Soviet Economic Relations with India

and Other Third World Countries

Santosh K Mehrotra

Patrick Clawson

In the light of the experience of the less developed countries (LDCs) with aid fromt and trade with
the West, it is important to carefuly examine Soviet aid and trade relations with the LDCs.
This paper argues that the Soviet Union draws substantial economic gain from trade and aid rela-
tions with the LDCs. These relations are largely economically motivated, although politics often deter-
mines from which country an item desired in trade will be acqucired by the Soviet Union.
The authors paint out the essential similarity between the structure of Soviet-LDC relations and
that of Western-LDC relations. It is suggested that the actions of the Soviet Union since the late 1950s
are consistent with Lenin's description of imnperialism and inconsistent with the principles of socialist
The paper ends with an examinationi of the effect of Soviet trade and aid on class relationships in
India. It is shown that economic relations with the Soviet Union have reproduced the pattern of India's
dependency on foreign poters.

THIS paper is concerned with the aid termines from which country an item comprehensive and reliable, unfortuna-
and trade relations of the Soviet Union desired in trade will be acquired. The tely most LDCs do not include in their
with Third World countries, with cer. second section of the article shows how statistics all imports financed by loans
tain sections devoted wholly to Indo- the USSR has drawn economic advant- from foreign governments or exports to
Soviet economic relations. Trade and age from its trade and aid with India. repay those lolans. Since it is these tran-
aid are two different aspects of economic The third section points out the essen- sactions we are most interested in, the
co-operation between nations. However, tial similarity between the structure of data from LDCs are not used here. The
in East European literature, trade with Soviet-LDC relations and that of Wes- official Soviet data, which are translated
the Third Wo-ld countries is regarded tern-LDC relations. The actions of the and compiled by the UN, the US State
as a special form of aid. It would be USSR since late 1950s are shown to be Department, and the CIA, are u'ed
more correct to regard aid as an adjunctconsistent with Lenin's description of throughout this paper. The Soviet data
to trade. Aid is rarely a gift (grant). 'Aid' imperialism and inconsistent with the do not include arms exports. There is a
usually means loans which must be re- principles of socialist trade.3 In no sense substantial difference, however, between
paid with interest. does the article "prove" that the USSR the Soviet aggregate figures for trade
It has Deen alleged, and rightly so, is an imperialist power in the Leninist with the LDCs as a group and the sum
that the existence of aid from Western sense. The argument here is much more of the reported trade with each LDC.
capitalist countries can be explained limited: the analysis is only of the cha- This difference corresponds roughly to
only in terms of an attempt to preserve racter of foreign economic relations. estimates of the arms trade.6 There are
the capitalist system in the Third World.This precludes analysing whether there no good data on the Soviet balance of
Aid is seen as a concession by capita- exist finance capital and monopolies in payments as distinct from the balance
list nations to enable them to continue the USSR. The evidence presented here of trade. It would seem that the only
their exploitation of the ex-colonial is consistent with the theory that th` major transactions not reflected in the
countries.1 As regards trade relations USSR is imperialist.4 The article close; trade data are the hard currency pur-
between Third World and advanced with an examination of the effect of So- chases of arms by Middle Eastern
capitalist countries, it is well known that viet trade and aid on class relationships countries.
the terms of trade of the L;DCs vis-a- in India. It is shown that economic re-
v'S the Western countries have been de- lations with the USSR have reproduced (a) Sovxr IMPORTS PROVDE RAW
teriorating over the years, partioularliy India's dependency on foreign powers. MATEUIALS FOR INDUSTRY
in the era of neo-colonialism.2 In other words, Soviet actions have been Soviet trade with LDCs expands So-
what would be expected from an imn viet industry in two ways: (1) by pro-
In the light of the experience of the perialist power which is exporting capi-
viding a market for Soviet machinery,
LDCs with aid from and trade with the tal to India.
and (2) by providing raw materials for
West, it is important to carefully con-
industry (including food-stuffs for the
sider and scrutinise Soviet aid and tradc
workers in industry). In tliis part of the
relations with LDCs. According to a
Advantages to USSR to Tradie with ar'icle, the latter factor will be consi-
widely accepted view, the Soviet Union
the ITird World dered. Soviet imports from LDCs fall
has had to bear a heavy economic bur-
While there is much data on Soviet into two major categories: on the one
den in order to develop political ties
hand, there are raw materials (such as
with LDCs [1]. This article argues thatL[D trade, most of it is close to worth-
less. The World Bank, the IMF, and cotton, wool, rubber, hides and jute);
the rulers of the USSR do in fact draw
on the other hand, there are speciality
substantial economic gain from trade the US Commerce Department publish
data based on th;e foreign trade statis- foodsbuffs (such as cocoa, rice, citrus
and aid with LDCs. Soviet trade and
tics of the developing countries.5 While, fmits, oranges, nuts, tea and coffee).
aid relations are largely economically Everyone of these raw materials was a
motivated, although politics often de- India's foreign trade statistics are quite
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 Special Number August 1979 ECONOMIC AND, POLITICAL WEEKLY

major Soviet import in the 1920s;

lion pairs that
of gloves for export to the bour in which a few advanced countries
is, until the rise of autarkic policies in
USSR. Instea4 of producing gloves, the export advanced technology, especially
the 1930s. Vhen the USSR began to Soviets are producing glove-making ma- machine goods, while most countries
re-emerge on the capitalist world mar- chinery, a more technologically advaiic- become dependent on exports of indus-
ket after 1953, it was these raw mate-ed product. This process is called thetrial raw materials and some basic con-
rials and foodstuffs which were imported product life cycle. New products aresumer goods.
- before the USSR had any political developed in the adanced countries and The expansion of Soviet machine
ties with countries exporting these com- are initially produced there. Eventually,
goods exports faced a major barrier:
'nodities. the technology for making these pro- there was no demand for Soviet machi-
When the USSR imports raw materials ducts is standardised and routinised. niery in the Third World, partly because
rom LDCs, it is able to recluce the The products are then made in tne of Cold War pressures but also partly
more expensive expansion of domestic LDCs. The high initial profits from the because of the poor reputation of Soviet
output of these raw materials. For in- products pays for the costs of develop- machinery.9 One of the ways to break
stance, the import of long staple cotton ing new technologies which are pu'into LDC markets was to offer loans
from Egypt and Sudan is less ex- into production in the advanced count- to finance the purchase of Soviet ma-
pensive than the construction of exten- ries. Through the product life-cycle, the chinery; another way was to finance
basic character of Soviet-LDC trade is purchases by state-owned corporations
sive irrigation systems in Soviet Central
Asia.7 By exporting manufactured goodspreserved. which were denied access to Western
in reburn for raw material imports, the It is sometimes argued that exports credit. It was against this background
to the USSR are profitable for LDCs of balance of payments difficulties that
USSR is able to increase its rate of in-
even
dustrialisation. Increases in manufactur- when the Soviets pay prices below th-e Soviets biegan to extend loans to
ing output offer the USSR the povsibi- world market prices. The reason given LDCs - loans that were then called
lity of economies of scale. A broad in-is that trade with the Soviets represents 'aid'. Khruschev's famous declaratic'n of
a net increase in exports. This argument'economic warfare' against the US did
dustrial base helps the USSR fund large-
scale research and development. A ra- is wrong for two reasons. First, the So- not reflect a willingness to take econo-
pid pace of capital accumulation allowsviets are likely to purchase many of the mic losses in order to make political
for the constant introduction of new same goods with hard currency on the friends (as was widely feared among US
technology. All this enables the USSRopen market if they could not obtain business circles at the time). Khruschev
to become a major world economic them any other way. Second, as Datar intended to break into US-dominated
power while preserving (if not reinforc- shown, the Third World could havemarkets by offering better credit terms,
has
ing) the subordinate role of the LDCs. exported considerably more to the Westthereby consolidating the USSR's posi-
In the last decade, Soviet imports if it had not 'exported to the USSR; sne tion as a major force on the world mar-
have been shifting from unprocessed estimates that India could have found ket. Soviet economists have gone so far
raw materials to semi-processed goods. markets in the West for 26 per cent of as to calculate how much trade is gene-
For example, Soviet imports of cotton its exports to the Eastern Bloc, at the rated by each extra rouble of credit.-0
fibre from the Third World rose only same o,r higher prioes.8 From 1956 on, the USSR has been
slightly from 1960 to 1972: from extending credits on a large scale. Ac-
$ 145.9 million to $ 181.2 million. On (b) SovIET AmD CREATES MARKET FORcording to US government estimates,
the other hand, imports of cotton yarn SOVur MACHINERY EXPORTS from 1955 through 1976, the USSR
and clothing went up from $ 1 million
A principal barrier to the expansion extended $ 11.8 billion, over 95 per
to $ 122.3 million in the same period.
of S,oviet imports in, the 1950s andcent of which was loans. Eastern Euro-
While Soviet imports of Indian hides
early 1960s was the lack of foreignpean countries extended $ 6.5 billion.
declined from $ 16.3 million in 1966-7
exchange to pay for imports. The Soviet 28 per cent of the Soviet aid has 'gone
to nil in 1974-5, imports of leather and
exports were then largely raw materials; to Egypt and India. Another 43 per cent
leather goods from $ 24.1 to $ 58.7 the demand for these in the LDCs was has gone to the Middle East broadly
million.
limited (see Table 2). The USSR ran defined (Afghanistan, Algeria, Iran,
The shifting import pattern of Soviet up a cumulative deficit with the LDCs Iraq, Syria, and Turkey). 10 per cent
trade reflects the needs of the Soviet of $ 991.3 million from 1955 to 1962; has gone to sub-Saharan Africa, and
economy. Twenty years ago, the USSR the gap in 1960 alone was $ 229.3 mil- 20 per cent to the rest of the world.
was engaged on a large scale in the lion. The Soviet deficit stemmed pri- The credits authorised in an aid agree-
basic processing of raw materials. marily from large hard currency pur- ment cannot be used until further agree-
Today, Soviet industry is shifting chases of raw materials from LDCs ments are signed; the Soviets must ap-
towards more advanced industries, which were not markets for Soviet ex- prove each project for which the fund;
using more sophisticated techno- ports. If the USSR were to continue its are to be used. The credits must be
logies. In order to expand the output imports of raw materials, the Sovietspent on goods purchased in the USSR.
of technologically advanced goods, re- leadership would have to find a market In other words, Soviet aid is 'double
sources m!ust be shifted away from the for some category of Soviet goods. The tied': tied as to which projects it may
production of semi-processed raw mate- Soviet leaders were not satisfied with a be used on, and tied as to the origin of
rials and low quality manufactured bilateral exchange of raw materials; the goods. There is no guarantee that
goods. For instance, the USSR used to they wanted to increase the level ofthe credits authorised in a Soviet aid
import leather frQm India to manufac- inaustrialisation in the USSR. In other agreement will necessarily be used, nor
ure gloves. Now, the USSR is export- words, the Soviet leaders wanted to re- that the level of trade called for in a
ng plants to India to produce 1.6 mil- inforce an international division of la- trade agreement will he reached. There

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 ECONOMIC AND POLITICAL WEEKLY Special Number August 1979

TABLE 1: SOVIET IMPORTS FROM THIRD WORLD COUNTRIES

(Millions of US$)

Year Total Rubber Hides, Coffee, Nuts, Jute bags, Cotton Cereals, Other
Imports Skins, Tea, Fruits, Packing Fibre, Sugar
Leather Cocoa Vegetables Cloth Yarn,
Fabric,
Clothing

1955 210.4 25.5 11.7 15.3 7.7 r45.2 57.8 47.2

1960 564.4 151.8 38.7 6.2 27.2 8.7 146.9 6.6 177.9
1965 814.9 137.1 34.4 119.8 65.7 45.4 209.7 47.7 155.1
1970 1215.6 140.6 66.9 156.5 122.3 38.3 356.6 334.1
1972 1613.0 77.8 52.2 166.8 149.2 66.2 342.6 808.2
1975 4280.2 141.4 124.1 469.1 292.2 86.3 551.9 676.6 1932.6*

* In 1975, imports of petroleum products totalled $802 m

Basic source: USSR, Ministry of Foreign Trade, Vneshnyana Torgavlya, various years.

TABLE 2: SOVET EXPORTS TO THIRD WORLD CouNTRIEs

(Millions of US$)

Year Total Machinery Petroleum Foods, Iron, Undistributed Other

Exports Products Lumber Steel Regional
Total Subtotal: Exportst
Equipment
for Complete
Plants

1955 210.4 5.4 1.1 31.9 21.2 20.1 * 132.1

1960 335.1 125.4 68.6 53.9 71.6 30.9 * 53.3
1965 1122.7 471.7 234.1 131.6 117.0 57.8 268.8 75.8
1970 2039.7 686.5 408.1 92.3 169.3 102.9 791.8 196.9
1972 2495.7 813.8 * 115.0 114.8 105.6 1069.2 277.5
1975 3173.0 1132.4 * 803.4 303.8 116.3 453.3 363.8

* Data in this category not collected by the USSR

t As noted in the text, this category is composed m
Basic Source: USSR,Ministiy of Foreign Trade, Vneshnyana Torgavlya, various years.

are only sketchy data on the actual de-
liveries of Soviet goods under the aid
shipments to LDCs from 1967 through
below on In dia). The US government
estimates that a little over half of the
credits have been shipped.
The figures above on Soviet aid do
not include military aid. Soviet arms
shipments to LDCs from 1967 through
1976 are estimated by the US govern-
nent at $ 13,400 million. From 1965 to
1974, Egypt purchased $ 2,400 million,
Syria and Iraq together bought $ 2000
million, and India purchased $ 1,300
million. S,oviet arms sales - often call-
ed Soviet military aid - are generally
financed by ten-year credits (with three
year grace periods) at 2 to 21 per
cent interest.11 The prices paid by LDCs
for Soviet arms are 40 to 50 per cent
below Western prices. Most arms sales
by both the West and the Soviet bloc
are of older equipment. Even if the
trend towards sale of newer equipment
continues, the revenue from sales to
LDCs will still help fund acquisition of
new equipment, especially by reducing
the per unit cost of research and deve-
lopment.
(c) AI, BALANCE OF TnADE, AND
BALANCE OF PAYMENTS
The effects of this large credit pro-
gramme on the Soviet balance of pay-
ments with LDCs have been dramatic.
Soviet imports from these countries were
rising rapidly The only way the USSR
could maintain an even balance of trade
was by increasing shipments under the
aid programme. As can be seen from
Table 2, the USSR increased machinery
exports, especially exports of 'equipment
for complete plants' - a category
which is almost completely identical
with shipments under the aid programme.
The initial! impact of the aid was
improve the balance of trade, which be-
came positive by 1965. Soviet machine
goods exports offset the imports of raw
materials. There was an improvement
in the balance trade which is goods ex-
ported minus goods imported, but no
iimprovement in the balance of pay-
ments which includes the movement of
money sums such as the credits extend-
ed as aid. There are no data available
on the Soviet balance of payments, as
distinct from data on Soviet foreign
trade. Soviet foreign aid is the export
of money capital; therefore it worsens
the Soviet balance of payments. Whep
Third World countries began to repay
the Soviet loans with shipments of goods
to the USSR, the Soviets were once
again importing more than they export-
ed: the balance of trade became nega-
tive again. Previously, the negative So-
viet balance of trade was a source
of worry to the Soviet leaders: it meant
they were piling up a debt which they
owed to the Third World governments.
Now, the negative balance of trade is a
signtothat the LDLCs are paying back
their debts, or at least the interests on
the debts, to the USSR. In the 1950s
the negative balance of trade meant a
negative balance of payments. Today,
the negative balance of trade may
occur simultaneously with a balanced
balance of payments. The USSR can im-
port more goods than it exports because

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 ECONOMIC AND POLITICAL WEEKLY Special Number August 1979

TABLE 3: ESIIMATES other

OFArab
SOVIET ARMS
oil producers paid the USSR able to produce at roughly the same
EXPORTS TO THIRD WORLD in cash for shipments to Egypt during
COUNTRIES
cost as the West, then the USSR is
(Millions of US$) the October War; these shipments in- making a rate of profit off its trade with
cluded over 100 fighter planes, 600 the LDCs equal to the imperialist super-
tanks, and other equipment [3]. These profits that the West makes from its
Year Undistributed US Government
Regional Estimates shipments help the Soviet balance of trade with the Third World.
Exports trade: the exports are unmatched by any Comparing prices is a difficult process
(from USSR) imports of goods from Egypt. They also because there are factors which influ-
trade data)
help the balance of payments. The ship- ence the price of a commodity: quality
ments also provide the Soviet leadership of manufacture, the precise design of
1965 268.8 260 with hard currency with which to pur- the good compared to other similar
1970 791.8 1,000 chase Western technology.l2 goods, the time of year it was bought
1972 1,069.2 1,205
1975 453.3 1,685 W'hile granting that the Soviet aid (especially for agricultural goods), and
programme has helped the USSR's ba- so on. There have been two careful
lance of payments, some observers studies comparing the prices the Sovie'ts
doubtOF
TABLE 4: SOVIET BALANCE the economic
TRADE advantage
WITH to the charged for their exports to the West
THIRD WORLD COUNTRIES
USSR of foreign aid. Their doubts are with the prices the Soviets charg-
based on the low interest rates charged ed for their exports to LDCs. Both
(Millions of US$)
on loans, 212 per cent being a common studies came to pretty much the same
Soviet rate. A major reason the Soviets conclusion. Chandra writes, "The USSR
Year Balance of Trade Balance of Trade
Not Including charge only 2Y2 per cent is that they generally charges the Third World pri-
Undistributed have faced difficulties in penetrating LDC ces which' are higher by about a third
Regional
markets. Soviet machinery is not renown- compared to those realised in Soviet ex-
Exports
(ie, Not Including ed for its high quality; to sell the ma- ports to the West. For the machinery
Soviet Arms chinery the Soviets must offer better group as a whole, the rate of overpric-
Exports) terms than are available from competi- ing varies between three-tenths and
1955 0 * tors. As the USSR has established itself one-half" [6]. Carter studied the prices
1960 -229.3 * in a market, it has become more ,e of 63 commodities, covering 27 per cent
1965 +307.8 +39.0 manding in the terms of its loans. At
1970 +824.1 +32.3 of the USSR's non-military exports to
1972 +882.7 -186.5 the same time, the West has become the LDCs in 1964. He concluded that
1975 -1107.3 -1560.5 more accommodating, perhaps as a res- if the USSR had sold these commodi-
ponse to the increased competition. ties to the LDCs at the same price the
* Data in this caEegory not eollected by
the USSR. The interest rate on Soviet loans has Soviets charged the industrial Western
not been as much lower than the rate
+ Means Soviet exports exceeded impo- countries, then the Third World count-
rts; -means Soviet imports excee-
on Western loans as it might seem at ries would have paid 13.1 per cent less
ded exports. first glance. While the nominal Soviet
[7]. While it is difficult to compare ma-
interest rate has been lower than the
chine goods because of their heteroge-
nominal World Bank interest rate
LDCs must repay the interest and prin- neity, the discrimination was substanti-
cipal on Soviet loans ('aid'). (around 8 per cent on most loans), the
ally worse in the case of th.e few ma-
effective Soviet interest rate may be
Weapons shipments have been im- chine goods for which some comparison
higher because the Soviets have re-
portant for the USSR's balance of trade could be made: export prices to the
quired repayments to begin sooner and LDCs were 34.7 per cent higher tharn
and of payments. Soviet arms shipments
have been inflexible about stretching to the industrial West.
have been a large portion of total Soviet
out repayment [4]. After examining So-
exports to LDCs. Soviet arms sales Chandra notes that the prices used in
have been in return for commodities toviet and Western aid to India, Chaudhri Soviet-Third World trade are substan-
be shipped back to the USSR. In otherconcluded: "There does not seem to be tially the same prices used in trade
words, these arms sales have been on any evidence that the East European among the Eastern bloc countries. From
countries have overall offered particu-
the same basis as economic aid, and the fact that the Soviets receive lower
larly favourable terms to India" [5].
they have had the same impact on thte prices for their exports from the West
balance of payments. For instance, So- than they receive from either the LDCs
(d) PRICES AT WICH Sovmrs TRADE
viet military sales to India were a large or from the Eastern bloc, it would be
factor in improving the USSR's sub- There has been quite a debate about
possible to conclude one of two things.
stantial negative balance of trade with the prices at which the Soviets trade. One possibility is that the Soviets charge
India in the early 1960s. The USSR Much of the debate has assumed that
prices higher than the world market
had to suggest prepayment of the creditthe capitaist world market price is the price in their trade with the Third World
for the Bhilai steel plant in the early fair price'. Soviet prices are then com- and the Eastem bloc. The other possi-
1960s because of India's large net sur- pared to the world price to see if the bility is that the Soviets reoeived prices
anlus with the USSR. "The problem [ofSoviets are 'fair' or 'unfair' in their pric- from the West which are below the
inbalanced trade] disappeared largely ing policy. The procedure is of dubious world market price. Holzman argue3
s a result of the payments for defencesignificance. If the Soviets are charging that the latter is tre; that is, the lower
.nports" [2]. Other Soviet arms sales the same prices for their exports (and price received by the USSR in its trade
ave been for cash; that is, convertible paying similar pnrices for their imports) with West reflects fthe superior bargain.
Vestern currency. Algeria, Libya, and as the West, and if the Soviets are ing position of. the West viss-a-s the

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 Special Number August 1979 ECONOMIC AND POLITICAL WEEKLY

of trade were
TABLE 5 : TERMS OF AID TO I NDIA FROM probably worse DONORS
SELECTED with ths
East European countries than with the
Grace rest of the world"[9].
Maturity Period
Interest Rates (years) (years)
(e) PRoFrrABrUTY OF SovIrE Am
(1) (2) (1) (2) (1) (2)
Soviet leaders have been quite blunt
in justifying their aid programme on the
Czechoslovakia 2.5 2.5 4 to 6 8 to 12 1 Nil
Hungary 2.5to 4.5 2.5 10 10 1 Nil basis of economic profitability. If we
Poland 2.5 2.5 10 8to12 3 Nil want to learn why it took the USSR over
USSR 2.5 2.5 12 12 1 Nil two years to decide to finance the High
Yugoslavia 3 3.0 6 to 8 11 Nil Nil
France 5 to 6 3.5to 8.0 10 10to 25 Nil Nil Dam at Aswan after Dulles withdrew
West Germany 3to 5.5 2.5 15to25 30 4 to 7 8 the US-UK-World Bank offer in 1936,
Japan 5.8 5.25 15 18 5 5 and why the Soviets did not agree to
IBRD 5.5 to 6.0 7.0 10 to 20 30 Nil 10
IDA 0.75 0.75 50 50 10 10 finance the second and third stages of
UK 3.5 Nil 25 25 7 7 the Dam unit after the West Germans
USA (1) 0.75 2 to 3 5 to 6 40 2 10 had agreed to finance them, we can turn
(2) 5.75 6 40 lO to 20 10 3
to Khruschev: "WVe were interested in
Notes: Column (1) up to 1966-67, Column
determining whether it(2)
would1971.
be a F
AID Loans; row (2) to Eximbank loans.
Source: Government of India, Ministry of Finance, "External Assistance". profitable business transaction. Naturally
we would be glad to have an opportunity
TABLE 6: CosT OF PUBLIC SECTOR OIL REFINE RIES to bolster the economy of our friends
and in so doing to strengthen our rela-
(Rs millions) tions with them. But that was a political
consideration, and we also had to make
Name Capacity Total Cost Foreign Collaborator
(million tons) Exchange sure that'we would not simply be giving
Component our money away. We had to make sure
that the Egyptians could repay us in
regular deliveries of their best long-
Madras 2.50 440.0 ENI (Italy)
Gauhati 0.75 159.8 64.3 Rumania fibre cotton, rice, and other goods"t10].
Barauni 2.00 434.5 178.1 USSR
Koyali 3.00 307.0 150.0 USSR And indeed the Dam, along with the
Cochin 3.56 293.3 177.8 Phillips Petroleum rest of the Soviet aid programme, has
(UISA) been profitable for the USSR. Carter
Haldia 2.5 460.0 230.0 Hungary
argues that the 'opportunity cost' of
Soviet aid should be defined as the world
Source : "Annual Report of Public Sector Undertakings 1965/
of Petroleum Information. market price of the goods delivered by
the Soviets under the credit (aid) agree-
USS,R [8]. This thesis is most uncon. cludes: "The evidence available shows ments minus the world market price of
vincing. If there has been any price the goods delivered to the Soviets in
that the East European countries offered
discrimination, the Western European higher prices for some exports and lowerrepayment discounted at 15 per cent per
countries may have discrimninated in prices for others and, as far as the annum[ll]. 15 per cent is supposedly the
favour of Soviet exports of raw materials imports of raw materials are concerned 'social rate of return' to capital in the
in hopes of diversifying supply sources the prices from the East European USSR; that is, the average rate of profit
(e g, Soviet oil and gas exports). countries and others were comparable. in the USSR. When Carter discounts

One way to test the Holznan thesis Therefore, it would appear that for the repayments of aid at a rate equal
is to compare the prices the LDCs pay merchandise trade alone, India's net to the 'social rate of return on capital'
for imports from the USSR with the barter terms of trade were probably inside the USSR, he is trying to compare
prices the LDCs pay for imports from comparable, or at least not significantly the profitability of investing in a plant
the West (and the prices the Third worse than it obtained from, the rest ofinside the USSR to the profitability of
World receives for exports to the two the world. However, this comparison investing in foreign aid. Carter finds
blocs). If the LDICs pay higher prices excludes imports of machinery and that the 'opporbunity cost' of Soviet aid
for Soviet goods than for Western goods,equipment. From the case studies pre- from 1955 thbrogh 1968 was $441
then, given that the. USSR receives highersented in Chapter 5 [of excess costs, see million. In other words, if the funds
prices from the LDCs than it receives II b below] and other evidence, such as spent on aid had instead been invested
from the West, it would seem fair to complaints from private investors, it at 15 per cent the Soviet leadership
conclude that Soviet-Third World trade appears that the prices of machinery andwould have made slightly more than it
is at prices more advantageous to the equipment from the East European made from investing the funds in aid.
USSR than world market prices would This means that the profit rate on Soviet
countries were higher than prices offered
be.13 In other words, the Holzman by other countries. Imports of 'machi- aid was in effect slightly under 15 per
thesis would be iconect. Datar has nery constituted at least 50 per cent of cent - not a bad rate of return, espe-
made a careful comparison of the prices
India's total imports from East European cially considering that the USSR was
India paid the USSR compared to the countries. Therefore, taking into account breaking into a new field of i;nvestment,
prices India paid the West. She con- all imports and exports, India's net terms where it would have to bear somle extra

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ECONOMIC AND POLITICAL WEEKLY Special Number August 1979

donors
TABLE 7 : TOTAL COSTS OF were not prepared to give aid to ble currency. Orne of these costs is
CONSTRUCTION
OF BOKARO STEEL PLANT public sector projects, all Soviet aid has undesirable exports.15 Data concerning
(Rs millions) gone to the public sector. Secondly, the India's exports to the Eastern bloc show
Collaborator Stage I Total
majority of Soviet loans, have been for that between 20 per cent and 25 per
setting up capital goods industries, which cent of those exports were diversionary,
were lacking in India on the morrow of i e, they could have been exported to
US 394 715
USSR 486 1027 independence in 1947. Finally, the pre- hard currency areas. The other cost was
sence of the USSR greatly improves the need to give technical credits.'6 Datai
Source: For the USSR,: Dastur and
India's bargaining position with Western has come to the conclusion that during
Co, "Cost Reduction Study on countries. the period from 1953-4 to 1965-6 the
the Bokaro Project", Calcutta,
In order to evaluate Soviet economic need for India to give technical credits
1966; For the US : Elliot and
Wagner, "Synopsis of a Tech- assistance to India we will' need to (or swing credits, as they are called)
no-Economic Survey of a Pro- consider three issues: the terms of aid, arose for two reasons: (i) India's difficulty
posed Integrated Steel Plant the tying of aid and the character of in finding acceptable imports to absorb
at Bokaro", Washington, DC,
the technical assistance. her export earnings from Eastern Europe,
1966.
and (ii) the slowness with which East
costs to get established as a major com- European countries have fulfilled export
(a) TERMs OF AID
petitor. commitments. And since India is a net
The USSR was the first donor to exporter to the USSR, she accumulated
It would seem that the gains to the
accept the principle of giving develop- idle balances. This constitutes waste of
USSR from trade with LDCs are very
ment loans on concessional terms. The credit finance. Such a waste was a
minor in the context of the Soviet
oncessional element depends on the serious problem for other developing
Union's $800,000 million GNP. While
(i) rate of interest, (ii) the amortisation countries in their economic relations with
it is true that the profits from the aid
period, and (iii) the currency of repay the USSR. Because of this problem, the
programme are so far only a small fac-
ment. The USSR merely offered low utility of non-convertible payment agree-
tor in Soviet capital accumulation, it
interest rates. Loans have been given ments is questionable. Moreover, India
would be a mistake to gauge the impact
for much shorter periods of time thanhad repaid only a part of its credit up
of Soviet-Third World trade solely by those offered by the US and there haveto 1965-6. Since the devaluation of the
the dollar amount of the trade. Profits not been any significant grace periods
rupee in June 1966, the burden of repay-
earned in this trade are in foreign our- for repayment. To a large extent, the
ment has increased because India's
rency - either directly as in arms sales short duration of the loans offsets the
terms of trade with the USSR deterio-
to the Mideast, or indirectly through the advantages of lower rates of interest and
rated. We will return to this point later.
reduction of the amount of hard currency
overall terms do not come out very. In short, the Soviet loans have not
the Soviets must spend to purchase raw favourably. For examPle, if we use the
been significantly cheaper than Western
materials. The Sovi-et leadership has grant element'4 as a ranking device (theloans. The differences in interest rate
been eager in recent years to acquire difference between the aid received todayand in terms of repayment have been
advanced capitalist technology through and the discounted value of further re-
more nominal than real. If Western
the purchase of machine goods from thepayment obligations as of today, the
loans are profitable, we would also ex-
West. The primary constraint on the USSR terms come out very unfavour- pect that Soviet loans to India have been
import of high technology equipment able as compared not only to the USprofitable.
has been the ability of the Soviet eco- loans, but also the loans from IDA,
nomy to generate enough exports t West Germany, and the UK.
(b) ExcEss COSTS
cover the costs of the imports. Since For a country faced with a severe
any profits earrAed from the aid pro- foreign exchange shortage, repayment in All Soviet aid granted until 1977 was
gramme (and any reduction in necessary local currency would he a special con- double tied. It was source-tied to the
imports costs) can be applied towards extent that all goods bought with sucn
cession. The Soviet loans are more
the import of advanced Western techno. accurately described as repayment in loans had to be purchased from the
logy, the profits from Soviet-Third kind. To be accuartely described as donor country. It was tied as to end
World trade have an importance greaterrepayable in rupees, in the sense that use in the sense that it was all specific
than their small dollar amount woulNthere were no foreign exchange cost project aid, and not general programme
indicate. involved, it must be shown that India aid. The result was that the choice of
goods was restricted to what the donor
could not have exported to other coun-
country could offer even if some of the
tries the goods it had to send the USSR.
Most studies have concluded that exportsequipment was not always suitable to
Soviet Aid to India India's requirements.
to the USSR have been by and large
The USSR is the sixth largest aid- in addition to exports elsewhere and the The following two cases are examples
giver to India - in sheer volume of terms of trade not significantly worseof excess costs in aid projects: (i) in
financial assistance - after the USA, than India obtained elsewhere. There- petroleum refining, the equipment and
the World Bank group, the UK, West fore, the burden of repaying production processes which the Soviets
Germany, and Canada, in that order. loans has not been heavier than repay- offered were not suitable to India's
From India's viewpoint, the benefits of ment in convertible currency. But requirements; and (ii) the costs of pro-
Soviet aid have been cited as being the because of other indirect costs, repay- duction in the Bokaro Steel Works and
following. Firstly, its importance is to be ment in kind has been almost as he Gauhati and Barauni refineries were
judged by the fact tat whBile Western burdensom!e as repayment inl converti- bigher than the private sector refineries

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 ECONOMIC AND POLITICAL WEEKLY Special Number August 1979

TABLE 8: ESTIMATES OF TOTAL PLANT surely COSTS

not adequate justification
OF DIFFERENTfor the
advantage taken by the Soviets of their
Steelworks Year of Initial Ingot Total Plant Plant Cost position as donors.
Completion Steel Capacity Cost Per Annual
(millions tons (Rs millions) Ingot Ton
(C) RECENT CREDIT AGRgMENTS
per year) (Rs)
One would have expected that the
Fukayama 'special relationship' that has exis-
(Japan) 1966 1.50 1,488 992 ted between India and the USSR -n
Spencer Works the Seventies would have suffered a set-
(UK) 1962 1.40 1,638 1,170
Taranto back with the coming to power of the
(Italy) 1964 2.50 2,153 860 Janata party government. It was expect-
Dunkirk ed by the uSSR that the Janata party
(France) 1963 1.50 1,440 960 government woLild move to the right,'7
Bokaro
(USSR and given the orientation of its domi-
proposal) nant constitu-ents, look more to the USA.
(India) Stage 1 1.70 4,860 2,860 To stall any such development, the So-
viet Foreign Minister, Gromyko, visited
Source: Dastur and Co, op cit.
India within a month of the assumption
of office of the new government. The
'I ABLE 9: COMMODITY COMPOSITION OF INDIA'S EXPORTS TO EASTERN BLOC
visit concluded with the signing 6f fouir
(US$ millions) new economic agreements including a
Soviet credit offer worth Rs 2,250 mil-
Category Annual Average Annual Average Annual Average lion. This offer by the USSR can again
1960/1-1963/3 1965!6-1967/8 1970/1-1972/3 be explained in competitive terms. It is
$m Per Cent $m Per Cent $m Per Cent for the first time since 1965 that a Soviet
credit has been given to India. What
Raw and crude is more interesting is that the credit has
material 43.5 30.0 46.7 15.0 40.1 7.7 been given on much softer terms than
Food, beverage, to-
any loan granted by the USSR hitherto.
bacco, etc 64.5 44.5 126.2 40.7 187.9 36.1
Manufactured The credit will carry an interest of 22
goods 21.7 15.0 108.3 34.9 211.5 40.6 per cent per annum and will be repay-
Other 15.3 10.5 29.3 9.4 81.2 15.6 able over 20 years including an initial
Total 145.0 100 310.4 100 520.7 100
grace period of three years. For previous
Soviet credits, the amortisation period
Source: Government of India, Department of Commercial Intelli
Monthly Statistics of the Foreign Trade has beenof12 years, and the various
India, grace period issu
only one year. What is equally interes-
and US proposal for Bokaro. ting is that a part of the loan is non-
Michael Kidron has pointed out, "India
From Table 6 it is clear that the project aid; that is, programme aid. It
may be normally paying anything bet-
Soviets charged higher prices than the is for the first timfe that the USSR has
ween 6 and 15 per cent, sometimes as
given non-project aid. The intention
foreign private firms. While Philips much as 20-30 per cent, above the rul-
Petroleum charged Rs 393.8 million for ing prices for aid supported imports"[13] behind all this seems to be that the.
a 3.56 million ton plant at Cochin, the 'special relationship' between the USSR
For the Bokaro steel plant, there were
USSR built a refinery at about the same and India should continue.
both US and Soviet proposals. On th'
time at Gauhati with a capacity of 2 basis of the estimates given in the
(d) COMPOSITION OF TRADE
million tons costing Rs 434.5 million. proposals, the cost of a 4 million
Western bids revealed the high cost or ton plant built by the Soviets In order to evaluate Soviet trade
Soviet aid. The Soviets were soon would be abcut 25 per cent higherwith thanIndia, we need to consider several
forced to bring down their prices in one built by the US (see Table 7). issues: the composition of trade, India's
order to stay in the market. The agree- Dastur and Co, who were commissioned export and import prices, the determina-
ment for the Koyali refinery, which had to do the initial feasibility report for the
tion of the exchange rate between the
already been signed, was revised and project concluded that the cost of the rupee and the rouble, and the creation/
the cost considerably reduced. It how- Soviet project were too high. Thus the of diversion of exports.
ever was still substantivefy more than report says, "It is well known that steelIndo-Soviet trade falls into the usual
that charged by the Western firms, Rs plants designed to produce flat products pattern of trade between the Third
307 million ton plant. with facilities comparable to Bokaro are World and the Western imperialist
During an enquiry into this problem under construction or have been com-countries - exports are dominated by
in the Lok Sabba, the representative of pleted during the past few years in primary raw materials and imports by
the Petroleum Ministry said, "We have Britain, France, Italy, and Japan at less machinery. This division of labQur is
to confess that whenever we invited than one-half the estimated cost of even more marked in the case of India's
limited tenders from a single source, Bokaro"[14]. This was not an avoidable trade with the Soviet Union (and East
whether it is an East European countrycost, says Datar, because India did not Europe) than in thte case of India's
Dr any other source, we are not able tohave any other sources of finance for the trade with all other countries. In 1967
always get a competitive price [12]. projiects concerned. However, this is and 1968, machinery and such items

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Special Number August 1979 ECONOMIC AND POLITICAL WEEKLY

TABLE 10: INDIA's EXPORTS io USSR ly the consequence of specific clauses some time ago in the case of mica is a
(Rs millions) about increased exports of manufactures good example. The Soviet Union is the
from India in the trade and payments main buyer of mica; the East European
1973-4 1974-5
agreements. Despite this change, how- countries account for 60 per cent of
Oil cake 94.7 111.7 ever, the Eastern bloc countries absorb- India's mica exports. With many Indian
Groundnut 111.9 59.9
Castor Oil 122.0 67.9 ed a relatively lower production of firms involved in the export business,
Tobacco (unmanufac- manufactures as compared to the rest the Soviet buying agency was able to
tured) 186.0 172.3 of the world. Furthermore, those, manu- buy at the most advantageous terms.
Spices 101.4 134.3 factured goods which were bought
Cashew Kernels 294.3 727.6 Recently, it was decided that all exports
Tea 326.4 595.3 by the USSR were low-technology goods would be canalised through the mica
Coffee 8.1 187.3 which the Soviets no longer wanted to trading agency, MITCO. The Soviet
Mica 52.2 71.2 produce internally.
Cotton textiles 158.5 266.4
Union refiused to accept the suppliers
Jute manufacture 325.7 590.7 As regards composition of imports, chosen by MITCO. It wanted freedom
Coir manufacture 4.4 12.4 rupee trade provided India with high- to contract the purchase with any sup-
Footwear 38.0 44.3
priority imports. Machinery and trans- plier it chooses; i e, tj take full advant-
Other leatherware ma-
nufacture 429.9 323.2 port equipment constituted the highest age of competition to beat down the
Cotton apparel 57.4 29.7 percentage of the total import bill, whiloprice. At the same time, the Soviet
Engineering goods 70.5 119.7 intermediate goods such as base metals, Union also refused to allow MITCO to
Iron and steel manufac-
ture 81.5 16.2 chemicals, fertilisers and petroleum pro- inspect mica samples in the Soviet
Other 396.0 651.1 ducts constituted the second most im- Union so that complaints about quality
Total (including others) 2352.9 4181.2 portant group.'8 can be checked. This stand makes it
Source: Government of India, Depart- likely that these were dubious com-
ment of Commei cial Intelligence plaints, deliberately lodged in order to
and Statistics, Monthly Bul- (e) SoviET ADVANTAGES IN TRADE
letin of the Foreign Trade of
beat down the price with the plea of
Not only does the Soviet Union profit
India, various issues. poor quality.
through aid, but it ienjoys considerable
It is also tmue that the Soviet pur-
accounted for 88 per cent and 90.5 per advantage in its trade with India on
chasing agencies withhold their purcha-
cent respectively of imports from the account if its superior bargaining posi-
ses and wait for good bargains, especi-
USSR, while the corresponding figures tion. The superior bargaining position
ally for commodities like pepper, oil-
for India's world trade were 50.9 pei is due to several factors. For one thing,
cakes, etc, that are characterised by
cent and 54.6 per cent. Similarly, juite, the volume of Soviet trade with India
seasonal price fluctuations.
wool, hides and skins, tea, coffee, spices, forms a small proportion of the total
cashew-nuts and leather footwear ac- trade of the USSR.19 Moreover, since Trade plans do show the value and
counted fQr 80.6 per cent and 66.6 per imports from India are dominated by volume of each commodity to be export-
cent of India's exports to the Soviet comparatively simple or consumption ed from India to the USSR. But the
Union in 1967 and 1968, but only foi effective
oriented commodities, non-realisation of initiative in fulfilling these
43.4 per cent and 36.7 per cent in India's trade plans would create only minor trade plans lies with the Soviet trading
world trade [151. disturbances in the overall development agencies. India's exports to the Soviet
plans of the USSR. On the other hand, Union are not on the same footing as its
This is not to say that the commodity
composition of Indo-Soviet trade has India's imports from the USSR form an 'exports to the free market economies.
not been changing at all. Table 9 shows appreciable proportion of India's total For the latter, reliable information re-
that, between 1960-1 and 1972-3, imports and these consist largely of ca- garding levels of stocks, current market
exports of manufactured goods grew pital goods and intermediate goods. prices, and anticipated levels of demand
very rapidly in absolute terms. Exports Therefore, India's needs for trade ties are available. No such equally reliable
of food, beverages, tobacco, etc (a group with the Eastern bloc are great. information is available to Indian ex-
consisting mostly of primary and semi- The USS;R conducts its foreign trade porters regarding the USSR. Therefore,
processed agricultural products) also in- activities through state trading organisa- the bargains struck by the Soviet Union
creased substantially, but raw material tions. These foreign trading bodies func- with Indian exporters are likely to be
exports were quite stagnant. However, tion within the framework given them to the USSR's advantage. Besides, the
it is the alteration in relative terms by their planning authorities. Naturally effective initiative regarding the overall
that is more significant. In the early they must serve the needs of the chang- value of exports thus remains with the
sixties, the bulk of India's exports to ing production system and consumption Soviet Union. Since India's import capa-
the Eastern bloc countries consisted of requirements of the Soviet economy. On city from the USSR is largely determin-
primary and semi-processed agricultural the Indian side, the bulk of foreign trad- ed by the overall value of its exports to
products and raw materials (74.5 per ing operations is in the private sector. the latter, it means that the effective
cent). By the early seventies the situa- Thus where India's exports are con- initiative regarding overall trade levels
tion had substantially changed. Manu- cerned, the effective initiative lies with also rests with the USSR.
factured goods, which were only 15 perthe state trading bodies of the USSR. It must be said that India's imports
cent of the total in 1960-1 - 1962-3, They directly enter Indian markets and from the Soviet Union and East Euro-
increased their share to 40 per cent dur- make their own purchases. pean countries constitute essential com-
ing 1970-1 - 1972-3. At the same time, Experience reveals that the USSR and modities. However, it has been pointed
the share of raw materials fell sharply other East European countries actually out that the thesge countries are over-
from 30) per cent to a little less than 8 prefer to deal with private agencies in pricing its sales to India. This should
per cent. This diversification was large- India. Thte problem that India faced not surprise us because the bargaining

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 ECONOMIC AND POLITICAL WEEKLY Special Number August 1979

strength of these countries is greater. A particularly thorny issue between that since Soviet imports from India
The number of suppliers for any parti- India and the Soviet Union is the con- represent a net increase in Indian ex-

cular commodity in this region will be version rate between the rupee and the ports, India should be content to trade

small. Because of the economic integra- rouble, neither of which is freely con- with the USSR even when the Soviets

vertible into other currencies. The best pay somewhat below world market
tion within the Council of Mutual Eco-
prices. Second, the Soviets have been
nomic Assistance characterised by Soviet way of determining the exchange rate
charged with profilteering from an
dominance, price competition among in such a situation is the purchasing
unseemly form of export diversion;
these countries is unlikely. Besides, thesepower parity (PPP) [16]. While tne
namely, switch itrading in which the
countries are aware of India's foreign Soviet Union has correctly established
USSR buys goods cheaply from India
exchange difficulties. In view of th'9 the dollar value of the rouble in tenns
and then resells the same goods at a
balanced trade relations in which any of the rouble's relative purchasing higher price on the Western market.
deficit incurred by India is to be settled power, it has not shown the same read-
exclusively in terms of additional ex- iness in purriing this logic in relation Any attempt at a quantification of
ports, these countries are conscious that to the currencies of its trade partners how much India's exports to the

overpricing of their exports to some ex- in the Third World. The Soviets have USSR represented net export growth
must determine at least two things;
tent would not be very much resented insisted on cross rates via the dollar as
(i) the degree to which India diverted
by the Indian traders. Thus both in revealed by the official exchange rates
iexport supplieg from convertible cur-
regard to India's exports and its imports, of rupee and rouble. And the rupee
rency areas to the USSR, and (ii) the
the Soviet Union has the upper hand. was undervalued against the dollar to
proportion of Indian products re-
Once sellers are sure that certain bu- the extent of over 250 per cent.20 Thus
exported by the latter (which is the
yers have no alternative to buying from the Soviets are taldng full advantage of phenomenon called switch trade).
them, they are tempted to take advant- the considerable undervaluation of
age of their position. Thus, an a priori Third World currencies, particularly As regards the first question, the
reasoning would indicate that the terms the Indian rupee, imposed by the Wes- conclusion of most of the studies is
of trade are likely to be unfavourable tern imperialist powers and the interna- that, on balance, exports to the Soviet

in regard to India's trade with the tional agencies like the World Bank and block countries are mostly in the
USSR. nature of trade creation. In fact one
the IMF controlled by the Western im,
of the most important features of
As regards the quality of imports, perialists [17].
India's foreign trade during the last
any discussion must be inconclusive. few decades is the shifting of its
Why should the conversion rate bet-
This is because machinery and equip- ween tthe USSR and India matter at trade pattern away from the old asso-
ment have constituted the majority of ciation with Commonwealth countries
all? If the two countries traded only
the imports from East European count- to new trade partners such as the
in such commodities which have well-
ries. Unless the goods provided are USSR, not to mention the US, the
established international prices and if
identical to goods from other sources, there were no invisible payments bet. Asian countries, and others. And
comparisons are meaningless. The USSR because the USSR and East European
ween them, then the exchange rate
and Czechoslovakia find it difficult to would become practically irrelevant.
countries purchased in large quantities,
promote exports of machinery and But in the case of India and the Soviet
their purchases on certain occa-
equipment to Westem markets. Appa- Union, none of these conditions are
sions helped to stabilise the domestic
rently their products are not good prices of certain commodities such as
satisfied. To a considerable extent Soviet
enough to compete with those from tea. Doubtless, there has been a cer-
exports consist of goods that find hardly
tain amount of trade diversion. One
Western products. In private discussions,any outlet in the West. The use Qf no- commodity-wise study [18] of India's
government officials seemed to accept tional world market prices for these exports to the East European countries
this as natural. They argue that unless goods, as is the current practice, tech- shows that between 20 and 25 per cent
the East European countries have some nically solves the problem - to thle of India's exports to them were diver-
equipment they cannot sell in the con- considerable benefit of the Soviet Union. sionary: the goods could have been
vertible currency markets (because of Valuation of outstanding loans creates exported to hard currency areas.
comparatively poorer quality), they will
another set of problems. Every time Another study [19] shows that 14.1
not find the arrangement of repayment the rupee gets devalued vis-a-vis other
per cent of India's total exports to the
in kind convenient. Besides, the USSR convertible currencies, the repayment rupee payment countries (the Soviet
looks upon credit agreements as a mea- burden for India goes up pari passu in bloc) constituted a diversion on, her
sure to promote exports. financial as well as real terms. The part. This type of diversion arises
much acclaimed advantages of 'soft' because domestic production is inade-
(f) INDrA B:ARs RISK OF CURRuNCY quate to take advantage of the oppor-
rupee loans are thus consideeably whitl-
DEvALUATEON tunities in all markets. This diversion
led away in practice.
by itself is a cost because it reduces
The Soviets claim that Indo-Soviet
the amount of free foreign exchange
trade is conducted in rupees and there- (g) TRADE CREATION VERsus ExpoRT
DIVERSION
available. Proceeds from exports to
fore it is less useful to the USSR than
East European countries cannot be
trade in hard currency because, for in- Whether the trade with the USSR
used for importing goods and services
stance, the Soviet Union runs the risk has resulted in trade diversion or from any other couintry or to settle
that the rupee will be devalued. Let us opened additional markets for Indian debt repayments. Therefore, these
examine the question of who bears the exports has been a debatable point. earnings may be relatively less useful
risk of rupee devaluation, India or the The question is worth looking at for than export receipts in hard currency.
USSR. two reasons. First, it has been argued But despite this diversion, Indlia's ex-

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 ECONOMIC AND POLITICAL WEEKLY Special Number August 1979

ports to Eastern Europe were largely (h) TIGHTER LINS BETWEEN INDIAN to the USSR [22]. Here again the
additional to, rather than instead of, PIRODUCTON AND SOVIET NEEDs surplus value flowed to the Soviet
exports elsewhere. Union. The captive units proposed
In recent years, the Soviets have
Once we accept the conclusion that, were a 5 lakh ton, alumina plant, lea-
entered into a variety of agreements
on balance, the markets of Eastern ther goods worth Rs 4 to 6 crores
designed to establish closer connection
Europe are trade creating and have annually, 5,000 tons of wood screws,
between Indian production and the
helped in supporting prices of India's 90,000 tons of nuts and bolts, machine
requirements of the Soviet economy.
exports it would not be quite logical tools, TV glass tubes, computer soft-
These agreements include conversion
to argue that the terms of trade have ware, and digital machines. The
deals, captive plants, production co-
been generally unfavourable to India. interesting aspect of the arrangement
operation, and co-operation between
The undercurrent of the trade creation for setting up an aluminium plant was
planning commissions. The common
versus trade diversion argument is that the feasibility report would be
theme in all these agreements is to
that the incremental import-earning prepared by Sbvzuet experts. If the
guarantee that the USSR will have
capacity gained by exporting to these project was found to be economically
access to low-cost Indian-made simple
countries is basically inferior because feasible, the cost of the report would
industrial goods. Once assured of long
it does not earn convertible foreign be shared equally by India and the
term supply of such goods as textiles,
exchange. At the same time, it is US,SR. If it was proved that the pro-
the USSR no longer needs to produce
possible to argue that what is impor- ject would not be feasible, its costs
these labour-intensive or raw-rnaterial-
tant is that these exports add to would be borne by India.2n
intensive goods. The Soviets can
India's capacity for importing com-
shift their resources to producing more The projects mentioned above have
modities essential for developmental
advanced goods, such as the machinery onl the whole not yet materialised.
purposes. Therefore, the net loss to
they export to India. The snag has been that, in view of
country would he negligible even it
Beginning with cotton textiles, a India's growing production of capital
Indian importers had to pay higher
number of conversion deals have been goods, the Soviet contribution in the
prices. Even if it were accepted that
entered into with the Soviet Union. form of equipment and know-how
there is some force in this argument,
In the cotton deal, the Soviets supplied would be small and sizeable rupee
one is still not sure whether the ad-
Sudanese cotton to Indian private resources would have to be raised to
vantages of trade creation and the
mills. For turning this cotton into finance these projects. To overcome
price-support effect do more than com-
textiles, the Indian mills were paid a this problem, India suggested that the
pensate for the possibility that higher
conversion charge of Rs 16.5 crores. Soviet Union should provide minerals
prices must be paid for imports from
The entire output was taken over by like crude oil and non-ferrous metals
the USSR.
the Soviet Union which had provided on Acredit, tind the sale of these in
Switch trading is another way in some (although not all) of the capital India would provide the rupee funds
which the East European countries and which thus got the surplus value needed. This was not acceptable to
may have impeded a net growth in produced (minus part of the conversion the Soviet Union [23].
India's exports. It is well known that
charge).22 The net result of such deals During the Brezhnev visit (Decem-
most East European countries have is that the labour of the Indian work- ber 1973) to India, a fifteen-year eco-
re-exported Indian goods to Western ing class will . not even help the nomic agreement was signed. Besides
Europe in order to earn convertible process of capital accumulation in the agreements to increase trade, the
foreign exchange [20]. The conclusions India, since most of the surplus value agreement had two significant features:
reached by studies in the subject are flows directly to the Soviet owners of (i) exploring the possibility of produc-
as follows: (i) the volume of switch the capital with which they gave tion co-operation, and (ii) co-operation
trading is not very large in relation toemployment. in the matter of supply of equipment
the total quantum of India's trade While the past rate of growth of and services for setting up plants in
with the Eastern bloc countries; (ii) it Indo-Soviet trade has been very high, third countries. Besides, a separate
is unlikely that manufactured goods the scope for further expansion along agreement was signed on co-operation
imported from India could have been the same lines is rather limited. It between the Indian Planning Com-
re-exported by the East European was noted that India has had difficulty mission and the State Planning Commit-
countries, since in such goods, product in finding Soviet suppliers for the tee (Gosplan) of the USSR. Production
differentiation and brand names are goods it required most and was there- co-operation, does not seem to have
rather important and exporting involvesfore having to extend technical credits materialised to date. It is too early to
marketing expenses like advertising. to the USSR. The commodity compo- assess the progress of joint projects in
etc; and (iii) as for primary and sition of exports too rnust be widened Third World countries and co-opera-
semi-processed agricultural products if the arrangement of repayment of tion in planning. However, when the
some of them were definitely re- debt in kind is to be beneficial to agreement was signed, it was pointed
exported, but it is impossible to assess India. Therefore, in the seventies a out, "Though the agreement with the
the extent of such re-exports. A change in the trade policies of the USSR does not indicate clearly that
parliamentary committee specifically Soviet Union was called for. It is for Indian plans will be so framed that
pointed to the resale of Indian cashew- this reason presumably that conversion they fit in with the overall economic
nuts, oil cakes, hides and skins, coffee, deals seem to have been resorted to. relations among the East European
tea, and spices by East European But the Soviets proposed to extend countries, a careful reading of the
countries in convertible currency the conversion deals to setting up agreements with the USSR and Czechos-
markets [21]. The Indian government 'captive' units. Later reports revealed lovakia are pointers in that direction.
was quite aware of this situation.2' that the machinery for these units Though India will not be involved in
But since it had no definite proof it would be supplied by the Soviet sharing ptans of the East European
was not in a position to do much about Union and that the bulk of the pro- countries, for all practical purposes, it
it. ducts would be earmarked for excport promises to emerge as something of an

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 Special Number August 1979 ECONOMIC AND POLITICAL WEEKLY

associate member of this group" [241.
It has not been argued here that
capital accumulation in India was hurt
by economic ties with the Soviet
Union. It is possible that trade and
aid brought profits to both Soviet
leaders and Indian, capitalists; this
section has not provided much direct
evidence on this question. The con-
cern here has been on understanding
the advantages to the USSR of trade
with and aid to India. As of yet, there
has been no argument here that the
Soviet Union is imperialist; assuredly
imperialism means more than econo-
mic advantage from trade and aid.
The question of imperialism will be
explored in the next two sections.
III
Soviet Imperialism ?
(a) IMPELRIALIsM Is EXPORT OF
CAPITAL AS A SOCIAL RELATION
The discussion about the prices at
which the Soviets trade with Third
World countries has implied that
"buying cheap and selling dear" is the
essence of imperialism [25]. The
notion of "unequal exchange" is a
necessary element but is not sufficient
to explain the concept of imperialism.
A scientific argument that the USSR
is imperialist, in the Leninist sense,
must include an argument that the
Soviet Union exports capital. The
Communist Party of China bases its
claim that the USSR is social imperia-
list on an analysis of Soviet capital
exports - capital exports which
reinforce an] unequal international
division of labour in which a few
coiuntries dominate the world economy
ancl the rest are subordinate to these
imperialist powers [26].
Many people who would agree that
the leadership of the Soviet Union has
pursued its self-interest in its econo- forms of capital export each merit finiance and machinery come from the
mlic relations with the Third World investigation,
not think that the USSR exports
capital. Since the export of capital is
in many ways the central element in
the economic aspect of imperialism,
these people would hesitate to call
the Soviet Union imperialist. Much of
this he-sitation comes from a limited
conception of what constitutes the
export of capital. The export of capital
to which Lenin is referring is not
primarily the flow of money abroad,
but it is the spread of capital as a
social relation throughout the Third
World. The 'export of capital' which
is central to the theory of imperialism
is the breaking down of pre-capitalist
modes of production, the separation of
the direct producers from their means
ot production, the formation, of what which has undergone rapid expansion
Marx calls 'doubly free labourers' - since 1973). These two forms of the
free to sell their labour-power, free of of capital are substantially
export
any other means of making a living. different in appearance. The second
Capital, as a social relation between form represents a higher stage in the
wage-labourers and capitalists, was not process of primitive accumulation in
dominant in most of the Third World the Third World in that multinational
before the era of imperialism. While corporations penetrate into the heart
the creation of the capitalist world of the local economy, unlike bankers
market encouraged the spread of com- who had to rely on political control
modity production, the world mnarketof the Ical countries (which necessitated
(the export of commodities) did not frequent military intervention). In
lead to capitalist commodity produc- spite of all these differences, these
tion. The production of commodities two forms of the export of capital are
(especially in so far as that productionjust that: two forms of what is funda.
remains isolated, for export only) does inentally the same process of inter-
not in and of itself result in the emerg- nationalisation.
ence of capitalism.
When Lenin refers to imperialism (b) SOVIET Fobp OF GrrAI EXPORT
as the stage characterised by the
export of capital, he is pointing to the There has unfortunately been sub-
fact that capitalism entered a new stantial confusion about the character
stage in which its expanded reproduc- of the new form of capital export
tion worked to dissolve pre-capitalist which the Soviet Union is perfecting.
modes of production and to institute The Soviet government grants credits
capitalist relations of production on to finance the export of capital goods
a world scale.2' Imperialism is there-in return for a flow of imports of raw
fore not a matter of perfidious govern- materials and consumer goods. The
ment policy nor a conspiracy by the Soviet machinery is often used to esta-
monopoly capitalists (Kautsky and blish a production process part of
Schumpeter) nor a search for markets whose product is then sent to the USSR
(Luxemburg); imperialism is rooted inin payment for the capital goods; e g,
the laws of motion of capitalism, in the pipelinie sold to Iran for natural
the nature of capital as self-expanding gas. In Egypt there is not only the
value. Recent works on imperialism obvious example of the High Dam
have returned to this understanding of (which is being paid for with the ex-
the roots of imperialism. Christian panded agricultural production the
Palloix in particular has made substan- Dam allows), but also, "With Soviet
tial advances in identifying the stages economic aid, Egypt has built
by which the capitalist mode of its largest shipyard... Egypt has been
production has internationalised itself building and repairing ships for
[27]. the USSR. A large part of the output
Palloix has pointed out that the of the aluminium plant that is now
intemationalisation of capital has gone being built in the country is to go to
thuough several stagesi land that the the Soviet Union in repayment for its
form, of capital export has changed loans to Egypt" [28]. The character
of Soviet trade and aid emerges: the
correspondingly.25 While the various
do we must keep in mind USSR, the wage labour and raw mate-
rials come from the Third World coun-
that the export of capital has always re-
try, and a good part of the product is
mained in essence the export of a
shipped to the Soviet Union.
social relation. In Lenin's day, the
principal form that the export of The Soviet government justifies the
capital took was the lending of money- financing of capital goods exports by
capital by capitalists (especially banks) saying that these exports help Third
in the imperial countries to govern- World countries industrialise. Indus-
ments and quasi-governmental agencies trialisation, is not, however, a class-
in Third World countries (althoughless process. In countries dominated
there was the secondary form of invest- by capitalist ruling classes -such as
ment in plantations and mines). In India - 'industrialisation' means no-
the period following World War II, thing more nor less than capital accu-
the dominant form of the export of mulation. It is simply farcical to main-
capital has been the establishment of tain, as the Soviet government does,
local subsidiaries by corporations based that the expansion of the 'public sec-
in the imperial countries, particularly tor' reflects the growth of socialism.
manufacturing subsidiaries (although The experience of nationialised indus-
bank loans persist as a secondary form tries in the advanced countries, as well

1380

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 ECONOMIC AND POLITICAL WEEKLY Special Number August 1979
as Engels' comiments in "Socialismn:
Scientific or UtopiaLn", demonstrate
that the collective ownership of indus-
try by the capitalist class as a whole
('nationalised' industry) does not lead
t,0 workers' power either at the point
of produiction or at the social level
(the dictatorship of the proletariat).
Soviet-financed industrialisation serves
in fact to expand capitalist relations
of production: Soviet-built factories
expand wage labour employmnent (un-
der conditions of intense exploitation)
at the expense of pre-capitalist modes
of production.
The discussion about 'who gains'
from Soviet economic relations with
Third World countries often overlooks
the very foundation of Marxist theory:
namely, that nations are divided into
classes. Chandra discusses at great
length "the distribution of gains" from
Soviet-Indian trade [29]. It never
occurs to Chandra to ask which class
gains, to ask whether either the Indian
worki-ng class or the Soviet working
class gain from trade. So too with the
leadership of the USSR. They do not
discuss how they will aid the working
class in Third World nations - they
talk about aid to the governments of
those nations. The governments of
India, Egypt, Syria, and other Soviet
aid recipients are in the hands of the
bourgeoisie: to aid those governments
is to aid the bourgeoisie.
Soviet foreign aid furthermore rein-
forces a division of labour on the world
scale in which a few countries produce
technologically advanced goods (espe-
cially machin-e goods) while most coun-
tries produce semi-processed or stan-
dardised industrial inputs or consumer
goods. By reinforcing this division of
labour, the Soviet leadership is negat-
ing one of the major hoped-for bene-
fits of industrialisation. An industria-
lised Third World country which has
to rely on imports of technologically
advanced goods and of machine goods
remains economically dependent on the
ruling class of the country which pro-
vides the technologically advanced and
machine goods.
A socialist foreign trade policy, by
contrast, would seek to break down
the international division of labour, so
that economic decision-making could
be concentrated at a more local level,
where it is easier for the direct pro-
ducers to exercise control over the
production process. If one reason for
socialists to support 'local self-reliance level, Soviet-financed factories reinforce to internationalise productive capital.
is to facilitate workers' control, a more
important reason why socialists oppose
any international divisionl of labour is the export of capital.
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that communism is incompatible with (c) A MoRE ADVANCED FORM OF
any divisioni of labour. Socialist govern- INTERNATIONALISATON OF CAPITAL?
ments aim to end the division between
The Soviet form of capital export is
miental and mnanual labour, the divisionquite different from the main Western
between town and country, and the
form of capital export, which is the
division of labour on an international
establishment of manufacturing subsi-
scale. Obviously this will not happen
diaries by multinational corporations.
overnight, but this will be the goal to-
The Soviet form possesses some signi-
wards which socialist governments
ficant advantages over the Western
strive. A socialist policy would encour- form. For one thing, Soviet capital
age those sorts of trade which make
export is more disguised than Western
countries (and local units of large capital export. Since Soviet capital ex-
countries) more self-sufficient. Much
port can be pawned off as aid, the
foreign trade would be necessary under
USSR is less likely to be the object of
socialism to achieve the goal of endinglocal popuilar struggles against imperia-
the division of labour, of communism.
lism. The Soviet form also allows for
Given the current technologies inheri-
more participation by the local bour-
ted from capitalism, much foreign trade geoisies. The bourgeoisies of Third
is unavoidable: given current techni- World couintries therefore often find
(ilies, it would be foolish to produce Soviet capital more attractive than
tea in Archangel. A socialist govern-
Western capital. Because Soviet-sup-
ment would encourage the develop- plied factories belong to the local
ment of technologies by the workers government, the Soviets don't have to
which would reduce the need for any worry about losing their capital through
division of labour, including the inter-
nationalisation or about limits on pro-
national division of labour.
fit repatriation - problems which
It could be argued that besides re- plagufe Western capitalists.
inforcing the international division of Soviet capital exports require more
latbour and besides replacing pre-capi- open government intervention than do
talist modes of production with the Western capital exports. The Soviet
accumulation of capital (as a social and Third World governments are both
relation), there is yet another way in
involved in the original credit agree-
which Soviet aid builds capitalist rela- ment and in subsequent agreements
tions of production. Much Soviet aid upon the exact composition of exports
goes toNvards the construction of com- and imports. The history of Western
plete factories, designed in the USSR, capitalism in recent decades has been
using machinery produced in the USSR,a history of increased government in-
and (at least initially) rup by Soviet tervention into the economy. In the
technicians. The very structure of last few years, there has been a signi-
these Soviet-supplied factories may re- ficant increase in government involve-
inforce capitalist relations of produc- ment in international economic rela-
tion, with their rigidly hierarchical tions. For instance, there have been
management structures and with tech- increases in government financing for
nologies which make workers "appen- capital exports, the signing of govern-
dages of the machine". That is; rather ment-to-government barter deals ex-
than the workers controlling the ma- changing oil for arms and modern fac-
chines through their decision-making tories, and 'orderly marketing agree-
and through their knowledge of the ments' among governments regulating
production process (as would happen trade. State involvement in the economy
under socialism), the workers in the is the path of modern capitalism. The
Soviet-supplied factories are controlled Soviet economy is clearly an economy
by the machines. The pace of the pro- with the most advanced and complete
duction process is set by the machines state involvement.
(and the capitalists who control them), The Soviet form of the internationa-
not the workers. The machines break lisation of capital may reflect the
down the production process into newest stage in the internationalisation
minute tasks, so that the workers' process; namely, the internationalisa-
manual labour is divorced from any tion of productive capital. The organi-
mental labour. These are characteris- sation of capitalist production on
tics of the capitalist production pro- a world-wide scale has generally
cess, as analysed by Marx in "Capital" been identified with multinational
Volume I Part IV. In short, both at the corporations. There are significant
point of production and at the social ability of multinational corporations
capitalist relations of production: the In particiuar, multinationals do not
Soviet-supplied factories are a form of possess the extra-market power of
a nation-state - such as military
1881
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 ECONOMIC AND POLITICAL WEEKLY Special Numb,er August 1979

power which allows states to impose menlt not financed by aid to comple- complete shift. Now there were many
their wills upon corporations. Gov- ment the machinery provided through articles in the Soviet press on 'nofn-
ernment-to-government agreements pro- aid. Fixed capital, by its very nature capitalist development' and 'nationial
vide, furthermore, a more solid basis as fixed (i e, as lasting longer than one democracy' as the route by which Third
for the organisation of production on production period) creates bonds be- World countries couild break away
an international scale than does the tween the manufacturer and purchaser. from imperialist domination. The con-
operation of the market. The agree- In the case of Soviet aid, these bonds clusion was that the Don-capitalist
ments are less subject to momentary are particularly tight because the So- path of development led to socialism
fluctuations. It is plausible that Wes- viets so often provide integrated fac- but only if there was a vanguard party
tern imperialists may turn more and tories, not just machinery. to lead the process. A national libera-
more to the form of capital export Rather than hiding how their trade tion movement was considered able to
pioneered by the USSR. One small reinforces the development of under- lead the non-capitalist stage, but it
example; the recent growth in turnkey developmenit, the Soviet leadership w ould have to transform itself into a
factories, in which a multinational cor- lauds the emerging 'international divi- vanguard party to lead the socialist
poration builds a factory and often runs sion of labour' (a phrase they frequen- stage [31].
it under a management contract while tly use). To quote Kosygin, "The im- The theory of non-capitalist develop-
ownership is in the hands of Third portance of a stable division of labour ment provided a justification for Soviet
World nationals. between socialist and developing coun- capital exports. Soviet aid t public
tries must be stressed" [30]. Through sector industries was seen as reducing
(d) REDIVIDING WoRLD ECONOMY
this economic mechanism, as well as the influence of the capitalists. This
The solid basis for the internationa- through military, political, and ideolo- assumes that the public sector is non-
lisation of capital given by govern- gical mechanisms (which are often more capitalist. The public sector industries
ment-to-government agreements has important), the Soviet leadership has are under the control of the class
the effect of creating strong ties be- sought to tie the economies of Third which holds state power - meaning
tween the economies of the agreeing World countries closer to the Soviet the bourgeoisie in such capitalist coun-
nations. Lenin stated that another of economy. The USSR has acted as would tries as India and Egypt. State capita-
th2 five features of imperialism, besidesbe expected from a classic imperialist list industries reinforce the rule of
the export of capital, is the struggle power: it competed with the US' to capitalist social relations every bit as
over the redivision of the world. In see which one of them would re- much as do private capitalist indus-
the current period, that struggle does place Great Britain, a declining im- tries. The Soviets also justified their
not take the form of open annexations,perialist power, in such major ex- aid on the grounds that it built up
but rather of long-term relationships of British colonies as India and Egypt. heavy industry, thereby increasing the
economic dependency on an imperia- numbers of the proletariat and there-
list power by Third World countries. (e) SovIr THEORY OF FOREIGN fore increasing the revolutionary poten-
The USSR's form of the internationa- ECONOMIC RELATIONS tial of the country. The immediate
lisation of capital creates such long- identification of increasing numbers of
lasting ties. The Soviet credit program- While the Soviet leadership may have workers with increasing revolutionary
me by its nature establishes a long- pioneered a new form of capital ex-
potential is a crass form of economic
term relationship: the Third World port, the Soviet leadership did not
determinism. Revolution depends
country is obliged to make repaymentsnecessarily understand that Soviet aid heavily on the class consciousness of
to the Soviet Union over a period of is another form of capital export to
the proletariat and on the activities of
more than a decade. Unlike a grant the Third World countries. The emer-
a party. Soviet aid to capitalist states
(which is given and then is largely gence of Soviet capital export did not
- aid which bolstered the capitalist
done with), the credit programme depend on a conscious decision by the
state, such that the state could repress
allows the USSR to continue its in- leaders of the CPSU to sell out the
workers all the more -does little to
fluence over the economy of the Third world revolutionary movement.
build revolutionary consciousness or
World country. The Soviet intransi- Although the changing nature of So- revolutionary parties. The 'non-capita-
gence over the rescheduling of loan re- viet foreign policy did niot depend list road' - which in practice means
payments from Egypt in the Sadat era upon the victory of an openly im- state capitalist development of heavy
is a good example of how the Soviets perialist perspective in the CPSU, industry - has little to do with the
use credit programmes to extend their it did depend upon - and it did w%orkers seizing state power and estab-
influence long after the shipments of call forth - a new theory of interna- lishing a dictatorship of the proletariat.
aid. tional relations& In the 1950Ls the The latter is the Leninist theory of
Soviet machinery exports also estab- CPSU developed an. elaborate analysis socialism, which has been abandoned
lish a long term relationship between to justify the changing nature of So- by the Soviet leadership in favour ot
the Soviet Union and the Third World viet economic relations with the Third the 'non-capitalist road.2N
countries. The equipment provided by World: the theory of 'non-capitalist
the aid programme requires a steadydevelopment', as distinct from the
IV
stream of spare parts. There are advan-capitalist path and the socialist path
tages to the less developed country of development. Before 1955, the So- Aid as I m
from expanding production by using viet press described the rise of nationa-
more Soviet equipment rather than by list leaders such as Nasser and Nehru (a) Sovmr An) REIORCES INDIAN
using Western equipment: there are as representing the decline of British CAPITALISTS
economies of scale, Soviet technology imperialism (based on a formal empire) Underlying the Soviet notion of the
is more familiar, etc. The Third World and the rise of US imperialism (based non-capitalist path of development was
country therefore has an incentive to on neo-colonialism). By the early
the belief that the public sector in
make future purchases of Soviet equip- 1960s, however, there had been a Third World countries was the best

1w383

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 meanis for mobilising resources if the
long term objective is to eradicate
poverty and eliminate backwardness.
This too was the belief of the Indian
planners anid the ideology underlying
the Five-Year Plans. It is now an
established fact that the principal
beneficiaries of state capitalism in the
Third World have been capitalists and
not the masses of the people. Even
Soviet theoreticians are believed to
have revised their earlier view and
accepted this position now.
The state sector was said to be an
instrument for undermining and elimi-
nating the hold of private foreign capi-
tal and also for curtailing and restrain-
ing the growth of Indian big business.
But 28 years of 'planned development'
have given the lie to such hopes. Rapid
concentration of assets and the con-
tinued growth of Indian monoiolies
have become increasingly evident. For
example, 20 family groups controlled
20 per cent of total private capital in
1951. This had risen to 33 per cent by
1958. It 1965, the Monopolies Com-
mission discovered that 75 leading
business groups owned 47 per cent of
the assets of all non-government com-
panies [32].
On attaining political independence
from colonial rule most LDCs need a
degree of state intervention and the
creation of a public sector in order to
ensure economic development. A deve-
lopment of this kind is progressive if,
apart from bringing about rapid capital
accumulation it assists in destroying
feudal, semi-feudal production relations,
monopoly capitalism, and imperialism.
But- that is precisely what the state
sector in India has failed to do. State
power lies in the hands of the capita-
list class in alliance with the bour-
geoisie. Faced with the rising struggles
of the workers and peasantry, and other
oppressed sections of society, the bour-
geoisie cannot dump the interests of
the landlord class nor alienate the in-
terests of imperialists. This becomes
evident in the weakness of the regimes
ot land reforms and its growing depen-
dence on foreign aid direct invest-
ments. Soviet military and economic
aid seems incapable of modifying the
political orientation tbf the Indian
ruling class, no matter what the Com-
munist Party of India says. India's
ruling class has, on the other hand,
used Soviet aid as a bargaining counter
with the Western countries in order to
extract more aid from them.- In fact
Soviet aid has strengthened the posi-
tion of the Indian ruling class at the
cost of emerging revolutionary forces
inside t:he country.
Deepak Nayyar, while acknowledg-
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ing that India should have derived
Soviet coal-mining equiipment. Even
substantial benefits from its economic
feasibility studies were to be done by
relations with the USSR, adds that, Soviet experts [34]. It is also true
"Within the economy of course, the that being concerned with the success
distribution of benefits might be ratherof a project, the Soviet contractors
unequal. This is, in fact, what did hap-usually insisted on doing all the pre-
pen". And then goes on to say, "This investment appraisals, detailed project
cannot be attributed to socialist trade reports, drawings and designs themsel-
and aid because it was the outcome of ves. Technical assistance of this nature
factors internal to the Indian polity. cannot serve to promote the develor-
Given the political and economic systemment of Indian-technology. In Bokaro
the outcome was inevitable". In other we have an outstanding example.
words, Nayyar absolves the USSR of
any complicity with the bourgeois In- After the US had withdrawn its
dian state, and ignores the fact that offer of aid for Bokaro, Dastur and
Soviet aid to State capital helped to Company were commissioned to prepare
consolidate the position of the rulingthe detailed project report. But very
elite, A G Frank, on the other hand, soon, the Soviets insisted that they
hit the nail on the head when he would themselves again do the Detail-
wrote: "Aid to whom? we may ask. ed Project Report. Though Dastur
The only possible answer consistent and Co had been, working on
with the facts is that this aid is to thethis project since 1958 and had
big monopoly bourgeoisie, which is theaccumulated considerable data, their
main economic beneficiary, first of the services were not utilised by the Soviet
Soviet-supported public sector, and nowcontractors from the beginning; pro-
of the emergency rule by their politi-ject costs might otherwise have been
cal representatives. That the Congressconsiderably reduced.
regime enjoyed the political support of In the case of Bokaro, Dastur anid Co
the Communist Party of India and thatmade a Cbst Reduction Study which
Leonid Brezhnev in his visits to India would have saved at least Rs 150
has gone so far as to call Indira Gandhicrores. The main suggestions were:
a great Socialist whose govemment is (1) that larger convertors, of 200-300
leading India to socialism changes tons, rather than 4 convertors in the
nothing in these facts" [33]. As a mat- first stage be used; and (ii) that the
ter of fact, it goes to show how far slabbing mill be dropped. The latest
the Soviet Union is prepared to go in steel technology used convertors of
order to ensure its interests in India. large capacity. ITe Soviet side,
however, held, that the operation of
(b) SOVIET AID E REIFORCES UNEQUAL such large convertors had not yet been
DIvIsION OF LABOUR fully established in the USSR and
therefore they would instal such con-
Datar says that while constructing
vertors only in the second stage.
the public sector plants in India, So-
viet contractors were generally willing "Continuous Casting of Steel in the
to use whatever local skills were. avail- USSR - A Survey" published by
able, "if only because of the relative OECD in 1964 shows that Installations
scarcity of skilled manpower" in India. had been planned in the USSR with
A comprehensive training programme convertors of 200 ton capacity. "It is
thus clear that if a plant like Bokaro
of a kind that a foreign firm would
not have found profitable was provided were to be set up in the Soviet Union,
it would have been designed in 1964
on the Soviet projects. But in all So-
viet projects, the credit agreement is (and definitely in 1966) when the pro-
comprehensive so that the Soviet staff posals of the Cost Reduction Study
take responsibility for everything. So- were being discussed with a provision
viet technological and managerial con- for large sized convertors and without
trol is maintained until project com- any provision for a slabbing mill [35].
pletion. They employ large numbers of
(c) MILrrARY Am
their own nationals as necessary. In
January 1964, for instance there were
The attempt to profit and perpetuate
more foreign t.echnicians on, Bhilai's
an unequal division of labour is noyt
payroll than on that of Durgapur or confined to economic and develop-
Rourkela. One of the effects of this mental assistance. Soviet military aid
policy is to prevent the growth of exhibi,ts the same characteristics. The
Indian technology and knowhow. In USSR, like other suppling countries,
matters like open cast coal mining,
tends to charge higher prices for parts
Indian technicians are fully qualified to
than they -do for complete weapons.
plan and conduct the operations. But Thus, the foreignk exchange cost involv-
thne Soviets insisted on their agencies ed in produ-cing MiG 21 aircraflt is
being appointed as technical consul- es,timated at between Rs 6 million and
tants as the price of aid given to buy Rsq 7.5 million. The pxrice of the first
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39 aircrafts, which were built from
major assemblies supplied from the
USSR was Rs 7.7 million each. As the
aircraft began to be rnanufactured
from materials supplied by the USSR,
the cost wvent up to Rs 12.7 million
each. Of this, Rs 8.3 million is in
foreign exchange, i e, payment for
materials supplied by the Soviets. Thus,
even leaving aside the profit from the
sale of machinery for the project, it
was more profitable for the USSR to
have the aircraft manufactured in all repair can only be carried out
India than to sell the complete aircraft.
tinder the supervision of Soviet advisers.
Even later, when the extent of indi-
genous material was increased, the Soviet Union was not supplying suffi-
foreign exchange cost (Rs 7 million
in 1971-72) was at least equal to that
of a complete aircraft [36]. This fact
indicated not only the expense of
defence production to a country with
scarce foreign exchange recources but
also the extent of dependence on the
Soviet Union.
As in the case of industry, here too
the Soviet Union gained a breakthrough
by offering to set up plants for the
manufacture of MiG-21 fighters. With
this and the sale of both the MiGs
and SU-7 (mainly a ground support
fighter) the Indian Air Force became
significantly dependent on the Soviet
Union. These two aircraft now forn
the main strength of the IAF.
How is the -unequal division of
labour in the manufacture of military
equipment sustained? Complete con-
trol is maintained over the project.
Complex parts - such as undercarri-
ages, braking systems, communications
and electronic equipment - are still
imported. Little is learned about
manufacturing aircraft from foreign
collaboration since there is hesitation
to part with the designs. India is
manufacturing only non-essential items.
If, for instance, for some political
reason, the Soviet Union decided to
stop supplies of components there is
nothing that the Indian government
could do about it, and the three plants
set up at enormous cost would lie idle.
As a Stockholm study noted: "India
would not be in a position to under-
take the manufacture of any other
aircraft in these factories" [37]. Dispite
Indian requests the Soviets have
refused to part with the detailed
design drawings. Under the terms of
the contract, the USSR does not
supply India with any detailed design
or type approval data. Requests for
the supply of these from the Indian
side have been turned down.
In the case of the army new supplies
of major equipment are mainly from
the Soviet Union. Along with the Air
Force the Navy is also almost wholly
dependent on the Soviet Union *for
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new supplies. Purchases from the
Soviet Union accounted for all the
Navy's submarines, half its frigates,
all its missile boats, ax)d the few land-
ing craft in the inventory [38]. The
period since the beginning of the
Indo-Soviet Treaty of 1971 has only
increased the Soviet Union's grip over
the Indian armed forces.
In the case of naval equipment there
is dependence not only for spares but
even for overhaul and repairs. Thus
There have been complaints that the
cient spares for the MiG-21s, Mi-4s,
heavy artillery, tanks, etc. Madhu
Limaye had stated in Parliament that
there were sufficient stores for only
10 days conflict [39]. This statement
was not contradicted by the goverfi-
ment. It was, however, denied by
Jagjivan Ram, the then Defence
Minister, that the Soviet Union was
withholding spares for the MiGs [40].
It appears, that apart from the
MiG-21 sale, the economic gains which
the Soviet Union has made by sup-
plying weapons to developing countries
are negligible for the Soviet prices
have been low. It seems, that the
USSR, like the US, has been mainly
interested in possible ipolitical and
strategic benefits from arms supplies.
Foi instance, the Indo-Soviet Treaty of
August 1971 established India's depend-
ence on the USSR on the military
sphere. Articles VIII to X of the treaty
deal with co-operation between the
two countries in the fields of defence
and security. Article VIII provides
that in the event of either country
being subjected to an attack of threat
thereof, both countries "shall imme-
diately enter into mutual consultations
in order to remove such threat and
to take appropriate effective measures
to ensure peace and security of their
countries."
Comparing Soviet and American
military assistance to India and Pakis-
tan, the United States has furnished
large amounts of weapons to Pakistan
and more limited supplies to India; the
USSR has reversed the order and
favoured India with considerable mili-
tary aid while limiting aid to Pakistan.
As of today, India stands in almost the
same relationship of military depend-
ence on the USSR as Pakistan does
with the US.
V
Conclusion
It has been our attempt in this
paper to establish the following seve-
ral propositions. We have argued that
to the extent that imperialism is ex-
port of capital as a social relation, the
All use subject to http://about.jstor.org/terms
USSR exports capital to the Third
World just as much as the USA does.
The USSR has been in the field just
from the mid-SOs onwards, when the
first foreign aid programmes started,
while the US has been at it from the
last quarter of the 19th century. We
have argued that the USSR profits
from its aid and trade just as much as
any imperialist power.27 In this con-
nection it is essential to realise that
foreign aid is usually not a grant28 or a
donation (as some people are inclined
to believe); rather, it involves repay-
ment of both principal and payment of
interest (although on terms which are
concessionary as compared to world
market rates). And the USSR has, upto
now got the highest rate of repayment
to aid given to India - almost 75 per
cent as against just 12 per cent for
the USA, 25 per cent for the UK, and
50 per cent for West Germany [41].
Is there an opportunity cost involved
for the USSR in the process of extend-
ing loans to Third World countries?
We considered this question in Sec-
tion 1. It seems that the USSR has
a rate of return on its investment in
aid that is a little under 15 per cent;
in other words, aid is about as profi-
table as domestic investment (the op-
portunity cost of aid is low or nega-
tive). The tying of aid with trade
has meant that the USSR could export
machinery and equipment, which
would not have sold (for competitive
reasons) in hard currency markets, at
high monopolistic prices to the Third
World - thus earning super profits.
For the products were sold at world
market prices, which are themselves
not fair.
We noted too that Soviet trade with
the Third World has also been profi-
table for the USSR. In fact, in the
co-ordination of trade and aid policies
they found a means of finding markets
for their machinery and equipment
and obtaining raw materials from the
Third World. The reasons for this are
partly political expediency and partly
economic necessity. The main attrac-
tion of the East European credits for
the Third World was that the former
were willing to accept repayment in
kind. This, as we saw in Section II,
was no real concession. In fact, re-
payment in kind was as burdensome
for India as repayment of loans from
Western capitalist countries in hard
currency.
The pattern of East-South trade and
aid relations is very similar to the pat-
tern of -West-South trade and aid re-
lations (credit terms, prices, commo-
dity composition) [42]. And if one is
imperialist, so may be the other. We
have not contended that Soviet aid
1387
does not lead to development; but the consideration of Soviet 'aid' is to gain racterrised aid as imperialism in a
vital question is: What kind of deve- a foothold92 and break established new garb: Teresa Hayter, "Aid as
Imperialism" (Harmondsworth:
lopment? As we have seen, it is the Western cartels and earn profits.
Pelican, 197]); Michael Barratt
development of capitalism; in fact, the Thus, it is not that "foreign policy Brown, "The Economics of Impe-
development of dependent capitalism. considerations have been dominant in rialism" (Harmondsworth: Pen-
It is not that India, and other Third Soviet objectives of aid policy towards guin, 1974); C R Ninsman, "Rich
World countries which receive such India", as P J Eldridge con'tendsE451, against Poor: The Reality of
Aid" (Harmondsworth: Penguin,
aid, will not be producing more sophis- but considerations of economic profit 1971); Cheryl Payer, "The Debt
ticated goods as a result of Soviet aid. have been at least equally important. Trap: The IMF and the Third
But as the notion of the product life We believe that this discussion World" (Harmondsworth: Peli-
cycle indicates, it' is a dependent should provide a basis for political can, 1974).
A survey of the policies of the
development, in which an unequal in- strategy in Third World countries vis-
various Western donor countries
ternational division of labour is perpe- a-vis the USSR. In India, particularly, by W G Zeylstra (a Dutch diplo-
tuated. Until as late as 1970 more than it is perhaps important to begin to mat), who is surely no Marxist,
75 per cent of East European exports realise that possibly the US is not the shows that as a rule either aid-
to the Third World consisted of manu- only hegemonistic superpower in the giving is largely dependent on
considerations which have little
factured goods, whereas primary pro- world, nor the only threat to libera- to do with the promotion of deve-
ducts and raw materials accounted for tion struggles in Third World count- lopment or its commitment as a
more than 70 per cent of Third ries. priority is low. See W G Zeylstra,
World exports to the socialist bloc[431. However, it must be understood "Aid or Development: The Rele-
vance of Development Aid to Pro-
This was despite the professed Soviet clearly that we have not proved that
blems of Developing Countries"
aim of forging a new socialist interna- the USSR is imperialist, because we (Siitholf-Leyden, 1975).
tional division of labour. The Soviet have said nothing about the character 2 In the period of neo-colonialism,
theoreticians admit that "the most of the internal Soviet economy. We from the Fifties of the 20th cen-
intricate problemn is that of finding con-
have dealt instead, primarily, with So- tury to the present day, but for a
few exceptional years and commo-
crete ways to eliminate the adverse viet aid and trade relations with the dities, the secular trend of wor-
consequences for developing count- Third World. In this sense, a direction sening terms of trade for Third
ries resulting from the international of future research could be to critical- World primary goods has con-
division of labour which was shaped ly analyse the structure of the Soviet tinued.
as far back as the 19th dentury" [441. 3 From the 1920s through the early
economy. And in the light of such re- 1950s, the Soviet Union engaged
But the -Soviet record as regards chan- search, and an examination of Soviet in little foreign trade with capita-
ges in the character and commodity economic relations with East European list countries. The main policy
composition of its trade with the Third countries and with China between under Stalin's leadership was-self-
World is not merely just as bad as that 1950 and 1964, a case could be built reliance. Soviet economic relations
with the Third World expanded
of West-South trade, but in fact, it is which would go to prove that the rapidly in the middle 1950s; the
worse. Given this record, is it at all USSR is imperialist. Some work of analysis of this article begins at
surprising that during the 31st session this kind from a Marxist perspective that date.
(1976-77) of the General Assembly of 4 Charles Bettelheim has provided
is already being done.30
the most systematic treatment to
the United Nations, the USSR and
An interesting general theme which date of Soviet capitalism; see Bet-
the Western countries voted together telheim, "Economic Calculations
could be taken up is the particular
on such vital resolutions as on: (1). and Forms of Property" (New
character of Soviet 'imperialism'. For
The Debt Problems of Developing York: Monthly Review, 1975); and
instance, could the USSR, with the "Class Struggles in the USSR
Countries (Resolution No A/31/14);
apparently non-capitalistic character 1917-1923" (New York: Monthly
(2) Industrial Redeployment in Favour Review, 1976).
of its aid (not owning plants, for
of Developing Countries; and (3) Ways The Communist Party of China
example) come to establish a charac-
and Means of Accelerating Transfer of has forcefully argued that the So-
ter of imperialism which should lead viet economy is dominated by
Real Resources to Developing Coun-
the world? Are policies of repayment capitalist monopolies. The pole-
tries on a Predictable, Assured and mical tone of the Communist
in kind, public sector, project loans,
Continuous Basis. Party of China's writings should
aid and trade to set up manufacturing
not hide the theoretical sophisti-
It has been contended that the ini- industries and even capital goods, etc, cation of its position. See Commu-
tial effect of the availability of East all of which aid the development of nist Par'y of China, "How the
European credits was to break the the country, forms of relation which Soviet Revisionists Carry Out Afl-
will come to be emulated by Western
monopoly of private foreign investors Round Restoration of Capitalism
capitalist countries? Does the 'socia- in the USSR" (Peking: Foreign
in India in, for example, steel, oil and Languages Press 1968); and "Ugly
pharmaceutical industries, and there list' appearance of aid and trade make Features of Soviet Social Imperia-
was expectation that this would aid it a leading form of imperialism, just lism" (Peking: Foreign Languages
in the future self-reliant development as American 'anti-colonialism' was a Press, 1976).

of India. Apart from the question oflimit which gave the US an advan- 5 A technical appendix on Soviet-
what class in Indian society benefits tage as a progressive trade and aid Th.rd World trade data is availa-
ble on request from the authors
from such foreign assistance, such for- partner? And would this have the (Department of Economics, New
mulations ignore many glaring facts. consequence of fostering the rapid de- School for Social Research, 65
Such units not only remain dependent velopment of capitalism in the Third Fifth Avenue, NY USA). On
on the USSR for spares, but Indian World? Further research may well Soviet foreign trade data, see
speak to these set of questions. Barry Kostinsky, "'Descripltion and
technology is not encouraged even
Analysis of Soviet Foreign Trade
when indigenous technology and inl- Statistics" (Washington, D C: Coy-
stalled capacity are adequate to supply Notes eminment Printing Office, 1974).
components of the project. More im- 1 There have been several studies 6 Kostinsky, op cit. There are no
portantly, it appears that the basic of Western aid which have cha- official data from the USSR on

1389

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All use subject to http://about.jstor.org/terms
 Soviet arms shipments The esti-
mates from the US Arms Control
and Disarmament Agency, cited
below, are widely respected. The
other major source is the Stock-
holm International Peace Research
Institute.
7 The Soviet Union has greatly ex-
panded cotton output since World
War II, and now it even exports
quite a bit of cotton primarily to
Eastern Europe. To some extent
domestic production has replaced
imports. DomesLic cotton is, how-
ever, medium-staple, which is of
lower quality for most purposes
than Egyptian or Sudanese cotton.
8 Asha Datar, "India's Economic
Relations with the USSR and Eas-
tern Europe 1953-1969" (Cam-
bridge: Cambridge University
Press, 1972), pp 138-9, 259. There
has been a third, quite minor,
reason why Third World exports
to the USSR do not represent a
net increase in Third World ex-
ports. The Soviet Union has occa-
sionally re-exported some of the
goods it imported from the Third
World, often making a profit from
its role as middleman. After citing
many of the known cases of
re-exporting, Ninnal Chandra,
"USSR and Third World" (Econo-
mic and Political Weekly, Annual
Number, February 1977), correct-
ly concludes that Soviet re-export-
ing has been quite small.
9 D'atar, op cit, p 167: "The USSR
and Czechoslovakia find it difficult
to promote exports of machinery
and equipment to Western mar-
kets and so it appears that their
products are not good enough to
compete with Western products.
In private discussions [Indian]
government officials seemed to
accept this as natural." See Gold-
man, 'Soviet Foreign Aid" (New
York: Praeger, 1967), pp 69f, on
the difficulties the Soviets had in
building the High Dam at Aswan
in Egypt; Western equipment had
to be brought in surreptitiously.
10 In documents submitted to UNC-
TAD, cited in Michael Kidron,
"Pakistan's Trade with Eastern
Bloc Countries" (New York: Prae-
ger, 1972). The multiplier was 5.4
roubles of trade created for each
extra rouble of aid.
11 This information, unfortunately
unconfirmed from Soviet sources.
is from the US Arms Control and
Disarmament Agency, "The Inter-
national Transfer of Conventional
Arms" (Washington, D C: Govern-
ment Printing Office, 1974). The
figure of 40 per cent lower prices
for Soviet arms is based on a very
generous evaluation of the quality
of Soviet arms. Quality is a major
factor affecting price compari-
sons.
12 Nirmal Chandra, op cit, p 350,
argues that the Soviets cannot use
profits frorrn trade with the Third
World to finance imports of Wes-
tern technology. He is wrong on
two coJunts: (i) Arms sales to some
countries are in hard currency,
and (ii) Trade and aid agreements
with Third World countries re-
duce the amount of foreign cur-
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rency the Soviet leadership must
spend to import raw materials,
and therefore more foreign cur-
rency is available for importing
advanced technology from the
West.
13 The conclusion would not neces-
sarily follow. The correct proce-
dure would be to compare Soviet-
Third World Prices with world
market prices, where the world
market price is the price which
would rule if all trade were con-
ducted on open markets. In the
real world, much trade is conduc-
ted at regulated prices. For in-
stance, the US sugar quota system
means that there is one price for
sugar which can be sold in the
US and another price for all other
sugar. If the US quota were abo-
lished, then the world market
price would be somewhere bet-
ween the US price and the non-
US price. The latter price, the
non-US price, is often incorrect-
ly called the world market price.
It is very difficult to tell what the
world market price for any com-
modity actually is. Because of the
problems of estimating world mar-
ket prices, complicated and in-
direct procedures - such as those
cited in the text - are necessary
for comparisons of Soviet-Tlird
World prices with world market
prices.
14 The difference between the aid
received today and the discounted
value of future repayment obliga-
tions as of today expresses, in
money terms, what different wri-
ters have called the 'grant' or
'gift' element of aid.
15 Data concerning India's exports to
the Eastern bloc show that bet-
ween 20 per cent and 25 per cent
of those exports were diversionary;
i e, they could have been expor-
ted to hard currency areas.
16 Datar, op cit, has come to the
conclusion that during the period
from 1953-4 to 1965-6 the need
for India to give technical- credit
(or swing credits, as they are call-
ed) arose for two reasons (i)
India's difficulty in finding accept-
able imports to absorb her export-
earnings from Eastern Europe,
and (ii) the slowness with which
East European countries hbve ful-
filled export commitments. And
since India is a net exporter to the
USSR, she accumulated idle balan-
ces. This constitutes waste of
credit finance. Such a waste was
a serious problem for other deve-
loping countries in their econormnc
relations with the USSR. Because
of this problem, the utility of
non-convertible payment agree-
ments is questionable.
17 The Janata party election mani-
festo for the Lok Sabha poll in
March 1977 spoke against the fur-
ther expansion of heavy industries
in the public sector.
18 In this context, it is worth noting
that although the Eastern Euro
pean countries provide a relatively
small proportion of India's total
imports, they were important
suppliers in these commodity
groups. For instance, in the pe-
All use subject to http://about.jstor.org/terms
riod 1969-70 - 1971-72, the
Eastern bloc countries accounted
for only 14 per cent of India's
total import bill, but they supplied
34 per cent of the machinery and
transport equipment and 18 per
cent of the intermediate goods
bought by India (calculated from
statistics published by DGCIS,
Calcutta).
19 India's share in the USSR's total
exports ranged between 0.9 per
cent and 1.4 per cent during 1970-
197 3; the share in imports was
between 2.3 per cent and 2.4 per
cent.
20 For India the GNP-based rates
are available comparing the rupee
with the US dollar. For 1970 it
was found that India's per capita
output was 2.0 per cent of the US
level at the official rate of exchange
but as h.gh as 7.1 per cent in real
terms. Thus the rupee was un-
dervalued to the extent ot over
250 per cent. Indeed, while most
currencies vis-a-vis the US dollar
were undervalued, PPP-wise there
is a strong tendency for conver-
sions via the exchange rase to
show a bigger understatement for
low income countries thanr, for
higher income countries (see Nir-
mal Chandra, op cit).
21 When in August-September 1971
customs authorities in Madras
and Cochin were asked to stop
all shipments they suspected were
being switch-traded, all exports to
Eastern Europe soon stoppe(l. Of
course this action did not last long
as the complaints flowed to Delni
and the restrictions were removed.
22 It was stated on 16 May 1972, in
the Rajya Sabha, that the Soviet
Union would send 20,000 tons of
cotton each year to India for five
years. The Minister of Foreign
Trade, L N Mishra, denied that
some textile mills in India were
unwilling to process Soviet cotton
into textiles.
23 It was rather strange that the
government of India agreed to the
Soviet experts preparing the fea-
sibility reports On the aluminium
plant. The project report of the
Bharat aluminium plant was pre-
pared by Indian experts.
24 Pierre-Phillipe Rey has pointed
out in Les Alliances de classes
(Paris: Maspero, 1972), the error
in assuming that the expandedl
reproduction of the capitalist
mode of production always works
for the immediate dissolution of
pre-capital.st modes. While the
historical tendency of capitalism
is to dissolve all pre-capitalist
modes, there may be entire eras
in which the opposite tendency
(that of preservation) is dominant.
25 Palloix's identification of the dif-
ferent forms does not correspond
fully to that in this text. The
brief comments in this text are
not meant to) imply that the pro-
cess of internationalisation can
be periodised by reference to some
'technical' laws of capitalism. The
expanded reproduction of capita-
lism can not he conceived without
the class struggle as an integral
element.
1.391
26 On thie theory of the noni-capita-
list path, see Indrajit Basu, "Poli-
tical Theory of Soviet Economic
Relatioins in Asia" (unpublished
NM J?hil dissertation, Jawaharlal
Neehru University, 1976). The ad-
vantages which the Soviets claim
the Thlird World receives from So-
viet aid - that is support for the
public sector, support for heavy in-
dustry, a bargaining chip to get
more Western aid - are the same
advantages cited by Nayyax, op cit.
These advaintages are real - but
they are advantages to the capi-
talists of the Third World, not to
the workers. Soviet aid helps
development: the development of
capitalism. There is no reason to
expect the development of capita-
lism to help the working class.
Capitalists including State capita-
lists, pursue profits and capiLal
accumulation, not the interests of
the people. The goal of a socalist
movement must be the overthrow
of capitalism, not its reinforce-
ment.
27 The charge levelled in the CPI(ML)
mentioned earlier is similar. It is
important, however, to distinguish
the thrust of our argument
in some important respects with
the argument presented in the
CPI(ML) pamphlet. In the latter,
the author seems to believe that
unequal exchange is what predo-
minantly constitutes imperialism.
We have, on the other hand, em-
phasised all along that imperia-
lism is the export of capital, and
particularly the export of capital
as a social relation. Moreover, it
appears that the CPI(ML) pamph-
let is trying to prove, like the
Chinese, that the USSR is the
[14] M N Dastur and Go, "Cost Re-
'more aggressive and adventurous's
superpower in the world, and in
that sense the worse of the two
evils, US and Soviet imperialisms.
We have tried to show, on the
other hand, that the character of
India's relations with the USSR
and the US is basically the same
- not that one superpower is
"worse" than the other.
28 In fact, grants constitute only
3 per cent of aid given by the
Soviet Union to the Third World.
[18] Datar, op cit, p 182.
29 80 industrial projects have been
constructed or designed in India
with Soviet co-operation. Of these[20] Report of the Study Teamn on
more than 55 have already been
commissioned. These projects at
present account for one-third of Government of India, 1971.
India's output of steel, one-fifth
of power generation, 60 per cent
of crude production, 30 per cent
of oil products, over 80 per cent
of metallurgical products and 60
per cent of steam and hydro-power
plants. They also account for
large quantities of pharmaceuticals
and drugs, including antibiotics.
30 Here we refer not to the socalled
"convergence' theory which has
become popular among certain
circles of liberal scholarship. Rla-
ther we refer to the growing
volume of Marxist literature which
sees developments in the UJSSR,
ogtscularly after Khruschev, as
1392
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essentially making a reversion to
capitalism (see note 4).
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[1] For instance, see Walter Laquer,
"The Struggle for the Middle
East", New York: MacMillan
Co, 1969; and Mahmoud Hussein,
"Class Conflict in Egypt 1945-
1971', New York: Monthiy
Review, 1973, p 205.
[2] Asha Datar, "lndia's Economic
Relations with the USSR and
Eastern Europe 1953-1969",
C(ambridge University Press,
1972, p 10.
[3] Washington Post, November 19,
1973.
[4] Datar, op cit, pp 42-5.
L5] Pramit Chaudhuri, "East Euro-
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341.
[6] N K Chandra, "USSR and Third
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[7] James Carter, "The Net Cost of
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Praeger, 1969, p 38.
[8] Franklyn Holzman, "Foreign
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[9] Datar, op cit, p 182.
[10] Nikita Khrushchev (edited by
S Talbott), "Khrushchev Remem-
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[11] Carter, op cit, pp 23, 42.
[12] Marshall Goldman, "Soviet
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[13] Michael Kidron,.
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[15] Stainslaus Sebastian, "Soviet Eco-
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[16] Chandra, op cit, p 870.
[17] See in this context Teresa Hayter,
"Aid as Imperialism", Harmonds-
worth: Pelican, 1971, - and
Cheryl Payer, "The Debt Trap:
the IMF' and the Third World"
Pelican, 1974.
[19] Pramit Chaudhuri, op cit.
Leakage of Foreign Exchange
Through Invoice Manipulation,
[21] Eleventh Report of the Fourth
Lok Sabha's Estimates Com-
mittee, "Utilisation of External
Assistance", New Delhi: Lok
Sabba Secretariat, 1967, pp 228-9.
[22] Ibid, March 2, 1973.
[23] Swaminathan S Aiyar, "Soviet
Aided Projects", Times of India,
April 29, 1977.
[24] Economic and Political Weekly
December 8, 1973, p 2152.
[25] Comnmunist Party of India
(Marxit-Leninist), "Soviet Social
Imperialism in India.", West-
mnount: Indian People's Associa-
tion in North America, 1976.
[26] Commnunist Party of China, "How [45] P J Eldridge "Politics of Foreign
the Soviet Revisionists Carry Out
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All-Round Restoration of Capita-
lism in the USSR", Peking:
Foreign Languages Press, 1968;
"Ugly Features of Soviet Social
Imperialism", Peking: Foreign
Languages Press, 19,76.
[27] Christian Ealloix, "Les Firmes
multinationales", Paris: Maspero,
1973; and "L'Internationalisation
du capital", Paris: Maspero,
1975.
[28] Smirnov and Matyukhin, "USSR
and the Arab East: Economic
Contacts", International Affairs
(Moscow), September 1972, p 87.
[29] Chandra, op cit,
[30'] Cited in, Frafik, op cit.
[31] Jan Pennar, "The USSR and the
Arabs: The Ideological Dimen-
sion", New York: Crane Russak
and Co, 1973.
[32] Meghnad Desai, "India: Emerg-
ing Contradictions of Slow
Capitalist D'evelopment", in R
Blackburn (ed), "Explosion in a
Subcontinent", Pelican, 1975, P
18.
[33] A G Frank, "Long Live Trans-
ideological Enterprise: Socialist
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national Division of Labour",
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1977.
[34] EPW, January 12, 1974.
[35] P Desai, "The Bokaro Steel Plant",
Amsterdam, North Holland, p
57.
[36] jSee Dennis- Childs and Michael
Kidron, "India, USSR and the
MiG Project", in EPW, Septem-
ber 22, 1973.
[37] Stockholm International Peace
Research Institute, "Arms Trade
with the Third World", Stockholm,
1971, p 753.
[38] From Military Budget 1974-75,
London, quoted in Indian Ex-
Press, December 4, 1974.
[39] Evidence presented to the Parlia-
mentary Consultative Committee
of the Indian Defence Ministry
on July 21, 1970.
[40] Letter to Madhu Limaye, quoted
in Hindu, September 13, 1974.
[41] All figures from Explanatory
Memorandum to Central Govern-
ment Budget for 1973-4, Govern-
ment of India Press, New Delhi,
1974.
[42] See Santosh Mehrotra, "India's
Economic Relations with the
USSR, 1955-77", Jawaharlal Nehru
University, Unpublished M Phil
dissertation, Chapter 5.
[43] Statistical Review of Trade bet-
ween Countries having different
Social and Economic Systems,
UNCTAD, Secretariat, TD/B/
410 Geneva, August 23, 1972, p
9.
[44] See a study prepared for
UNCTAD by the Moscow Insti-
tute of Economics of the World
Socialist System, "Innovations in
the Practice of Trade Rnd Econo-
mic Co-operation between the
Socialist Countries of Eastlern
Europe and the Developing
Countries", TD/B/238/Rev 1,
New York, 1970, p 10.
Aid in India", New Delhi, 1969.