A thread about David Engerman's book, The Price of Aid. Lots of archival details and interesting history on how the Cold War competition played out in aid politics in India and how it impinged the direction of India.

I am going to intersperse this with my own comments based on reading other books and material of that period. The key takeways are:
1. Competition between the superpowers played out in the internal disputes in India over competing economic visions. The Planning Commissions and...

...the left leaning minsters sought to use Soviet aid to buttress their side. Mahalanobis was smarter. He even used "western" economists cleverly to advance his vision of planning while appearing to be even-handed and open-minded.
2. The finance ministry right from the beginning

....was more inclined to the US and a capitalist model. BK Nehru was a key player in the US tilt, as was LK Jha subsequently. (As an aside, LK Jha played a role in Manmohan Singh's rise and indirectly in the shift away from socialism in the 1970s).
3. Right from the beginning,...

...there was really no cohesive vision for economic policy. As aid competition heated up and India's external needs and constraints became more prominent, competing visions jostled and reaching a crescendo in the 1960s and early 1970s.

4. Nehru was against aid because he understood that it would compromise institutional autonomy. But India's food shortage and the BOP crisis of 1956-57 did away with any such hopes of autonomy.

5. Ironically, if Nehru wished to follow greater political and economic independence, he should have eschewed Mahalanobis's advice and followed American advice to increase agricultural output (my editorial comment).

6. Back to the 1956-57 BOP crisis. It opened the doors for pro-US, capitalist opponents of Mahalanobis. The crisis started 34 years of perennial FX shortages, culminating in the 1991 crisis.

7. BK Nehru in the finance ministry backed by Morarji Desai, who had taken over as FM, to shift toward the US and toward broad BOP help rather than project-based lending. The next several years reflected a rise in American influence.

8. The height of American influence was during the China war and its immediate aftermath, as the USSR refused to help. Aid India Consortium was set up in the aftermath of the 1956-57 crisis.

9. An aside, India paid for wheat imports under PL-480 with rupees. Some of these were used to start ICICI (my old employer) as a counterpart to IFCI and to promote American vision of private sector development!

10. By the early, 1960s, India was facing what was called the "quiet crisis." Americans sought to shift India away from the socialist model and started to exert pressure using their leverage in food and FX aid.

11. While the Indian government under Shastri had independently come to the conclusion to shift course in agriculture, the American push played a role in sparking Green Revolution. In doing so, it ultimately reduced American leverage!

12. By this time, the Planning Commission's power had dwindled and shifted to the ministries. As an aside, Vivek Chibber makes the point that the PC never had the nodal agency power that the EPB had in South Korea or MITI had in Japan.

13. From 1965 to 1971 was a steep downhill in India-US relations. LBJ kept India on ship-to-mouth and sought India's political help in or at least desist from criticism of the Vietnam War.

14. India under pressure from US/WB devalued the currency and embarked on reforms in 1966. The famous aborted reforms. However, the US and AIC (aid india consortium) failed to follow through with the promised aid. IG Patel called it the Great Betrayal.

15. Ironically, Indira Gandhi followed her technical and economic advisors in the devaluation. But she learned a bitter lesson. the blowback and the betrayal caused her to shift violently left and distrust technocrats.

16. The result was a return of leftist wing in dominance over Indian policy.
17. Indira Gandhi also disliked the influence that USAID had on domestic discourse and this eventually led to their leaving India in 1975.
18. The Americans and WB/IMF learned their lesson. Their future

...efforts to influence Indian policy were more discreet and did not seek to circumvent domestic political buy in.