from being drawn upon too quickly. It gradually became clear that the
demand for capital goods for their development schemes from holders
of the sterling balances (as payment in goods for these balances) would
outstrip Britain’s post-war ability to spare such capital goods for export,
especially while at the same time aiming at a planned economy with full
employment at home. This gave rise, after the war, to a British policy of
maximising dollar- or hard currency-earnings in the sterling area as a
whole, and inducing dollar-saving by ensuring, when possible, sterling
area sources of supply of goods for countries within the area. (Britain’s
short-lived attempt to accede to US pressure in the summer of 1947 and
have a convertible pound had swiftly had to be ended due to a massive
flight from the pound into dollars.)
In India, the idea mooted in some business circles that India should
look to the USA instead of Britain for economic assistance was, how-
ever, not particularly congenial either. Offers of loans from the USA came
with conditions attached that seemed suspiciously like mechanisms of
control not particularly different from earlier colonial bonds; US policy-
makers frankly set out terms for the easy access of US goods and capital to
Indian markets. ‘We are going to permit no control of our industry by
an outside agency,’ Nehru wrote to Asaf Ali in Washington in May 1947,
‘though we shall gladly cooperate on terms of mutual advantage with
outsiders.’^30
There was much resentment in India at the situation: Britain was
unable to provide vital capital goods after the war, but was not willing
to release Indian sterling balances in dollars to enable India to obtain
supplies from outside the sterling area. This amounted to continued
colonial financial control after formal independence had been achieved –
and to a forced loan from a poor country that was now told that the money
was needed in Britain and therefore could not be returned. The (not
unjustified) sense that Britain was building a social security network and
a welfare state – ideas that had been equally considered in India before
independence – with colonial loot, while India could not finance such
measures herself added to the sense of injury.
Negotiations with Britain on the sterling balances also ran into claims
by Winston Churchill, now in the Opposition, that Britain had defended
India during the war and ought to allow Britain to give itself at least a
discount on the balances. The official view, however, consistent with
financial advisers’ fears for confidence in Britain’s creditworthiness, was162 INTERLUDE – ENVISIONING THE NEW INDIA