Nowhere was this clearer than in the final crucial moment: the visit of Soviet aid chief S. A. Skachkov to India in December 1968. Unlike B. K. Nehru’s call for free money, or John Lewis’s Big Push proposal, Skachkov’s visit was not so much the formulation of a policy change as it was the announcement of it to concerned Indian officials. The new approach to aid that Skachkov announced on his grumpy visit followed from the Kosygin reforms, but also — like the emerging American approach — expanded the ambit of Soviet leverage. His interventions were no longer limited to improving the functioning of one or another project but extended to the operation of the Indian public sector as a whole. Investing the economic performance of the Indian public sector with newfound political significance, Skachkov asserted the authority to shape the sector as a whole, not just individual projects. Just as those inclined to the West reckoned with the price of the aid over the course of the 1960s, so too did those in India who favored Soviet aid projects.
These turning points in economic aid intersected, of course, with other events in Indian foreign relations — usually in ways that increased the pressures on the Indian government while at the same time weakening it. The Indian debacle in its war with China in 1962 opened up the possibility of a competition for military aid from both superpowers, at the same time spelling the end of British dominance in this sphere. But the next Indian war — against Pakistan in 1965 — abruptly ended the military competition, as the Western aid cutoff left the USSR as the primary outfitter of the Indian Air Force, with its navy not far behind. Similarly, the dramatic events of 1971 — steps toward Sino- American rapprochement, the Indo-Soviet friendship treaty, and the creation of Bangladesh — realized the disadvantages of offending the Americans without the advantages of a true alliance with the Soviet Union. Soviet aid to India had become increasingly militarized as the Indian military grew more and more reliant upon Soviet (and eventually Russian) equipment.