presents an appropriate case study to assess the
main reasons for the failure of India's existing policy framework for the uplift of economically backward and
isolated regions. The failure of this framework has been frequently
cited as one of the main reasons for the emergence of insurgency and
its continuation in the region. This failure, however, is generally
discussed in the context of the 'economic neglect' of the region. It
is also frequently suggested that to end this neglect, massive developmental
assistance from the Centre is required, which in due course would also
end discontent, insurgency and terrorism in the region.
This paper argues, instead, that the failure is not because of any so-called
'economic neglect', but because of an inappropriate economic policy
framework which has created an unbalanced and unsustainable economy
and destroyed the basis for institutions of a modern market economy
in the region.
India's Northeast, also known as the land of the seven sisters, comprises
the States of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram,
Nagaland and Tripura, which collectively account for about 8 per cent
of the country's geographical area and roughly 4 per cent of its population.
The region is known for its ethnic, linguistic, cultural, religious
and physiographical diversity.
Historically, successive legal and administrative decisions taken between
1874 and 1935 gave the areas of the Northeast their distinct identity.
The British administration initially treated the hill areas as 'Non-Regulated
Areas', then declared them a 'Backward Tract' and, eventually categorised
them as 'Excluded Areas' and 'Partially Excluded Areas'.
Statistics are available in plenty about the number of races, tribes and
their sub-groups, ethnic groups, cultures, religions, languages and
dialects spoken in this region, but broadly speaking there are three
distinct groups of people - the hill tribes, the plains tribes and
the non-tribal population of the plains. The majority of those living
in the plains are Hindus and Muslims while a substantial proportion
of hill tribes in Meghalaya, Mizoram and Nagaland are Christians.
Geographically, apart from Brahmaputra, Barak (Assam) and
Imphal (Manipur) valleys and some flat lands in between the hills
of Meghalaya and Tripura, two-thirds of the area of the region consists
of hilly terrain. Most of this hilly portion is either owned, controlled
or managed by tribes, clans or village communities. The most populous
part is the Brahmaputra Valley, which
constitutes about 22 per cent of the region.
The pace of development in the hill areas and plains differs considerably.
The valleys are economically active areas, the Brahmaputra Valley being
the most active. Tribal populations constitute only about one-fourth
of the population of the Northeast, even though in four States
Mizoram, Meghalaya, Nagaland and Arunachal Pradesh tribals
are in a majority. In Mizoram, which has one of the highest literacy
levels (82 per cent) in the country, second only to Kerala (90 per
cent), they constitute as much as 95 per cent of the population.
On the one hand, the region is diverse and heterogeneous. On the other,
it is quite homogeneous; the social stratification found in other
parts of the country is not present in the Northeast. The tribal societies
in the hill areas are egalitarian. As a result, the type of poverty
found in many other parts of India does
not exist in most of the hilly States of the region.
The Present Economic Policy Framework
Due to the special constitutional arrangements for, and the historical background
as well as the geographical location of the region, the central government has long been trying
to integrate the Northeast with the national economy. The present
policy framework has accepted the right of tribals to retain their
way of life and identity and has sought to integrate them through
democratic means into the federal frame of the Constitution of India.
The policy framework for the region has so far been guided by a combination
of approaches impacting on its political economy and culture. The
main focus of the political economy approach is on the relations between
the state and the economy. In this approach, consequently, the role
of bureaucratic state arrangements is strongly emphasised. The cultural
approach, however, focuses on the socially constructed character of
economic organisation, where the economic system is conceived of as
a product of the social order.
While the combined approach has been influential, the importance of bureaucratic
arrangements in the process of economic development has been unduly
exaggerated. Nevertheless, wherever possible, an attempt has been
made by policy makers to work through the unique social and cultural
institutions existing in the region, instead of imposing new institutions. This special approach has been adjusted
with the central government's policies of a regional planning development
model. The major assumption of regional planning is that it would
permit the transfer of surplus generated in one region to another.
This mechanism was expected to increase aggregate national efficiency
through optimum resource allocation.
Under the influence of this policy, various schemes for the development
of infrastructure and economy of the Northeast region have been formulated.
The schemes include the formation of the Northeast Council, Hill Area
Development Projects and Sub-plans, Tribal Area Sub-plan, and Tribal
Development Agency Projects to name only a few. In addition, these
seven States have been declared as Special Category States; this entitles
them to get 90 per cent of Central Assistance as a grant and just
10 per cent as loan. Some public sector units have also been set up
in the region. The policies of industrial licensing, concessional
finance and investment subsidy, growth centres, as well as freight
equalisation of some major industrial inputs have also been used to
promote economic development.
Further, to protect tribal interests, policies of minimal interference with
the cultural traditions and customs of the tribal people are being
followed and additional political and administrative mechanisms have
been provided for the region. Under the Sixth Schedule of the Constitution,
the concept of Autonomous District Councils has been applied. The Councils are responsible for looking
after the social, economic and minor criminal and civil matters of
the tribal people. More specifically, these Councils are empowered
to make laws with respect to: a) Land; b) Forest; c) Water course;
d) Shifting cultivation; e) Establishment of village and town and
its administration; f) Appointment of, or succession to, chiefs or
headmen; g) Inheritance of property; h) Marriage and divorce and matters
relating to any other social customs.
Restrictions have been imposed on the rights of Indian nationals to acquire
landed property in these areas. The regulation of the Inner Line Permit
System prohibits entry of outsiders into Arunachal Pradesh, Mizoram
and Nagaland without a permit, and debars a non-native from acquiring
any interest in land or the produce of land. Tribal belts and blocks
have been constituted in the plains areas to prevent land alienation
from tribals there.
It has to be honestly acknowledged, however, that the development strategy
implemented so far, mainly through the Planning Commission and North
East Council, has failed to produce the desired results. The State
and sectoral plans of the Planning Commission have not been able to
provide enough impetus for local development, or to generate processes
of self-sustained growth. Instead of creating an efficiency-oriented
economic process, this policy framework resulted in the creation of
a politically-led distribution-oriented process. The result is that
natural resources, profits, savings and the like are, in fact, moving
away from the region to other high productivity regions. Besides,
the almost total dependence on Central funds and planned direction
has promoted a trait of passiveness towards development and encouraged
patronage and corruption. It has also created a government monopoly
in employment, which has destroyed the work ethic necessary to build
a modern economy. Expectations were raised high, and they could not
be fulfilled through centrally sponsored schemes.
Moreover, contrary to popular perceptions, the lack of development in the
past has not been the consequence of any shortage of funds. In fact,
sufficient resources were always provided to the region, but a substantial
portion of the funds earmarked for various schemes has not really
gone into those schemes. Some scholars have pointed out that the regime
of corruption in India, even under normal circumstances, severely
limits the actual impact of development expenditure on target groups.
In situations of widespread breakdown of law and order, as in the
case of many parts of the Northeast, the impact of government sponsored
development projects is negligible.
It can, therefore, be argued that, although some developmental changes have
taken place in the region, yet the present policy framework has not
been able to provide the basis for a dynamic process of development,
including good transport and other infrastructural facilities. The
region remains isolated from the rest of the country. It has not been
able to attract investors or to produce skilled labour and entrepreneurial
resources, and has failed to transform the primitive agricultural
practices of the region into modern commercial agriculture. More importantly,
the existing policy framework has also become one of the important
factors that has contributed to the emergence and continuance of insurgency
in the region. In a nutshell, this complete policy framework has outlived
its utility. The political economy approach has inordinately relied
on the capacity of the state (read Central government) and its bureaucratic
arrangements for economic development, and the approach has manifestly
Changes have taken place over time on the cultural side as well. In today's
Northeast, tribals are not the 'head hunters' they are widely misconceived
to be; on the contrary, a large number of them are highly educated
and have adopted modern values, fashions and modes of living. In the
new social and economic environment, to depend once again on the very
same institutional mechanisms such as the Planning Commission (whose
own future remains uncertain) does not appear to be the right approach.
In a liberalised economy, any new policy has to be based on some kind of
a market-oriented approach. The new policy framework should, consequently,
concentrate more on economic factors and less on political and cultural
factors (although these cannot be ignored altogether). The economic
factors include labour cost, comparative advantages, technology, efficiency
and returns on investment. Inefficient
economic processes and barriers to market entry make a critical economic
difference and will define the distinctions between success and failure.
The market approach generally assumes economic rationality, and the
atomised individual, whether firm or person, as the crucial economic
actor. In this approach, the economic system is an aggregated outcome
of the production, exchange and consumption of goods and services,
and social order is premised to emerge from the self-interested rational
actions of individuals.
In the area of regional economic development, the neo-classical theory asserts
that regional disparities would be reduced on the basis of factor
movements across regions. Assuming that all regions possess similar
technology and similar preferences, and there are no institutional
barriers to the flow of capital and labour across State borders, The
Solow-Swan neoclassical growth model would predict that States would
have similar levels of per capita incomes in the long run. This model
also predicts that poor regions will grow faster than rich ones; in
other words, regions with lower starting values of capital-labour
ratio will have higher per capita income growth rates. Therefore, instead of regional planning,
this approach suggests greater concentration on free flow of goods
and productive factors among regions. Ideally a uniform legal and
governmental framework would be important for the free movement of
factors of production. Perhaps this would be sufficient to ensure
static efficiency. The equalisation of returns to factors is believed
to be accomplished through trade and mobility of factors other than
natural resources. These trade and factor movements between regions
are expected to achieve self-adjusted equalisation of their income
and employment levels. However, regions differ in their ability to
respond to external stimuli, due partly to differences in elasticities
In the Northeast region, even the stimulus to expansion at the national
level is likely to run up against supply bottlenecks due to insufficient
infrastructure, entrepreneurship, business-supporting institutions
as well as the insurgency which prevails in large parts of the region.
This is where the state would have to play a role, and more importantly,
the State governments. In a liberalised economy, development will
not be a boon from the Centre. On the contrary, development of a particular
State will depend on the actions of the government of that State.
Later in this paper, some of the areas where policy action needs to
be initiated by State governments have been identified. The Central
government can, of course, also help the Northeast; but it must be
clearly understood that in a market-oriented economy the vast powers
of the Centre, acquired under the auspices of the Planning Commission
and a huge public sector, will be curtailed. Therefore, there is an urgent need to reappraise
the role of the Central government in developing the region with the
right degree and intensity in the context of a decentralised liberal
economy. The Central government will play the role of a facilitator
rather than a promoter of development.
The Unbalanced Economy
The development strategy followed by the Centre and the State governments
of the region has created a totally unbalanced economy in the Northeast.
There are differences among the seven States of the region with respect
to their resource endowments, levels of industrialisation as well
as infrastructral facilities. On the whole, all these economies are
underdeveloped agrarian societies with very weak industrial sectors
and inflated service sectors. The industrial sector has mainly developed
around tea, oil and timber (TOT) in Assam, and mining, saw mills and
plywood factories in other parts of the region. The tea plantation
industry employs a large labour force. In Assam alone it accounts
for more than 500,000 workers. State-sponsored industrialisation
whether sugar mills, jute mills, paper mills or food processing units
has not been successful. Small-scale industries have also not
been viable and there is widespread industrial sickness in this sector.
The economy of the region remains primarily agricultural, and the
full potential of this sector has also not been tapped. Primitive
farm practices of slash and burn (jhum)
shifting cultivation in many of the hill areas, and mainly single
crop traditional farming in the plains, continue. As a result, the
region is not even able to produce adequate food grain to feed its
own population. The States of the region import food items worth about
Rs 2,000 to Rs 2,500 crores annually from other parts of the country. Since neither agriculture nor industry has
taken off, the pressure for employment is on the service sector. As
a result, this sector has expanded disproportionately. Because of
low economic activity, the States of the region have wide resource
deficits. Of these limited resources, a large portion is spent mainly
to maintain the service sector. While the national economy is growing
fast after an initial contraction, the economies of the region are
slowing down. Assam, the largest economy in the region, is in a very
critical state, both in agriculture and industry. However, improved
agricultural production and productivity in some pockets of the Northeast
indicate that there is a large untapped potential in agriculture.
Hard and Soft Infrastructure
Almost all the writings concerning the Northeast have mentioned infrastructural
problems faced by the region. A close look at the infrastructural
situation reveals that the region has a mixed level of infrastructure.
Assam, the biggest economy of the region, is not far behind the national
average. The region has about 6 per cent of the national roads and
about 13 per cent of the National Highway. Unfortunately, as a result
of the poor maintenance, the quality of these roads is not very good.
Barring Assam, railways are almost non-existent in other parts of
the region. The position of persons per bed in hospitals is better
in the region than the national average, except for Assam and Tripura.
The number of bank offices has increased in the region, but the credit/deposit
ratio is low, particularly in urban areas. In telecommunications,
some States have made good progress. For example, Mizoram has more
telephone connections per 100,000 population than the national average.
Arunachal is also not very far behind. Tripura and Assam have more
schools per 100 square kilometres than the national average, and Meghalaya
is fast approaching this level, but the remaining States are far behind.
As for the number of teachers per 100 students, all the states are
far ahead of the national average. Nagaland and Manipur have three
times as many teachers per 100 students than the national average.
Clearly, despite a severe infrastructural backlog, the region has relatively
reasonable infrastructure in certain pockets. The Brahmaputra Valley
qualifies as an area with moderate infrastructure. For industrial
development to be more effective, it would be useful if efforts were
concentrated in this area, rather than to thinly spread the limited
resources across all the seven States.
In the area of human resources, the region scores well over most other States
in the country in its relatively high literacy rates. With the exception
of Arunachal Pradesh and Meghalaya, all other States of the region
have literacy rates above the average national literacy rate. Only
Arunachal Pradesh is below the national level for female literacy.
The region has done well in education because of many socio-historical factors
but the importance of the literacy
factor should not be overemphasised. Although Mizoram, Nagaland
and Manipur have higher literacy rates, the largest State Assam
is only at the average national level. The combined literacy
rate of the region is 54.41 per cent, which is slightly above the
all-India figure of 52.21 per cent but below its neighbour, West Bengal,
which has 57.7 per cent literacy. However, the female literacy rate
for the region, at 44.84 per cent, is significantly higher than the
national figure of 39.29 per cent and almost equal to that of West
Bengal. In addition, compared to the general population, Scheduled
Castes are better educated in Arunachal Pradesh and Assam, and Scheduled
Tribes in Mizoram. Literacy rates among scheduled tribes are also
significantly high in all the north-eastern States.
It should be noted, further, that despite having a large educational infrastructure
and better literacy rates in some of the States, the levels of education may not be very high.
There are enough teachers in the Northeast, but many of them are not
trained. Out of a total of 2,66,057 school teachers at all stages
in the region, only 45 per cent of them are trained teachers. The
corresponding figure for the national level is about 87 per cent.
The situation is particularly bad in Assam and Nagaland, where only
about 30 per cent teachers at the higher secondary levels are trained. The large educational infrastructure, both
for lower as well as for higher education, is a strength that should
be maximised by improving its quality. In-service training of teachers
should be a priority area.
State Government Finances
While discussing finances of the Northeast, it has to be kept in mind that
many of the States in the region were created mainly to fulfil the
ethnic, political and cultural aspirations of the people. During the
reorganisation of the States in the Northeast, a pertinent criterion
that the territory in question must have revenue resources
to meet its administrative and other non-development expenditure
was ignored. It was perhaps thought that, with their potentials, particularly
in the areas of agriculture, hydro-electric power, handicrafts, etc.,
these States would be able to achieve financial viability after help
and protection in the initial years. But any form of protection or
subsidy has the tendency to be perceived by economic agents as a permanent
feature of the system. In due course of time, it creates its own network
of beneficiaries and any change in the existing set of rules evokes
Creation of smaller states in the region might have been a sensible policy
from a larger national perspective. But how and when these States
would become financially viable was not clear either to the Central
planners or to the State governments. Decades have passed and the
economies of the region continue to suffer. It seems that both the
Centre and the State governments of the region have accepted the status
quo. The Planning Commission holds routine general discussions
with these States year after year. Because Central assistance has
been assured, they have not made much effort to develop their internal
financial resources. Since the States do not have to raise internal
resources to meet their non-development expenditure, there has been
a tendency to multiply administrative units and employees beyond reasonable
requirements. Their main task seems to be simply to find ways to utilise
Central funds in a routine manner. This sort of financial situation
is neither desirable nor sustainable.
Three major points about government finances in the region are worth noting.
First, an overwhelming portion of the overall receipts comes from
the Centre. Second, the States' own tax revenues are very low, even
negligible in some cases. Third, non-Plan revenue expenditure is high
in most of the States.
The share of gross transfers from the Centre to aggregate disbursements
is the highest in Mizoram where the average for the last 14 years
has been about 88 per cent. The figure for Arunachal Pradesh is about
83 per cent, and in Assam, 69 per cent. In the other States of the
region, the share of gross transfers is around 80 per cent of total
disbursements. The All India average is around 42 per cent.
Devolution and Transfer of Resources
The transfer and devolution of resources from the Centre to the States is
essentially via three channels. First, there are statutory transfers
(comprising tax sharing and grants-in-aid) through Finance Commission
recommendations. Second, there are Plan grants through the Planning
Commission guidelines. The Planning Commission fixes the assistance
to States to carry out their Plans, while the Finance Commission determines
the assistance required for current account budgetary support. There
are also 'discretionary' grants through central ministries, primarily
for centrally sponsored schemes. There are also some indirect channels,
such as loans from the central government and allocation of credit
by financial institutions controlled by the central government.
Between 1990-91 to 1998-99, Assam received about Rs. 250 billion from the
Centre. Both Arunachal and Manipur received about Rs 55 billion each.
Meghalaya received about Rs. 50 billion, and Tripura's share exceeded
Rs. 70 billion. Similarly, figures for the same period for Nagaland
and Mizoram are about Rs. 66 billion and 48 billion respectively.
The total figure for the region for these nine years is about Rs 600
billion. Orissa, which has almost the same population as the Northeast
and is economically even more backward, received only about Rs. 250
billion from the Centre for the same period.
These are gross figures. A portion of that money is also returned to the
Central government as repayment on loans and interest payments. Thus
the cumulative net devolution from the Centre to the Northeast for
the period between 1990-91 and 1998-99 is actually about Rs. 510 billion.
Similarly, while looking at the per capita Central assistance during the
Eighth Plan, Arunachal Pradesh tops the list. Against the national
average of Rs. 1,080, total per capita assistance to the State was
more than Rs. 36,000. Mizoram and Nagaland received Rs. 32,567 and
Rs. 23,177 respectively. This was much more even compared to other
special category States like Himachal Pradesh, Jammu & Kashmir
and Assam, which received Rs. 5,921 and Rs 9,754 and Rs 3,161, respectively.
Per capita assistance to the economically poorest State of India,
Bihar, was only Rs. 876.
Another area where Central assistance needs to be examined is in public
sector activities. The gross block of Central Public Sector Enterprises
(CPSE) worth Rs. 133.18 billion is in the region, mostly in Assam.
This is about 5 per cent of total CPSE assets as well as more than
5 per cent of its employment in India.
As mentioned earlier, the State governments in the region have failed to
develop their own financial resources. The potential areas to broaden
their tax base are sales tax, revenues from irrigation and better
realisation of taxes from power and transport. The growth of non-plan
revenue expenditure has been high in the region, but recently there
has been an effort by some of the States to keep it under control.
It seems that the present financial situation of many Northeast States
is not sustainable even in the medium run. Consequently, either central
funding will have to be increased, which in present circumstances
is neither possible nor desirable; or State expenditures will have
to be reduced, even as greater efforts are made to raise internal
resources. This needs prudent financial management by the States of
the region. Moreover, the time has perhaps come when income tax could
be introduced for tribals in the region.
The need for a balanced, multi-level planning system has always been felt
in systems for planned regional development. The decentralisation
of power and funds to the States and then to local bodies has long
been on the agenda. Central and State governments have relied on the
rhetoric of decentralisation, but have, in reality, resisted it and
undermined any real measures for effective decentralisation.
In the prevailing climate, however, the logical imperatives of economic
liberalisation are decentralisation at the political level and greater
autonomy to investors. Under the new economic policy regime, the States
of the Northeast will be in a better position to manage their own
affairs. They will also have the flexibility to attract investment
and improve their supply responses. However, the States of the Northeast
will have to compete with relatively advanced States that are also
undergoing the same process. The region will have to do a lot of homework,
even as it demonstrates more openness and transparency, as well as
accelerated efforts to attract private investment. Many new opportunities
are opening up, and the crucial question is whether the region will
be able to take advantage of these. Is the Northeast preparing itself
for the new challenges?
There are some positive attitudinal changes both at the Centre as well in
the States. But a great deal remains to be done. It is evident that,
with its existing infrastructure, the region will not be able to support
any major economic activity. To attract international financing for
major infrastructural projects, a radically different approach will
be required. Proposals for such projects need to be formulated according
to criteria that are widely divergent from those submitted in the
past to the Planning Commission. Such proposals would now need to
specify the end user, the maintenance costs and user charges. But
implementation of projects based on market principles is not an easy
task. This is evident from an example in Assam, where farmers are
showing a reluctance to accept a World Bank funded irrigation rehabilitation
project, which requires a part of the cost to be borne by them.
The Role of Private Investment
It must be understood that private capital is a critical component for progress
in the Northeast. Although private capital is no panacea it
is a critical component for economic progress and dynamism. Higher
levels of private investment are essential to generate productive
employment, raise productivity and improve technology and the work
Despite announcements and the appointment of many Commissions, the Centre
is less likely, or has been less able, to increase public expenditure
in order to remove infrastructural bottlenecks. The bulk of capital
that will be required to improve supply responses in the region will
ultimately have to come from private rather than government sources.
Therefore, attracting private capital should be given the highest
priority. Compared to what has been done so far, at least as much
effort should be devoted to this task as is devoted to securing aid
from the Centre.
Fortunately, the general perception that the industry is not keen to invest
in the region is gradually changing. Recent initiatives taken by the
Confederation of Indian Industry (CII), the Bengal Chamber of Commerce
& Industry (BCCI) and the Federation of Indian Chambers of Commerce
& Industry (FICCI) show that the private sector is interested
in the region. BCCI has set up a new Guwahati Chapter and, in 1997, it organised EXPO-Northeast.
FICCI had organised a round table on economic development of the Northeast.
CII earlier suggested a new initiative called SUNRISE (Summit of NE
States for Regional Initiative and Shared Enterprise) to address challenges
of development in the region. It recommended a three dimensional initiative
for overall development of the region. Cultural integration (SUN safaris,
SUN academy, SUN sport), geographical integration (SUN port, SUN route,
SUN river, SUN air); and industrial integration (SUN farms, SUN crafts,
and SUN ventures). Some large industrial houses such as Reliance Industries
have committed major projects, for example the Rs. 40 billion Tengakhat
Gas Cracker Plant, as well as telecommunications projects in the region.
These developments indicate that Indian industry is willing to move
into the Northeast provided attitudes towards business (read 'outsiders')
changed. Certain other fundamental changes would also be necessary
in order to attract private investment and capital to the region.
These are mainly in the areas of land policy, labour laws, and infrastructure
- both hard and soft -, besides the general law and order situation
in the States.
Apart from limited industrial activity in Assam, the region is primarily
agricultural. The initial economic activity, consequently, has to
start from this sector. The present agricultural techniques are very
destructive and relatively unproductive. For a start, the agriculture
of the region must be commercialised. There is a tremendous scope
for tea plantations, horticulture, rubber plantations, floriculture,
sericulture, etc. As it is, the share of cash crops in the total agriculture
production in the region is quite substantial.
With the exception of the Rubber Board, the government departments that
promote such activities have more or less failed in all the States.
These are all highly capital intensive and technical activities and
there is now no choice but to invite private capital into these areas.
However, the present land tenure system in the region is very complex. Apart from Assam, it is difficult to get
land in other Northeast States either on ownership or on lease. In
order to attract private capital, there is an urgent need to look
into land policies.
Any market based economy cannot
grow in a place where there is no genuine market for the basic factor
of production land. There is a realisation now
in the region that the land tenure system among the tribals is responsible
for the slow growth in agriculture. It was also observed in Manipur
that private lands are more developed compared to the community land;
even hill lands under private ownership or management are prosperous. Therefore, major policy actions in the area
of land policy have to be taken by almost all the States. In any new
system, land should be made available to investors for industrial
or agricultural purposes in a transparent manner, either on lease
or on ownership. This would be an important step to remove an important
hurdle in the way of the economic development of the region. Even
in the case of Assam, the issue of non-availability of suitable land
(in terms of size and location) for setting up industries has been
pointed out repeatedly by the Dinesh Goswami Report (1988), L.C. Jain
Report (1990) and Cooper & Lybrand Report (1995).
Another important issue related to economic development in the region is
labour. It has to be understood
that the Northeastern region is a labour scarce economy rather than
a labour surplus economy. This is perhaps one of the main reasons
for the failure of the various labour intensive government schemes
in the areas of animal husbandry, fisheries, the Jawahar Rozgar Yojana,
etc. Despite all the talk of outsider invasion, labour (both skilled
and unskilled) is a big problem in the region with the possible exception
of the Brahmaputra Valley and Tripura. Already outside labour (mainly
from Bangladesh, Myanmar and other parts of India) is a crucial factor
in both agricultural as well as non-agricultural activities of the
Discussions with local entrepreneurs revealed that, with an increase in
economic activities, the problem of labour shortage is expected to
be aggravated. Unless the region is opened up for outside labour,
economic development is going to suffer. Labour, however, is a highly
sensitive issue; the States are afraid of a repeat of what happened
in Tripura, where tribals have become a minority. For the economic
development of the region, it is imperative to evolve a tolerant labour
policy. Policy makers of the region are aware of the problem but do
not accept it officially for obvious reasons. Unofficially, however,
some States have already started an exercise to deal with the problem
and are considering a control mechanism to allay tribal apprehensions
of an influx of outsiders. It is clear, however, that the labour policy
has to become more open if the Northeast really wishes to take advantage
of new opportunities.
Infrastructural Improvement - The Necessity of Power
Another major problem in the region is infrastructure, particularly power.
Every study on the Northeast has highlighted the problem of infrastructure
in the region. The S.P. Shukla Commission, which was set up mainly
to look into infrastructural gaps in the region, averred that infrastructural
requirements for the region are in the tune of Rs 936 billion. The
Commission estimated the requirements for the Ninth Plan period at
about Rs 180 billion. However,
of the total estimates, more than Rs 600 billion are for the power
sector alone. This is the critical sector. All the States in the region
except Meghalaya face a shortage of power. Ironically, the north east
region has a huge reserve hydro-electric potential estimated
to be between 30,000 and 40,0000 MW. Arunachal Pradesh claims that
it alone has a potential of about 30,000 MW, of which only 25 MW has
been harnessed so far. If only a portion of the hydro electric potential
is realised, the region can become attractive to investors. Obviously,
this is one area where foreign investment can be readily attracted.
Today more than fifteen new power projects, including those in the
private sector, are at different stages of implementation. Project
reports for the Lower Kopili and Tipaimukh projects are also ready.
Twenty-seven other projects are under investigation. All these projects
would require an investment of about Rs 400 billion. Ogden Energy
of the US has signed a letter of understanding with the Assam government
for exploring various possibilities of setting up power projects in
the State. The company has also shown interest in taking the Bongaigaon
Thermal power Station on lease for its renovation and upgradation.
If things go as planned, the power situation is likely to be eased. But
for the next five to ten years, power will remain a major problem
in the region, a factor that no investor can ignore. Radical changes in the thinking of different Central ministries as
well as local politicians are required to remedy this situation. Otherwise
the region will, in the foreseeable future, have to import power from
Bangladesh or elsewhere, even to meet its domestic consumption.
Law and order
The Northeast is the land of the oldest insurgency in independent India.
The last few decades have seen the emergence of a number of new insurgent
movements. Many of these have faded out, but several groups are still
active and continue to spill blood. Frequent bandhs
and economic blockades by various groups are another critical irritant.
A project report on bandhs in Assam reveals that 73 bandhs
were called by different organisations between June 1997 and May 1998. Bandhs
are not only called by insurgent organisations, but also by all political
parties including the ruling Asom Gana Parisad (AGP), the Bharatiya
Janata Party (BJP) and the Congress (I). A bandh
call for twelve hours was the most common, called 36 times during
the period June 1997 to May 1998. However, longer duration bandhs
for 36 or 48 hours were also frequent. An estimated
loss in State domestic product due to bandhs amounts to as much as Rs. 447.9
million per day. The total
loss due to bandhs between
June 1997 and May 1998 was Rs. 12.55 billion.
Another aspect of the unrest in the region relates to the fear of extortion,
kidnapping and killings of businessmen, who have lived under such
threats for decades now. To survive, almost every industry or business,
big or small, in most parts of the Northeast, makes regular contributions
to different underground groups call it extortion, ransom or
protection money. There are reports that even public sector units
and government employees in many of the States also pay. The episode
of allegations and eventual legal action against the tea industry
for funding militants acted as a further deterrent to possible
investors for two reasons. First, it has made the fact widely known
to potential investors that payment to militants is the rule in the
region. If large, respected companies like the Tatas could not operate
without paying some kind of protection money, no other company is
likely to have any faith in the governments' announcements that they
would provide a safe and secure environment to investors. Second,
it has made the task much more difficult for the companies that are
already operating in the region. Multinational companies that were
planning to enter the region, particularly in the power sector and
oil exploration, may now think twice, since they find it much more
difficult to 'buy peace' with the militants.
The Central and State governments in the region have announced many tax
incentives. However, the 'insurgency tax' is one of the biggest disincentives
to investment in the region. Serious efforts to end the insurgencies
in the region are, consequently, critical to an economic transformation,
and would be much more meaningful than the announcements of numerous
schemes and incentives for economic development.
Another area where radical policy action is needed is the external sector.
For long, it has been argued that the disadvantageous geographical
situation of the Northeast region is one of the main stumbling blocks
for its economic development. This isolated, landlocked region shares
less than 2 per cent of its borders with the rest of the country,
and the rest with Bhutan, Bangladesh, Myanmar and the Tibetan region
of China. For the most part, this international border has been artificially
created. The result has been the elimination of the region's trade,
commerce and other linkages that existed in pre-Partition days. Using
the region's two per cent perimeter as a major linkage point with
the rest of India, and at the same time checking the inflow of goods
and people from across the remaining 98 per cent, has been both a
gigantic task and quite counter-productive.
Lately, there has been talk of converting this locational disadvantage into
a boon because of an increasingly integrated world economy. This is
particularly so when all the seven States of the region are on international
borders. In addition, these States are very close to the dynamic Southeast
and East Asian economies.
Most policy makers in the region are excited and optimistic about the idea
of linking their economies with dynamic Asia. There are even suggestions
that if, for security reasons, the Government of India is reluctant
to open up the natural trade routes, the Northeast States should ask
the Central government to compensate them for the loss of trade.
It is imperative to develop a coherent policy perspective on this issue.
The current situation not only represents a failure of the economic
policy framework in the region, but also a weakness of country's foreign
policy, which has ignored Southeast Asia for a long time. As a result,
the Northeast region was not only cut off from its natural economic
partners but also encircled by unfriendly countries.
So far the major border trade activity of the region with Bangladesh and
Myanmar is 'unauthorised trade'. The State authorities are fully aware
of these activities, which function smoothly through unofficial channels.
China is an important player in the border trade even though its trading
activities are mainly through Myanmar.
The major policy issue, therefore, would be to synchronise these realities
with Indian trade policies. In fact, to transform this low economic
activity area into a dynamic region in the next ten to fifteen years,
a co-ordinated effort by different Central ministries mainly
External Affairs, Home, Finance and Commerce as well as a strong
commitment from each of the Northeast States is needed. With a well
thought-out long-term policy, this region has the potential to emerge
as a strategic base for domestic and foreign investors to tap the
potential of contiguous markets of China, Myanmar, Bangladesh, Laos,
Thailand, Vietnam, Cambodia as well as Malaysia, Indonesia and beyond.
To begin with, the emphasis should be on creating conditions, both at the
policy level and at the ground level, on converting the unauthorised
trade into authorised trade. This is not a simple task. The genuine
trader will have many practical problems. Unauthorised trade works
on the basis of a strong network which involves traders, the police,
forest departments and, of course, many underground groups - and each
has its own share in the pie. Apart from infrastructural problems
at Moreh, the large number of checkposts on National Highways 39 and
53 would create a problem in switching over from illegal to legal
trade. Traders claim that the expenditure on transportation from Moreh
to Dimapur is about Rs 50,000 per truck, which includes hire charges,
payments to various underground groups, and money paid to almost every
police and forest checkpost. Similarly, transport expenditure from Imphal
to Guwahati is more than Rs 35,000 per truck. The main reason is that
the commodities that are coming from the border are not legal. The
list of items agreed by the governments of India and Myanmar is not
of much use to traders. However, even if the products were legal,
the usual 'tax' would still need to be paid at every checkpoint.
In most cases, the State governments turn a blind eye to the border trade
in illegal items because it creates a lot of economic activity in
the region. But, since these commodities are not officially declared
legal, there is corruption at every turn. It would be a good idea
to declare certain areas in the region as Free Trade Areas officially
since, for all practical purposes, they are free trade areas anyway.
After designating these areas as Free Trade Areas and creating a minimum
infrastructure, the second major step could be to devise an aggressive
strategy to form a Growth Triangle or Quadrangle involving neighbouring
regions. Some scholars had previously emphasised the idea of the "Bay
of Bengal Growth Triangle". It was proposed to have joint studies and
co-ordinated investment plans to tap the natural resources of the
region that includes the eastern and north eastern States of India,
Bangladesh, Nepal, Bhutan and possibly Myanmar. But, with the signing
of the Bangladesh-India-Myanmar-Sri Lanka-Thailand Economic Co-operation
(BIMST-EC) agreement, the focus has shifted to this forum.
While keeping the interests of India's Northeast in mind, some inter-related
steps could also be taken to create a growth quadrangle involving
Northeastern India, northern Myanamar, south-west China, northern Thailand and Bangladesh. In August 1999, the "Kunming Initiative"
to promote a growth quadrangle between India, China, Myanmar and Bangladesh
was launched at an international conference in Kunming, the Capital
of the Yunnan province of China. The conference resolved to establish
a Forum for Regional Co-operation between China, India, Myanmar and
Bangladesh through interaction among academics, governments and leaders
of business and industry. The basic objective of the conference was
to strengthen regional economic co-operation among contiguous regions
of eastern / north eastern India, Bangladesh, China and Myanmar. It was agreed that regional co-operation
"should be guided by the Five Principles of Peaceful Coexistence,
emphasising equality and mutual benefit, sustainable development,
comparative advantages, adoption of international standards, and infrastructure
development in order to enhance connectivity and facilitate the widest
possible economic co-operation". In this way, in the long run, the vision
of making India's Northeast a partner in a wider cross-border Brahmaputra-Yangtze-Mekong
quadrant can be realised.
The present economic policy framework for the Northeast region is based
on its political economy and a cultural approach, adjusted with a
regional planning model. It is implemented mainly through the Planning
Commission and the Northeast Council. Despite huge financial investments,
this has failed to produce desired results. Further, this is an inappropriate
structure to deal with the challenges created by the process of liberalisation/globalisation
of the economy. A new policy framework for the region will have to
be based on the market approach (although certain political and cultural
factors cannot be ignored altogether). If the correct policies are
pursued, the region will be able to improve its economy. Under a new
economic strategy, private investment should be viewed as the critical
component. But, first of all, the region has to become investor-friendly.
To encourage private investment, policy makers have to focus on infrastructure
(both hard and soft), land and labour policies and substantial improvements
in the law and order situation. Secondly, the geographical proximity
of the region to the dynamic Southeast Asian economies can be utilised
if bold policies are initiated both by the Centre as well as by the
State governments. These policies can include:
converting unauthorised trade
activities into authorised trade, both at the policy level and at
the ground level;
declaring certain areas of
the Northeast Region as Free Trade Areas officially; and an aggressive
strategy for creating a growth quadrangle involving India's Northeast,
Myanmar, south west China, northern Thailand and Bangladesh.
Removal of Restricted Area
Permit and Inner Line Regulations would also help in the integration
of the Northeast with the Indian and global economy. With Myanmar
becoming a member of the Association of South East Asian Nations (ASEAN),
a common market of 500 million consumers is at the doorstep of the
Assam is the key to the development
of the Northeast; within Assam, priority should be given to modernise
its agriculture. Given the rich natural resource base there is considerable
scope for increasing agricultural growth. This could be done by improving
the cropping intensity, extending dry season farming through irrigation
and diversifying into other areas like horticulture, fisheries, and