I come now, just to mention the two things which are controversial about it, and very controversial, and I think are worth talking about at length and in detail.

The first is that this is a big plant and there is no question about it. Mr. ANDREWS. I believe the estimated cost is approximately $1.9 billion?

Mr. GALBRAITH. Its ultimate cost, including the rupee cost.

Mr. ANDREWS. The amount proposed for us to finance is around $975 million?

Mr. GALBRAITH. For the full three stages.

Mr. ANDREWS. Right.

Mr. GALBRAITH. My answer to that would be a twofold one; first, it will be evident from what I have said before that I, myself, think it is sound strategy to concentrate more in a few large important jobs than to distribute our energy as we have in the past. And the dramatization of our role is actually aided by size. We should also keep in mind that while this is a large project, it is one that would spread out so that the amount in any given year, while considerable, would not be the equivalent of the total sum, or anything like it. For the first stage, the projections suggest we would get up perhaps to $180 million in the peak years.

I would, therefore, argue that the size with the drama that is associated with it is an advantage over the alternatives. We must keep in mind that we are not adding this to other projects. It is taking the place of other things. This is a hard decision, incidentally, because other things are pretty useful, too.

The final thing is that this mill is in the public sector. It is a publicly owned mill or would be a largely publicly owned mill. There is some discussion as to whether there might be some private participation in the stock, but it would be largely publicly owned.

STEEL MILLS NOW IN INDIA

Mr. ANDREWS. How many steel mills are there in India at the present time?

Mr. GALBRAITH. There are at the present time in operation five sizable mills.

Mr. ANDREWS. How many of the five are owned by the Government? Mr. GALBRAITH. I am excluding some-odd-30 rerolling mills or other small outfits. I am excluding one small mill down in southern India which runs (or used to run) on charcoal. There are five major mills. Mr. ANDREWS. How many of the five are owned by the Government? Mr. GALBRAITH. Three are owned by the Government and two by private firms.

Mr. ANDREWS. This proposed mill at Bokaro would be the biggest of the five?

Mr. GALBRAITH. Ultimately it would be the biggest of the five, yes. The argument, which I must say I respect, is that we have had the greatest success with private enterprise. Accordingly we should expect that other countries would follow our example. This is an argument which is certainly not without its compelling aspects. On the other side

Mr. ANDREWS. This proposed mill would be owned by the Government?

Mr. GALBRAITH. Owned by the Hindustan Steel Co. which is a fully owned government corporation.

SUPPLY OF STEEL IN INDIA

Mr. ANDREWS. You say that at the present time the five major mills plus the smaller ones are not able to supply the need India has for steel?

If this proposed mill at Bokaro were built, would the total production satisfy the needs of India for steel?

Mr. GALBRAITH. No.

Mr. ANDREWS. Percentagewise, what would it be?

Mr. GALBRAITH. This is an impossible question to answer, Congressman. By the time you get out to the end products, you have hundreds and thousands.

You might be up to 100 percent in some and as low as 50 percent in others.

Mr. ANDREWS. You would not give us a guess percentagewise how much of the total need for steel would be met if this mill were completed?

Mr. GALBRAITH. I am not adding other difficulties. The demand for steel is growing by several percentage points a year. So even if the mill on the day it was finished, did close the deficit, the deficit would appear and start growing again and immediately.

If I

gave you a percentage figure it would be grossly misleading. Mr. ANDREWS. All right.

PUBLIC OWNERSHIP OF INDUSTRY IN INDIA

Mr. GALBRAITH. On the public case, I would make these points. In the first place, there is in India a deep conviction in favor of public ownership of some part of the industrial structure. This is a conviction which exists and it is similar to the conviction of some of our people in support of power in the West, TVA, and so forth.

These are good people and people of sound democratic instinct. They want to be on our side but they believe in public ownership. It is a deep matter of faith. They have had a different experience with private enterprise than ours. Private enterprise came to India in the days of British rule. It was a projection of the big companies in London. Private enterprise, therefore, carries the obloquy of external firms coming into the country-foreign ownership and all the rest. As Indian enterprise passes into the hands of Indians, as it is increasingly doing, these tendencies are disappearing. But they still exist. If we are intolerant of their beliefs, the people who believe deeply in public ownership have no alternative but to be against us, to de with the Communists. The Communists are of course, in favor of public ownership.

The Communists welcome a hard stand as against public ownership and there is no question about it. They used to whip me on any statement that seemed to say we are opposed to public_ownership. I do not want to seem to be critical of General Clay. But I think it is fair to say, as a fact, that when the Clay report, when it came ut last spring, the Indian leftwing seized immediately on its opposi

tion to public ownership and with real pleasure. Here, they said, was real proof to the Indian Government that there was no future for any form of public ownership with the Americans.

Just one other point: Arrangements have been provisionally discussed and with which, in my view at least, the Indian Government will agree, which will get us, in some respects, the best of both possible worlds. I have not been impressed by the efficiency of the Hindustan Steel Co. I say this because my practice in dealing with congressional committees is to be candid. I do not think, from my own fairly close studies of this company that it is as efficient as it should be.

The three new mills came in within a space of 2 or 3 years. Teething troubles were to be expected, but I still think there was room for better performance. I have suggested, along with Mr. Wood, my economic minister, that were this new mill to be approved, we would want some better organization. We have suggested an arrangement by which an American firm, an American construction and operating firm, would build the mill under an organization separate from the Hindustan Steel Co.

As part of the arrangement the American firm would not only build the mill, but run it in for a substantial number of years. Mr. ANDREWS. Did you discuss the company that would operate it! Mr. GALBRAITH. No, I did not.

In the first place it is not my decision and in the second place, it would have caused difficulties here in the United States. Any company you mention would seem to be getting a preference. So we did not mention companies. I think we avoided even mentioning any firm for illustrative purposes. There is a point here, to which I would draw the attention of the committee that is very important, not only to India and in all the underdeveloped countries. There is a tendency in these countries to think of a job as finished when you have got a plant built, when you have the machinery in. and the lines start moving. This is only half of the job. The other half of the job is to get a plant producing as an organic unit at low

cost.

India needs not only a steel industry but a low-cost steel industry. She is marvelously equipped with excellent coal and the Bokaro plant sits on an enormous coal seam. She has one of the world's great ore reservoirs. But it is not enough to make steel in these countries. One must make low-cost steel. These are poor people and the Indians need also to expand their exports. This they do by having an efficient industry.

Therefore, the provisional proposal we have discussed would mean that an American firm would be operating this mill on behalf of the Indian Government for a substantial period. In other words, we would insure to the extent that American industry is efficient, that we would have an efficient operation.

I have set great store by that negotiation

Mr. ANDREWS. In other words, if we built the plant there would have to be outside operators?

Mr. GALBRAITH. I have always thought that this part was more important. Who ran it was more important than who owns it. Mr. Chairman, this is my statement and I am ready for your questions.

DOMESTIC NEED FOR STEEL IN INDIA

Mr. ANDREWS. You mentioned exports. about making steel in India to export it? plants going, assuming the Bokaro plant is the local demand for steel in India?

They are not thinking You say that with all six built, that would not meet.

Mr. GALBRAITH. Any calculation of steel needs is overwhelming, you are quite right, and would be used at home.

Mr. ANDREWS. You did mention exports in connection with economic production?

Mr. GALBRAITH. That is right, but the Indian economy, to become self-sufficient over the long period of time, is going to take time to replace its dependence on outside help and needs to earn its own. foreign exchange.

Some of this has to be earned from manufactured products and your manufactured products in this part of the world are competitive only if they are cheap. You have got Japan there which is also a very strong competitor, and the Indians have been building up, for example, a modest export market in two products, bicycles and sewing machines. These are two things a poor village family wants above everything else in the world.

They can only afford them if they are inexpensive and they can only be inexpensive if you have cheap, inexpensive raw materials. I would not suppose that India would in the near future be an exporter of crude steel products.

Mr. ANDREWS. Have you finished your statement?

Mr. GALBRAITH. Yes, sir.

BACKGROUND OF CONTRACT FOR SURVEY

Mr. ANDREWS. What are the circumstances and considerations surrounding the awarding of a $686,000 contract for a survey of the proposed Bokaro steel mill?

Mr. GALBRAITH. What lay back of that?

Mr. ANDREWS. Yes.

Mr. GALBRAITH. The decision on this was taken here in Washington. Again, these are decisions that are taken by the AID agency, not by the Ambassador. I think I know the background of it although Mr. Gaud's comments on this would supersede mine if there were any conflict between them. He knows more accurately than I. As I said in my statement, this is a very large plant. The engineering feasibility, the location, the raw materials, the requirements, and the very important question of the product mix had been studied by an engineering company, the Dastur Co. It is a competent company, but not a company with great experience. It was not felt by AID and I think they were right-that we could consider this project until it had the imprimatur of a major American firm and engineering

Company.

May I say one further word on that which is of general interest? Some of the Indian officials about a year ago quite a bit over a year

ago-were unhappy about the delay that was involved. This is related to the pressure for steel which is very great.

I made the point-one I have made many times-that we have not to date made a serious mistake in India, which has been the largest recipient of our aid. We have not made mistakes because we have taken the time to study things carefully, and indeed have also spent money on studies.

One of the worst things that will happen to the AID programand I may say, parenthetically, to the Ambassador in charge-is when we act without care we have to explain the resulting error.

Mr. ANDREWS. You consider that survey to be very thorough? Mr. GALBRAITH. That is a first-rate job. You have a copy of it right there.

Mr. ANDREWS. I am sure that you are familiar with it.
Mr. GALBRAITH. Yes, sir.

ADVANTAGES TO UNITED STATES FROM CONSTRUCTING MILL

Mr. ANDREWS. What advantages, if any, are expected to accrue to the United States for this expenditure of public funds? You have touched on that in your opening statement.

Mr. GALBRAITH. I do not want to repeat my opening statement. But I would say this was the most important job to be done in Indiato get a steel supply. It is the thing that is most urgent for Indian economic development and we should not shy away from doing the most important thing. I do not believe Americans should avoid big enterprises. I think we are quite up to undertaking

Mr. ANDREWS. In other words, this proposed mill, in your opinion, is the very best thing that this country can do, so far as India is concerned, in the field of foreign aid?

Mr. GALBRAITH. Professors are sometimes as cautious as lawyers. I would say it has a top priority.

TOTAL ESTIMATED COST TO THE UNITED STATES

Mr. ANDREWs. What is the total estimated cost to the United States, should this plant be carried to its ultimate conclusion? Mr. GALBRAITH. We are discussing here actually the first stage of this plant. The dollar cost which the steel corporation puts down in round numbers is $513 million. This would be over a period of 4 or 5 years, I suppose. There are two further stages beyond that.

Mr. ANDREWs. My question was: What is the total estimated cost to the United States, should this plan be carried to its ultimate conclusion?

I believe you stated earlier the total cost of the project would be approximately $1.7 billion, and the United States share of that would be approximately $975 million? Is that your understanding of it!

Mr. GALBRAITH. I hope I am not contradicting any testimony from my colleagues the other day, but my impression is that the only decision that would be taken now would be as to the first stage.

The further stages would be either out of Indian earnings, if they should develop to the point where they could handle it