Foreign Exchange Costs of the Indian Military 1950 - 1972

Date01 September 1982
Publication Date01 September 1982
AuthorPeter Terhal
DOI10.1177/002234338201900304
SubjectArticles
Foreign
Exchange
Costs
of
the
Indian
Military
1950 - 1972
PETER
TERHAL
Centre
for
Development
Planning
Erasmus
University,
Rotterdam
From
the
day
of
Independence
onwards,
India
has
tried
to
find
shifting
compromises
between
three
(partially)
conflicting
policy
goals:
(1)
reducing
foreign
political
dependence
through
non-alignment;
(2)
building
up
a
strong
defense
apparatus;
(3)
minimizing
the
defense
claim
upon
foreign
exchange
earnings
in
order
to
further
economic
growth.
This
article
analyses
the
degree
of
success
with
respect
to
the
third
goal
for
the
period
1950 -
1972.
It
presents
quantitative
findings
about
the
burden
of
defense
on
the
Indian
balance
of
payments
for
the
period
1950 -
1972.
This
burden
is
expressed
in
the
estimated
value
of
foreign
exchange
(US
dollars
of
1972)
used
for
military
purposes.
Three
components
are
distringuished:
direct
military
imports
(ready
made
military
hardware);
imports
for
defense
industries;
imports
for
civil
industries
which
provide
goods
and
services
to
the
military
sector.
For
each
component
and
each
year,
dollar
estimates
are
provided,
based
on
whatever
evidence
could
be
found
in
published
sources.
Main
sources
used
are
those
of
Stockholm
Internatio-
nal
Peace
Research
Institute,
and
US
Arms
Control
and
Disarmament
Agency.
As
India
during
the
second
halve
of
the
sixties
imported
much
military
hardware
from
Communist
countries
under
favourable
credit
arrangements,
a
method
had
to
be
found
for
converting
these
credits
into
their
dollar-equivalent.
The
two-fold
strategy
of
India
for
reducing
the
foreign
exchange
burden
of
an
increased
defense
effort -
especially
after
the
traumatic
military
experience
of
the
war
with
China
in
1962 -
was
(1)
to
build
up
domestic
defense
industries;
(2)
in
spite
of
non-alignment
to
accept
increasing
amounts
of
military
aid.
The
second
policy
did
have
temporary
positive
effects
during
the
first
half
of
the
sixties,
but
it
appears
that
both
policies
were
structurally
inadequate
to
offer
permanent
relief
to
the
Indian
balance
of
payments.
In
the
late
sixties,
the
military
claim
on
foreign
exchange
was
nearly
half
the
value
of
Indian
civil
imports
of
machinery
and
equipment.
Introduction
Indian
economic
growth -
whatever
its
ambiguity
in
terms
of
real
progress -
has
been
always
very
dependent
upon
the
avail-
ability
of
foreign
exchange,
right
from
the
early
days
of
Independence
up
to
now.
The
main
categories
of
imported
goods
which
appeared
to
be
essential
for
sustaining
eco-
nomic
growth
were
food,
raw
materials
(and
intermediate
goods),
and
investment
goods.
In
view
of
this
crucial
dependence,
India
did
accept
massive
amounts
of
foreign
economic
aid
both
from
Western
and
Com-
munist
Countries.
Moreover,
it
created
in-
ternally
a
system
of
strict
control
on
the
allocation
of
its
precious
foreign
exchange
earnings.
Foreign
exchange
allocations
for
defense
occupied
a
somewhat
exceptional
position,
together
with
allocations
for
other
priority
goods,
such
as
food,
fertilizers
and
oil
products.
This
article
presents
findings
about
the
burden
of
defense
on
the
Indian
balance
of
payments
for
the
period
19 50 -
19 7 2 J
One
may
argue
that
this
quantitative
economic
burden
on
the
balance
of
pay-
ments
(i.e.
the
amount
of
free
foreign
ex-
change
earnings
used
by
the
military)
is
only
a
minor
aspect
compared
with
the
underlying
policy
options.
Indeed,
from
the
time
of
Independence
onwards,
India
has
tried
to
find
shifting
compromises
between
three
(partially)
conflicting
policy
goals:
(1)
reducing
foreign
political
dependence
through
non-alignment;

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