I have the honour to refer to Telegram No. 8 of 14th January2 asking me to use the occasion of my recent visit to Hyderabad to look into the Tungabhadra Scheme, to evaluate its economic significance and to report on its progress.
2. I was unable to visit Tungabhadra itself—it is some 250 miles from Hyderabad City and the only connection, a road, is poor—but I discussed it fully with the Chief Minister of Hyderabad, the Minister of Public Works, the Development Commissioner, and four of the senior Engineers in charge of the Project.
3. My conclusion, briefly summarised, is that the Scheme is sound. It will irrigate and bring under cultivation a considerable area of good land, now largely idle because of the low and unreliable rainfall, and it will also provide a considerable source of hydro-electric power. The main dam will be finished within a few weeks and the two minor dams will be finished some time this year. The Dam, as was explained in Mr. Birch's comprehensive report and the official documents attached to it (Memorandum No. 7753 of 17th September 1952), is a joint project between the States of Madras and Hyderabad. Madras State will be able to use its fall share of the water at once and is in a position to generate electricity. Hyderabad State, however, will first need to build canals. It hopes to have about 14 miles ready before the end of the year. If it can get the money, it would like to build up to about 160 miles of canals.
Hyderabad State also intends to set up hydro-electric plants and to distribute the electricity as far afield as Hyderabad City.
4. Unfortunately there has been a certain amount of administrative confusion on the Hyderabad side of the Tungabhadra Scheme. This is due partly to the virtual breakdown of government in that State between 1948 and 1950—about �3 million of money allocated to the Scheme was used for purchasing contraband arms; partly to struggles inside the Hyderabad Government for whatever money was going (e.g. Health Department versus Education Department, Education Department versus P.W.D.4, etc.); partly to disagreements between the State Governments and the Central Government; and partly [to]5 disagreements between the three Departments concerned of Central Government—the Finance Ministry, the Planning Commission", and the Power and Irrigation Commission.
5. As far as the Australian contribution to the Tungajbhadra Project is concerned the position c[an be summarised]; as follows:—
The Government of India has proposed that Australia's offer to supply equipment in 1952/ 3 be accepted, inter alia, for the Tungabhadra Project in Hyderabad State. In September 1952 I sent Mr. Birch to inspect the dam and to get an indication of its requirements. He reported favourably on the project and that the engineers at the dam estimated that about �A2 million could be absorbed there in the next twelve months—half of this amount on earthmoving equipment to bring canal construction up to schedule, and the remainder on hydro-electric installations. The Finance Ministry accepted this. In view of the difficulty of advising what manufactures were or were not produced in Australia I suggested that an Indian mission should visit Australia to investigate the availability of machinery needed at the dam. Both the Australian and Indian authorities agreed to this and after some delay the Hyderabad Government deputed its Chief Electrical Engineer, Mr. Abdul Qader, for the purpose.
6. Mr. Qader, as also the Government of Hyderabad, assumed that he would be leaving for Australia almost at once; but discussions on his arrival for final briefing in New Delhi reveal that there has been insufficient co-ordination between the Ministry of Finance (where the proposal originated), the Planning Commission, and the Central Water Power and Irrigation Commission. It has suddenly been discovered that the electrical development of Tungabhadra has not been provided for in the first stage of the Five Year Plan, and the Government of India cannot'allocate funds for schemes classified as 'second priority'. Australia's contribution, it should be added, could not finance the whole of the power development side without the Government of India supporting it also.
7. In addition to this, another new element has just revealed itself. The Director of Colombo Plan Supplies in Australia recently called for tenders for the supply of earthmoving equipment specified by Tungabhadra engineers. But these, on examination by the Indian authorities, have brought out the fact—striking in its revelation of what the price and cost structure now is in the Australian economy—that the items valued at �534,000 on the basis of United States costs, are priced at �800,000 in Australia. That is to say, Australian prices are about 50 per cent higher than American. (A comparable differential has been revealed in tubewell equipment and in some other matters.) As the Hyderabad Government will be required to repay to the Central Government's Counterpart fund the cost of equipment supplied to Tungabhadra it is now unlikely, especially considerable6 the serious budgetary troubles in which this State now finds itself, to accept an offer to supply machinery so highly priced.
8. I have pointed out to the Indian authorities some of the difficulties with which the Australian Government would be faced if the difficulties I have mentioned were to thwart our intention of committing funds before the end of the current financial year, and I am exerting pressure on individuals concerned to expedite decisions. The Planning Commission is now examining a recommendation that the electrical equipment which might have gone to Tungabhadra be now supplied to another Hyderabad scheme—the Ramagundam Project. About �A800,000 could probably be absorbed there at once and the project is included in the Five Year Plan. The proposal is likely to be approved.
9. These delays are regrettable, but not surprising, for whatever good the Five Year Plan —into which Colombo and other Aid is being integrated—may bring India, it is imposing a very heavy burden on Indian administrative machinery. Thus, the Hyderabad and Central Governments have disagreed over the allocation of the Centre's funds; co-ordination between the various Central Ministries concerned has been inadequate; the Finance Ministry and the Planning Commission are still disputing responsibility for the allocation of foreign aid programmes; and within the main Ministry concerned, the Finance Ministry, four Joint Secretaries have directed Colombo Plan matters in the short space of nine months.
10. I might add that on account of a tangle not yet sorted out between the Central and the Delhi State Governments it is probable that New Zealand's contribution (�250,000) cannot be used, and the current allocation might not be accepted by India this year. Canada's Bombay State Transport Scheme is also in difficulties.
11. While, however, the Indians have a good deal of responsibility for the position that has developed it is necessary to recognise that our decision to discontinue wheat supplies (on which India had been counting) and our efforts to substitute in place of wheat Australian manufactures confronted the Indians with a new and difficult problem. Instead of wheat and the counterpart funds from it they have been obliged to set about to find recipients for this or that form of contribution. This is inevitably a long process. It is made the more difficult because there are relatively few goods manufactured by Australia which cannot be produced by India, and Australian prices are very high. Yusuf Haroon, former Pakistan High Commissioner to Australia, has been making that point in Karachi lately in regard to the high level of prices for agricultural machinery from Australia. What is now happening in India over our Colombo Plan offer is a dispute about the allocation of expensive equipment which the possible recipients are not sure they want—at least not at that price. The trade promotion aspect of the Colombo Plan can only be successful if prices are competitive.
12. Everything considered, however, and with a full recognition of the difficulties involved, I recommend that, provided the Hyderabad Government and the Central Government can come to the requisite decision, we allocate the equipment offered in 1952–3 to schemes suggested by the Government of India, whatever they may be, in order to commit our funds. As matters stand, we will probably send earthmoving machinery to the Tungabhadra Project �800,000), electrical equipment to the Ramagundum Project �800,000); the Malampuzha Project will receive �20,000, West Bengal Fisheries �15,000, and a land reclamation scheme in the Tarai to cost about �200,000 may be included. Tungabhadra might be regarded as an annually recurring commitment, for even after the canals are dug and hydro-electric transmission systems installed, land reclamation in the area to be irrigated will absorb a good deal of money.
13. But I must point out again that the delays and difficulties which have occurred in connection with 1952–3 contributions in the form of Australian machinery will continue in future years for as long as we persist in an. endeavour to provide India with Australian equipment which is not immediately needed and at prices which are not competitive. Virtually all projects in India require not so much equipment as liquid funds to meet local costs (which counterpart funds from the sale of wheat provided). Moreover the more equipment that is supplied, the less will be the demand for human labour; a social fact that no government here can sidestep. What India needs most from Australia is grain, or failing grain, wool. This would supply a much needed food or raw material and at the same time it would provide a more or less liquid rupee fund. Is a possibility of resuming grain shipments totally excluded in the future?
[NAA: A5010, 163/3 part 1]