Mr. Sachdeva
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.
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. [1]
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 categorized 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, [2] 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
emphasized. The cultural approach, however,
focuses on the socially constructed
character of economic organization, 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. [3] 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 centers, as well as freight
equalization 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. [4] 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. [5]
It can, therefore, be argued that, although
some developmental changes have taken place
in the region, [6] 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 labor 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
failed.
Changes have taken place over time on the
cultural side as well. In today's
North-East, 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 liberalized 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 labor 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 atomized 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 labor
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-labor ratio will have higher per
capita income growth rates. [7] 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
equalization 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 equalization of their income
and employment levels. However, regions
differ in their ability to respond to
external stimuli, due partly to differences
in elasticities of supply.
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 liberalized 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. [8] 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 decentralized liberal economy. The Central
government will play the role of a
facilitator rather than a promoter of
development. [9]
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 industrialization as
well as infrastructural 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
labor force. In Assam alone it accounts for
more than 500,000 workers. [10]
State-sponsored industrialization — 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. [11] 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 kilometers 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 overemphasized. 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
neighbor, 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. [12]
The large educational infrastructure, both
for lower as well as for higher education,
is a strength that should be maximized 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
fulfill the ethnic, political and cultural
aspirations of the people. During the
reorganization 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 strong
resistance.
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.
[13] 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 utilize 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. [14]
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. [15]
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. [16]
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. [17]
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
realization 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.
New Challenges
The need for a balanced, multi-level
planning system has always been felt in
systems for planned regional development.
The decentralization 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
decentralization, but have, in reality,
resisted it and undermined any real measures
for effective decentralization.
In the prevailing climate, however, the
logical imperatives of economic
liberalization are decentralization 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. [18]
The Role of Private
Investment
It must be understood that private capital
is a critical component for progress in the
Northeast. [19] 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 culture.
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 [20] and, in
1997, it organized EXPO-Northeast. FICCI had
organized 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. [21] 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,
labor laws, and infrastructure - both hard
and soft -, besides the general law and
order situation in the States.
Land Policy
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
commercialized. 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. [22] 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 realization 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. [23] 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). [24]
Labor Policy
Another important issue related to economic
development in the region is labor. It has
to be understood that the Northeastern
region is a labor scarce economy rather than
a labor surplus economy. This is perhaps one
of the main reasons for the failure of the
various labor intensive government schemes
in the areas of animal husbandry, fisheries,
the Jawahar Rozgar Yojana, etc. Despite all
the talk of outsider invasion, labor (both
skilled and unskilled) is a big problem in
the region with the possible exception of
the Brahmaputra Valley and Tripura. Already
outside labor (mainly from Bangladesh,
Myanmar and other parts of India) is a
crucial factor in both agricultural as well
as non-agricultural activities of the
region.
Discussions with local entrepreneurs
revealed that, with an increase in economic
activities, the problem of labor shortage is
expected to be aggravated. Unless the region
is opened up for outside labor, economic
development is going to suffer. Labor,
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 labor 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.
[25] It is clear, however, that the labor
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. [26] 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 realized, 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. [27]
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. [28]
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.
[29] 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 organizations between June 1997
and May 1998. [30] Bandhs are not only
called by insurgent organizations, 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. [31]
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 [32] 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.
Geographical
Advantage
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. [33]
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 [34] but also
encircled by unfriendly countries.
So far the major border trade activity of
the region with Bangladesh and Myanmar is
'unauthorized 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 synchronize 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
coordinated 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 unauthorized trade into authorized
trade. This is not a simple task. The
genuine trader will have many practical
problems. Unauthorized 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 check posts 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. [35]
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 neighboring
regions. Some scholars had previously
emphasized the idea of the "Bay of Bengal
Growth Triangle". [36] It was proposed to
have joint studies and coordinated
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 Myanmar, south-west China, [37]
northern Thailand and Bangladesh. [38] 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. [39] It was agreed that regional
co-operation "should be guided by the Five
Principles of Peaceful Coexistence,
emphasizing 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".
[40] 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
realized. [41]
Conclusions
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 liberalization/globalization 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 labor 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 utilized if
bold policies are initiated both by the
Centre as well as by the State governments.
These policies can include:
* converting unauthorized trade activities
into authorized 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 Northeast.
* Assam is the key to the development of the
Northeast; within Assam, priority should be
given to modernize 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 dairy
production.
--------------------------------------------------------------------------------
[1]. For a detailed description of the
region's ethnic, cultural and religious
diversity see mainly R. Gopalakrishnan, The
Northeast India: Land, Economy and People,
New Delhi: Vikas, 1991; and B.G. Verghese,
India's Northeast Resurgent: Ethnicity,
Insurgency, Governance and Development, New
Delhi: Konark, 1996.
[2]. These special historical and
geographical aspects of the region as well
as background of special constitutional
arrangements are summarized by L. P. Singh,
"Problem The Northeast: A Symposium on the
Problem of Neglected People and Region",
Seminar, New Delhi, No.366, February 1990,
pp.12-18.
[3]. In his “Foreword” to the second edition
of Elwin Verrier’s A Philosophy for Nefa,
Shillong, 1959, Prime Minister Jawaharlal
Nehru wrote that "avenues of development
(for tribal areas) should be pursued within
the broad framework of the following five
fundamental principles:
i. People should develop along the lines of
their own genius and we should avoid
imposing anything on them. We should try to
encourage in every way their own traditional
art and culture.
ii. Tribal rights in land and forests should
be respected
iii. We should try to train and build up a
team of their own people to do the work of
administration and development. Some
technical personnel from outside will, no
doubt, be needed, especially in the
beginning. But we should avoid introducing
too many outsiders into tribal territory.
iv. We should not over-administer these
areas or overwhelm them with a multiplicity
of schemes. We should rather work through,
and not in rivalry to, their own social and
cultural institutions.
v. We should judge results, not by
statistics or the amount of money spent, but
the quality of human character that is
evolved."
[4]. See Arvind K. Sharma, "District
Councils in the Northeast", in T. N.
Chaturvedi, ed., Fifty Years of Indian
Administration: Retrospect and Prospect, New
Delhi: Indian Institute of Public
Administration, 1998.
[5]. See, Ajai Sahni, “The Terrorist Economy
in India's Northeast: Preliminary
Explorations”, Paper presented at the ICSSR
Seminar, Terrorism: An Unending Malaise, New
Delhi, March 2-3, 2000.
[6]. For major changes which have taken
place in the region see, B. P. Singh, The
Problem of Change: A Study of Northeast
India, Delhi: Oxford, 1987.
[7]. See Paul Cashin and Ratna Sahay,
"Regional Economic Growth and Convergence in
India" Finance and Development, March 1996.
[8]. See Chapter 2, "Liberalisation and the
Changing Roles of Centre and the States" in,
Raja J. Chelliah, Towards Sustainable Growth
Essays in Fiscal and Financial Sector
Reforms in India, New Delhi: Oxford, 1996,
pp.19-45.
[9]. The recommendations of the conference
of the Ministers of Industries of the
Northeastern States held at Guwahati on 30
November 1996 the region, however, looks the
problem in a different way. They mainly
argued for a 'promotional approach, with
substantial grants from the central
government'.
[10]. Government of Assam, Directorate of
Economics and Statistics, Statistical Hand
Book of Assam 1994, Guwahati, 1994, p.120.
[11]. This is according to the Report of the
Committee for Educated Unemployed in the
Northeastern Region, 1997, p.11.
[12]. NCERT, Sixth All India Educational
Survey, Vol. VII, New Delhi, 1998.
[13]. These points are also raised by L. P.
Singh, "National Policy for the Northeast",
in Upendra Baxi, Alice Jacob and Tarlok
Singh, eds, Reconstructing the Republic, New
Delhi: Har-Anand, 1999.
[14]. Author's calculations based on various
Reserve Bank of India Publications.
[15]. For details see, Gulshan Sachdeva,
Economy of the Northeast: Policy, Present
Conditions and Future Possibilities, New
Delhi: Konark, 2000.
[16]. Parliament Questions, February 21,
1997.
[17]. Public Enterprise Survey, 1995-96.
[18]. Assam Tribune, Guwahati, June 6, 1997.
[19]. While inaugurating a Round Table on
economic development of Northeastern states,
the then Finance Minister, Dr. Manmohan
Singh, also stressed the need to involve the
private sector in the process of development
of this region. See Press Release by FICCI,
4 July 1995. Atul Sarma, however, is
skeptical about the role the private sector
can play in the region. See, Atul Sarma,
Development Strategy in the Northeast in the
Context of Globalization, mimeo. He argues
that "having lagged behind in terms of the
level and quality of administrative, social
and economic infrastructure, these States
are not likely to benefit immediately from
private investment flows in the new regime.
Being placed as they are, the role of the
public sector in these economies has to be
much greater." p.15.
[20]. Bengal Chamber of Commerce and
Industry, News Letter, January 13, 1997.
[21]. Confederation of Indian Industries,
SUNRISE: Heralding A New Dawn, A
Presentation to North Eastern States,
Guwahati: CII, August 1995.
[22]. For details see Table 7.2, in Sachdeva,
Economy of the Northeast, op. cit, pp.
213-14.
[23]. See Foundation for Environment and
Economic Services (FEEDS) and Institute of
People's Action (IPA), Shifting Cultivation:
Tea Cultivation As An Alternative: A Report,
Imphal: FEEDS–IPA, 1997.
[24]. Cf. Report of the Advisory Committee
on Industry, Vol 1, Dispur: Government of
Assam. p. 9. Jayanta Madhab headed the
Committee.
[25]. See “Appendix 1”, in Meghalaya
Economic Development Council, Outline
Proposal for the Meghalaya Economic Policy,
Shillong: EDC Group, 1995.
[26]. Transforming The Northeast: Tackling
Backlogs in Basic Minimum Services and
Infrastructural Need, High Level Commission
Report to the Prime Minister, New Delhi:
Planning Commission, 1997, pp. 8-9
[27]. Assam Tribune, June 4, 1997.
[28]. Asian Development Bank is already
looking at the possibility of importing
power in Tripura and Mizoram from
Bangladesh. See Times of India, New Delhi,
June 12, 1997.
[29]. For details about different insurgent
groups active in the region as well as all
aspects of Northeastern insurgency see
mainly Sanjoy Hazarika, Strangers of the
Mist: Tales of War and Peace From India's
Northeast, New Delhi: Viking, 1994 and Ved
Marwah, Uncivil Wars: Pathology of Terrorism
in India, Delhi: Harper Collins, 1995,
pp.224-316.
[30]. North Eastern Development Finance
Corporation, A Project Report on Bandhs in
Assam. Guwahati: NEDF, 1999.
[31]. Ibid.
[32]. For details about allegations of Tata
Tea funding ULFA militants see cover stories
of India Today, New Delhi, October 20, 1997
and Business India, New Delhi, October 20,
1997.
[33]. Report of the Committee on Industry,
op. cit p.6.
[34]. To understand how partition of the
country has affected negatively the
traditional trade and economic links of the
Northeast see, Hazarika, Strangers of the
Mist, op. cit, pp.257-260.
[35]. For details see, Table 5.3, in
Sachdeva, Economy of the Northeast, op. cit,
pp. 155-57.
[36]. Centre for Policy Research,
Indo-Bangladesh Dialogue: Economic and Trade
Cooperation, New Delhi, 1995.
[37]. South-West China includes Yunnan
Province, Sichuan Province, Chongqing
Municipality and Guizhou Province.
[38]. For details see, Gulshan Sachdeva,
"India-China Economic Cooperation in a
Growth Quadrangle" in, Kanti Bajpai and
Amitabh Matto, eds, The Peacock and the
Dragon: India-China Relations in the 21st
Century, New Delhi: Har-Anand, 2000.
[39]. See, Che Zhimin, Proposition on
Formation of Sub-Regional Zone of China,
India, Myanmar and Bangladesh, mimeo, 1988.
[40]. The Kunming Initiative, August 17,
1999. This declaration is the outcome of an
International conference to promote growth
quadrangle between India, China, Myanmar and
Bangladesh held in Kunming, Yunnan from
August 14 to 17, 1999. Apart from scholars
from all four countries, China and Myanmar
were officially represented in the
conference.
[41]. For details of this argument see
Verghese, India's Northeast Resurgent, op.
cit, especially chapter Seventeen of the
book.
*** The
article was originally published at
www.satp.org
affiliated to the Institute for Conflict
Management.***
Dr Gulshan Sachdeva did his Ph.D. in
Economic Science from the Hungarian Academy
of Sciences, Budapest, and is Assistant
Professor at the School of International
Studies, Jawaharlal Nehru University, New
Delhi. Earlier he was Assistant Research
Professor at the Center for Policy Research,
New Delhi. He has written many research
papers in national and international
journals as well as in several edited
compilations, and is the author of the book,
The Economy of the Northeast: Policy,
Present Conditions and Future Possibilities,
New Delhi: Konark Publishers, 2000.
*** The article has been published with due
permission from the Institute for Conflict
Management (ICM).
*** You
may visit
www.satp.org for further
readings. |
