CAB129-78 — Page 127

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Page 128 7. I cannot feel so confident about India. All and sundry assured me they wanted British capital and skill but their financial policies carried out in the name of Socialism may well make it impossible to recruit British people to live and make their careers in India. There is strong pressure throughout the Congress Party to apply ceilings on salaries and to tax perquisites generally including passage allowances to Europe. All this is proposed in the name of equality and would apply to Indians but the result is sharp discrimination against foreigners whose circumstances are so different.

8. The Finance Minister understands the adverse effect such measures will have and with great courage has tempered the wind by including clauses in the Finance Bill and Companies Act which permit elasticity in administration. But the theoretical Socialists among Ministers continue to make headway and they are the majority.

9. The High Commissioner is considering the most effective ways of approaching the Indian Government so that they may clearly understand the damage they may do by any further increases in personal taxation, but the British business community, especially the smaller firms, have reason for their fears.

10. This lack of confidence is a pity because there are great opportunities in the country's development. The best hope is that the Government will see themselves falling so far short in the financing of the second Five-Year Plan that they will realise in time that they must mobilise and attract all the help they can get from abroad.

11. There is one broad political tendency which is disquieting-India is clearly carrying on a flirtation with Russia. The papers are full of what Russian capital and technical skill can do to promote Indian expansion and development and the Russians are responding with some good work.

12. The Prime Minister of Pakistan gave me a warning that people, even in his country, were beginning to ask what there is for them in menibership of the Commonwealth and alliance with the West. Might it not be better, like Nehru and Nasser and Daud to play off one against the other and pocket the gains from both sides?

13. Of course, Chaudhri Mohamad Ali has an interest to declare. But if the United Kingdom can be seen to support Pakistan in her reasonable requests for diplomatic aid in Afghanistan and Gwadar, and if we can get down to the business of practical planning with her and her Muslim associates in the Baghdad Pact, we may correct a tendency which could be exceedingly dangerous and lose us our one reliable military ally in the Sub-Continent and in the East.

14. Clearly impressions gained in a three weeks' tour cannot be other than superficial. But my feeling is that Pakistan, despite the Prime Minister's warning, will be completely with us, but that India, while unlikely to leave the Commonwealth, has little positive enthusiasm for it and that we shall have to work very hard to keep her eyes turned towards the West.

15 We have some good cards of entry: the goodwill of the Services, the leaning of the Indians towards the West which they have inherited from the British although there is a slow reversion to type; their genuine dislike of the Soviet political system; their need for financial and technical help in reaching their development targets. This indeed is the most promising opening. Nothing would do more to convince the Indian Government of our goodwill towards their Development Plan than our agreement to build their new steel plant on reasonable terms. It is looked upon by them as a test case.

16. If within the next year or so British businessmen can convince Indian Ministers that the private investor and the enterprising industrialist are indispensable to the fulfilment of their programmes, then we shall retain a small but vigorous British population in India which will have a beneficial influence and help to keep if not their affections at least their interest in the western world.

17. America, with all her money and strength, makes no headway in winning their confidence. In so far as any country from the West can exercise influence the task of holding them lies upon us.