Carlin Economics and Science

Abstract

This study is an evaluation of United States Government aid to India through Fiscal Year 1962 in terms of its contribution to Indian economic development. An effective aid program for development purposes is defined as one having a high rate of return in terms of the increased income of the recipient country. Primary emphasis is placed on the evaluation of aid at the micro or project level. Two sectors of the Indian economy, transportation and irrigation, are selected for detailed case studies.

The analysis of aid to transportation concludes that the basis for making the early U.S. aid to that sector for replacement of rolling stock was never thoroughly examined, that little effort has been made to persuade the Indian Railways to implement a number of the suggestions made by the only U.S. technical study of the Indian Railways, and that there is some economic justification for expanding line capacity by installing centralized traffic control in many cases rather than the much more costly doubling now commonly undertaken. More broadly, it is found that the growth of demand for Indian Railway services and hence the need for U.S. aid is likely to be reduced if the Railways charged rates which more accurately reflected the full costs of moving various commodities, particularly bulk minerals such as coal, and if alternative modes were given an equal chance to develop. Detailed estimates of the fully-distributed average costs of transporting passengers, coal, other bulk minerals, and other freight are developed and compared with Railway rates and present and potential costs of coastal shipping and bus transportation.

The study of aid to irrigation centers attention on the state tubewells built in North India with U.S. aid. Rough estimates of benefits and costs suggest that the rate of return on invested capital is perhaps as low as three per cent, and that their operation involves a large subsidy to the water users. More generally, it is found that the state tubewells, like most other irrigation and drainage projects in India, provide a very low quality of service and that the water is used at an intensity far below optimum. It is suggested that American aid would be more effective if it were directed towards encouraging more intensive use of irrigation and drainage, research on the optimum use of water under Indian conditions, and systematic analyses of benefits of proposed projects, rather than on providing foreign exchange for doubtful projects.

With regard to the program as a whole, the study finds that the non­technical aid given during the early period (prior to U.S. Fiscal Year 1958) was ineffective in promoting Indian development since India had substantial foreign exchange reserves at the time which could have been used for the same purposes. Although significant improvements are possible, the later program (since 1958) is found to be fairly efficient in raising Indian national income; but considerable question is raised as to the expectations that India will be able to carry on its develop­ment program without outside assistance in any “reasonable” period of time.

The study suggests that U.S. aid could be made more effective if more U.S. influence were exerted on the program level to improve the balance of payments situation and, particularly on the project level, to insist on more minor changes affecting the efficiency of the use of develop­mental resources in sectors receiving substantial U.S. aid. The program is found to be particularly deficient in the techno-economic analyses made of projects and sectors receiving substantial U.S. aid. Agency for International Development personnel problems together with a generally overoptimistic view of Indian development prospects are singled out as two of the underlying problems of the U.S. AID program in India.

Partial text through Chapter 2