On September 12, 1951, Cabinet approved an expenditure not to exceed $15 million for the supply of wheat to India under the Colombo Plan, on condition that the Government of India be requested (a) to set up "counterpart funds" equal in value to the wheat eventually provided, and (b) to use these funds for development projects in consultation with Canadian officials. ⁴² $10 million worth of wheat was in fact provided to India under the 1951/52 programme of capital aid, and rupee counterpart funds of equal value have, with the agreement of Canadian officials, been allocated by the Indian authorities to meet the local costs of the important irrigation and hydro-electric project at Mayurakshi.

2. At its meeting on September 13, 1952 Cabinet approved the supply to India of a further $5 million worth of wheat during the fiscal year 1952-53 on the understanding that as for the earlier gift, rupee counterpart funds to an equivalent value would be established. ⁴³ On March 27, 1953, Cabinet approved the provision to India of 40 locomotive boilers on the understanding that counterpart funds would be established in an amount which would be appropriate in the light of arrangements for financing the Indian Railways and other relevant considerations. ⁴⁴ Subsequent negotiations with the Canadian supplier indicated that the cost of the boilers would be considerably less than the original estimate, and on November 17, 1953, Cabinet agreed that 10 locomotive boilers, additional to the 40 previously approved, should be provided from the amount of $2.08 million which had been set aside for this project.

3. The rupee counterpart funds arising from the 1952-53 $5 million gift of wheat have been set aside by the Indian authorities. The counterpart funds arising from the supply of locomotive boilers will not be set aside until delivery to India has been effected. Because the locomotive boilers make a direct contribution to Indian development, and because financial and administrative difficulties would arise if the Indian Railways were debited for the locomotive boilers at the equivalent of the price of their manufacture in Canada, it has in principle been agreed with the Indian authorities that the counterpart fund to be set up should be the equivalent of the international market price for similar boilers. The exact price per locomotive at which the counterpart fund should be established is still under consideration.

4. The question of the allocation for development purposes in India of the counterpart funds arising from the $5 million wheat gift and the supply of 50 locomotive boilers has been discussed with the Indian authorities who have proposed that they be applied against the local costs of the Mayurakshi Irrigation and Hydro-Electric Project to which it was previously agreed the counterpart funds from the 1951-52 $10 million wheat gift should be allocated. In view of the size and importance of the Mayurakshi Project and of Canada's special interest in it, it is considered that Cabinet approval should be obtained before agreeing to the Indian Government's proposal.

5. The Mayurakshi Scheme is one of the high-priority projects in India's five-year economic development plan. It is situated in the State of West Bengal, and will on completion irrigate 600,000 acres of land with an estimated resultant increased yield of approximately 400,000 tons of food annually. The Mayurakshi works, on which very considerable progress has already been made, will include a hydro-electric plant. It is expected that the project will be completed in 1955. In addition to the agreed allocation of the rupee counterpart funds arising from the 1951-52 $10 million gift of wheat, Cabinet has approved the provision for this project of $3 million worth of Canadian manufactured electrical equipment for which contracts are at present being placed. The Indian proposal has been discussed on an interdepartmental basis, and it is considered that the allocation of these rupee counterpart funds to the Mayurakshi Project would be desirable and useful. Assurances have been received from the Indian authorities that local expenditure of more than the amount of rupee counterpart funds arising from the $5 million gift of wheat and the provision of 50 locomotive boilers remains to be incurred on the project.

Recommendation

It is recommended that Cabinet agree to the Indian proposal that the counterpart funds arising from the grant of $5 million worth of wheat, and the provision of 50 locomotive boilers from Canada under the Colombo Plan be allocated to help meet the rupee cost of the Mayurakshi Irrigation and Hydro-Electric Project. ⁴⁵

BROOKE CLAXTON