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Developing Countries (Oil)

Volume 888: debated on Monday 17 March 1975

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4.55 a.m.

I am happy to have the opportunity to raise in the House the problems created for underdeveloped countries by the fourfold rise in the price of oil in recent years. I am sorry to have had to drag my right hon. Friend from her matrimonial couch a such a ghastly hour, and I am grateful to her for having arrived here looking so fresh and so willing to stand up to my barrage of questions. I assure her that my oratorical flight will be a great deal swifter than that of my predecessor on the Conservative benches discussing Concorde, but at this late hour it is appropriate that we should look around the world a little and consider the plight of those who are even worse off than ourselves.

I should like to illustrate the problem, before raising various questions with my right hon. Friend, by reference to two countries which it has been my privilege to visit during the past year, both of which are underdeveloped, and each of which suffered immensely as a result of the increase in oil prices. I refer to India and Israel.

Last summer I was fortunate enough to spend 10 days in India as the guest of the Indian Government and to travel around that vast country and see something of the problems which existed before the oil crisis but which have been heightened and sharpened by the vastly increased difficulties which that crisis has created for the Indian authorities.

I saw poverty on a scale which is almost impossible for anyone to contemplate who has not seen it. In Gujarat State, for example, I saw the hutment areas in Bombay, a place where people are existing on the very lowest levels of human subsistence. I saw also the vivid and energetic efforts being made by so many Indians to improve the lot of their fellows. It saddened me that the difficulties encountered by the Indian authorities had grown worse and had not eased over the past few years.

In the Punjab. I travelled through to the glorious Golden Temple of the Sikhs at Amritsar, and up through Chandigarh to the Bakhra Dam at Nangal where hydroelectric power is being created on a huge scale. It is a tremendous technological achievement of which the Indians are rightly proud, but it creates only a small proportion of the power that is needed.

What a land of contrasts this is, with the Bakhra Dam on high, while down below in the villages power is being created by burning cattle dung which should be used for fertiliser, since artificial fertiliser cannot be made available as it should be. It is a by-product of oil. Oil price increases to us mean extra costs for our cars and for warming our homes. In India, oil is also, and above all, the means of enriching their fields and enabling them to grow the food of which they are so short.

The fourfold increase in the price of oil has brought a mass transfer of producing power from oil-consuming countries like India to oil-producing countries in the Middle East and Latin America. The slackening of the growth of demand and production in industrial countries increases the danger of the world-wide recession which affects the developing along with the developed nations.

We know the effect on European countries, including our own. The devastation here is as nothing compared with that suffered on the Indian subcontinent and in other countries where the spectre of famine is never far away. The prevailing conditions cause a special fear to the disadvantaged countries. For them the tragedy of high oil prices is compounded by the high prices of fertilisers and by the fact that the industrialised countries can no longer come to their aid to the same extent as before.

This debate is possible because we are making a modest contribution to a fund to assist the underdeveloped countries. It is a tiny drop in a vast ocean of suffering, but I hope that the Minister will tell us something of how that money is to be spent, how the figure is reached and how it is divided. But at least we are doing something.

India's oil import bill increased by 175 per cent. in 1973–74 and is expected to increase by an equal amount in 1974–75. The increase has come at a time when India has to import food, the climate has been unkind and fertiliser prices have rocketed. Oil now accounts for 30 per cent. of total imports. India, like us, has to balance her budget as best she can. She has had to supplement the inadequate levels of international assistance by drawing on the International Monetary Fund and by running down reserves, which will become increasingly difficult during the coming year.

India's debt service liability is increasing while the availability of aid is not. Her ability to borrow further from international agencies diminishes as she borrows further. The country is not greatly different from the individual—to him who hath shall be given, to him who bath shall be lent, to those in greatest need shall be neither given nor lent because their powers of repayment become smaller as time goes on. As India borrows more, so her debt service liability increases. Each short-term reprieve leads to a long-term difficulty.

So higher oil prices impose a permanent burden which cannot be permanently eased by temporary expedients. The only solution is India's own ability to service her debt by increased domestic production and better trading opportunities.

How can India increase production? This depends on what we have come to call the recycling of petrodollars. The Indians want a different solution from the one for which we are generally pressing. We try to sell more particularly to the Arab countries and to encourage them to invest here, and this is right. On the other hand, we should use our efforts—I am sure my right hon. Friend is using her best endeavours—to see whether it is not possible for a trilateral exchange, so that the oil money can go to the under- developed countries and increase their productive capacity and their power to buy from us, so that we do not simply sell to them but they have the capacity to buy from us.

There is no reason why a country such as India cannot participate in the enormous building programmes going on in the oil countries. India, as I have seen, has a fine capacity for the building of houses and homes, of offices and airports, of roads, dams and waterworks. The capital city of Chandigarh in the Punjab is a magnificent example of great town planning. The structures that the Indians have built in their country are as wondrous as the Taj Mahal—which, incidentally, is one of the very few trumpeted tourist attractions which are even more glorious in reality than they are when portrayed in photographs in brochures. It has to be seen and enjoyed to be believed and understood.

India is building factories, roads and workshops, and it has much to offer. What we have to do as best we can is to help it to prosper by lending it our technical assistance and our bargaining weight. Even if that happens, the results will still not be enough to meet the balance of payments needs of such a country. Therefore, every possible encouragement should be given to the oil producers to make funds available for the development of the poorer countries. Naturally, oil producers like good security and prefer to invest in developed countries. Perhaps it is possible for us to provide some sort of guarantee on behalf of the Indians that moneys which are laid out for them or to them will be repaid or honoured. Perhaps my right hon. Friend will be able to give some indication of what we are able to do in that respect.

One of the sad features of Indian policy, which is deplored by leaders and members of, I believe, most of the Indian political parties—I spoke to many of them during my time in India—is the way in which India has attempted to meet the oil crisis by increasing her political support for the Arab cause and by even refusing to have normal diplomatic relations with Israel. The example set by India shows that this kind of bowing to Arab pressure simply does not bring the results which the Government concerned hope for it. Instead of reacting to this kindness, instead of returning the favours offered, the Arab countries have not reduced the price of oil for their Indian friends. They have not made life any easier for those who have to try to feed the Indian people. They have not given great credits to enable the Indian economy to survive.

I was privileged to attend a session in the Lok Sabha, the Lower House of India's Parliament, when they were discussing the oil problem and how they even had to put curbs on the use of kerosene for cooking the tiny amount of food necessary for the ordinary Indian family to survive. There was even talk of curbs on transport to weddings—minor and pathetic decreases in the use of petrol products. Yet the real problem is that the oil-producing countries are doing nothing of any substance to assist their underdeveloped brethren with whom they claim to have common cause. We have to judge that common cause by the way in which they treat others, in underdeveloped countries. I suppose that the answer is essentially that the Arab Governments treat the Indian people in very much the same way as they treat their own, and that is with a deep lack of care and concern.

That leads me to the second underdeveloped country which I visited during the past year, Israel. It has much in common with India in so many ways, including the fact that at the time I was in India both countries were led by lady Prime Ministers. The spread of women's liberation has gone from India via Israel to the Conservative Party here.

Israel and India share many problems and the people of the two countries have an affection for each other. The Israelis find it difficult to understand the Indian attitude towards them. Israel's oil problem's have been made infinitely worse during the recent past because, although Israel has the Abu Rodeis oil field, it is not using that oil for its own consumption and it has been paying an increased price for its oil like everyone else.

The increase in the price of oil contributed $500 million to the increased gap in the country's balance of payments in recent years. The deficit in the balance of payments increased by $1,000 million in 1974 to $3,600 million, which is nearly half of Israel's gross domestic product. That amounted to about $8,000 million in 1974. The main reasons for the increase were the rise in the price of oil, the increased cost of raw materials and the high import bill for defence, upon which Israel has to spend one third of its gross national product. External loans increased to $6,300 million at the end of 1974, which is the highest per capita external debt in the world.

As in the case of India, this creates an enormous burden not only for the moment but for the future because the loan must be repaid. Britain does not like borrowing, but we manage it, and we know that oil will soon be flowing from the North Sea. We know that in a few years we shall be free of the miseries that surround us and that we shall be in an infinitely stronger position to face our own commitments and worries. Meanwhile we have problems which we rightly regard as very grave, but if we put them into the context of the sort of problems that face the Governments of India and Israel we achieve a sense of balance. It shows that the entire system of the world in which we have become used to living so comfortably is changing rapidly and in the most worrying way.

In India I was received with the most cordial hospitality, and I am happy to pay tribute to it. Everywhere I went people talked of their worries about the future and how their economy could survive. They have a sense of friendliness towards Britain which is deeply satisfying. It is easy for the visitor to criticise aspects of Indian life, particularly as the Indians themselves do so freely. That, after all, is one of the glories of India. In spite of its difficulties it remains a free and democratic country where it is possible to express a view, however unpopular. It is also a country where the oil crisis hovers permanently over the miseries of millions.

Equally, it is a land where there is hope. When my right hon. Friend replies I hope she will add to the good will existing between our countries by saying that this gesture of ours is a real one in that we are giving a small sum in recognition of the fact that we would wish to do much more.

I hope also that my right hon. Friend will give an indication of the continuation of the Government's abhorrence of the Arab boycott and of our recognition that—as shown by the fate of India—bowing to blackmail leads only to more power for the arm and will of the blackmailer. As this applies in the national sphere so it applies to individual firms and companies that deal with the oil-producing countries of the Middle East.

If we make it plain that we wish to trade with the Arab countries, that we expect them to honour their obligations and that we hope that they, like us, will do what is possible to assist those who are less well off, including their own people, our prospects of living in a world of peace and prosperity will be greatly increased and we shall come through the present crisis with perhaps more understanding of each other and more good will.

5.17 a.m.

I am grateful to my hon. and learned Friend the Member for Leicester, West (Mr. Janner) for focusing our attention during this debate on the developing countries. They are so often overlooked. It was good to hear my hon. and learned Friend concentrating on the problems in particular of India. I preceded him to Chandigarh about three years ago. I entirely share his view about the beauty and brilliance of that place.

I turn to the problem on which my hon. and learned Friend has concentrated our attention, that of the developing countries, the serious rises in the price of oil and its effect particularly on the poorest countries of the developing world. He knows that this was highlighted in the reports of the Select Committee on Overseas Development published in July 1974 and, most recently, in January 1975.

The situation in 1974 was that the non-oil-producing developing countries as a group faced an estimated income loss of over $10 billion as a result of higher prices. In balance of payment terms this loss was initially cushioned, particularly for the better-off developing countries, by a continuation of high prices for the commodities they exported. That cushion has now been eroded and reserves are falling.

It may put the figure of $10 billion in perspective if I mention that net flows of official development assistance from countries which are members of the OECD Development Assistance Committee are tentatively estimated at $11 billion for 1974. The situation was much more serious for countries like India which already had low per capita incomes, large populations and low per capita levels of professional assistance. Britain's aid programme was already focused on their needs. India has always been the major recipient of our aid, and, therefore, we very much welcome the decision of the United Nations almost a year ago to set up the special programme, known as the Emergency Measures, which called on donors to provide emergency assistance to all those countries most seriously affected by the rise in the price of oil and other commodities. Thirty-three of those countries recognised as being very seriously affected included India, Bangladesh and Sri Lanka.

My hon. and learned Friend has mentioned the Special Fund to which this Vote applies. He will be aware that it is only a tiny fraction of our assistance to the emergency measures. The $5 million to the Special Fund is just a drop compared with what we have contributed in other ways to the special measures. For example, we have contributed $174 million to the emergency measures as a whole, and this included $106 million for India, Bangladesh and Sri Lanka. In addition, we have contributed our share to the EEC contribution of $250 million. The Community has so far allocated only $150 million of this, and India, Bangladesh and Sri Lanka have benefited to the extent of $77 million.

My hon. Friend is right to draw attention to the problems of countries such as India. I assure him that they are very much in our minds.

I wish to say a few words about the oil facility and the measures which are being attempted to introduce the concept of OPEC money being recycled to benefit various countries. Various international measures, both concessional and non-concessional, have been discussed, principally within the IMF and the World Bank, for directly or indirectly recycling surplus funds with particular reference to the needs of the less developed countries. My hon. Friend will appreciate that, although much still remains to be done, a significant move is beginning to be made in recycling from the oil-producing countries which can only benefit all of us.

Question put and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House; immediately considered in Committee, pursuant to the Order of the House this day ; reported, without amendment.

Motion made, and Question, That the Bill be now read the Third time, put forthwith pursuant to Standing Order No. 93 ( Consolidated Fund Bills), and agreed to.

Bill accordingly read the Third time and passed.