"Good Difficulties"

Village bazaars in Bengal and the Punjab were jampacked last week with farm women on a gold-buying spree--gold rings for their noses, gold bracelets for their ankles. In Bombay, betel-nut-chewing brokers in multicolored turbans jammed the city's bullion exchange, traded up to $50 million worth of gold daily. The nationwide gold rush heralded no sudden influx of wealth to the world's second most populous nation; on the contrary, it was proof that even the village folk knew their country was in serious economic difficulties, and that confidence in the Indian rupee was declining daily.

After only 16 months, India's overambitious second five-year plan is coming apart at the seams. In New Delhi dismayed M.P.s were unimpressed when Jawaharlal Nehru tried to dispel their gloom with fine words. "Our difficulties of internal and external finance are the difficulties of a progressing economy," said Nehru. "They are good difficulties--difficulties of progress and not of stagnation."

Losing Charm. In private, probably not even Pandit Nehru really thought his difficulties were good ones. India's foreign-exchange reserves (sterling balance), which many Indians now watch as closely as they do cricket scores, stood last week at $906 million; in another month foreign-exchange reserves will be at the $840 million minimum that the Indian government maintains in London as backing for its currency.

Internal finance is drying up too. India's banks, already 75% lent out, are paying 4.4% for call money, relending funds at 8.5%. Hard-to-get loans are going at a minimum of 12.5%. Inflation is spiraling: prices of industrial raw materials are up 40.8% since 1955, wholesale food prices up 54.1% from the same date. In the past six months, food prices have jumped 16%, will go higher if Nehru has to yield to demands for wage increases. When workers in India's nationalized factories clamored for pay rises last week, Nehru snapped: "If these demands persist, nationalization might well lose much of its charm."

In a series of token gestures toward austerity, pomp-loving Indian government officials have sharply cut their retinues; Nehru and other officeholders have slashed their salaries 10%. Last week the government was getting ready to nick some 36,000 Indians, including the fabulously wealthy Nizam of Hyderabad (whose fortune is estimated at somewhere between $200 million and $1.2 billion) with new wealth taxes. President Prasad did without his private train when he took off on a tour of the south; he hooked one private car onto the end of a regular express train, took all his 22 aides in with him. Prime Minister Nehru himself was going over plans for a modest (four bedrooms ) new official residence, which will permit a drastic cut in his present contingent of 200 security officers and will also provide, as Nehru put it, "peace of mind and untold savings on my present electric bill."

"Never Mind." But none of these gestures were anything more than that, and the country's top officials knew it. "Never mind austerity," said Industry Minister Morarji Desai. "Our only answer lies in greater production." The real questions were: How much production, how fast, and at what price?

Many economic experts, both Indian and foreign, feel that the second five-year plan was unrealistic and overambitious from the outset. For one thing, the plan's framers drew it up on the assumption that foreign loans and investments would cover a $1 billion-plus shortage. Because of this, there was no real effort to force domestic production into exports to help make up at least part of the deficit. Also, worldwide inflation has already boosted the original estimated cost of the plan from $10 billion to $12.6 billion. A less tangible but equally important reason for the plan's failure is the inescapable fact that industrial drive and energy seem to be notably lacking in India.

Most experts agree that India will probably have to cut her London-held sterling balance to a rock-bottom $630 million sometime in the next few weeks. But this, in turn, will probably serve to make India's international creditors, both government and private, more reluctant than ever to lend her money or sell her goods.

Wait for Autumn. Last month India's able, tough-talking Finance Minister T. T. Krishnamachari slapped a ban on all imports requiring foreign exchange unless the sellers agreed to payment deferments of from seven to nine years. British, Italian and West German suppliers responded coolly, though some West Germans are ready to offer goods on a deferred-payment plan--at 8.5% interest. Russia and Eastern European satellites, on the other hand, have been quick to inform India that they are eager to grant deferred payments--and at only 2.5% interest, a political price which U.S. observers feel is significant (though direct Russian-Indian trade is at present only 3.2% of India's overall foreign trade).

So far, neither Nehru nor Finance Minister Krishnamachari has been willing to scrap or revamp the second five-year plan. Last week Krishnamachari announced that he would make a visit to the U.S. next month. Nothing drastic would be done about the plan until he had tried his luck in Washington.

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