India’s chances at achieving economic growth will increase manifold if the resources offered by its northeastern states are utilized wisely, write Pravakar Sahoo and Abhirup Bhunia
The northeastern region of India occupies eight per cent of the country’s geographical expanse, and is home to about four per cent of its vast population. The Planning Commission poverty estimates a few years ago, based on the Tendulkar Committee’s report on the poverty line, suggest that poverty in the northeastern region seems not to have gone down; rather, it has increased. Nagaland, Manipur, Mizoram, Assam and Meghalaya, in fact, registered increases in poverty by 12.1 per cent, 9.2 per cent, 5.7 per cent, 3.5 per cent and 1 per cent respectively. However, in spite of all odds, the Northeast is not doing badly — it is, in fact, doing better than many states — as far as industry is concerned. For instance, the average state gross domestic product growth rates in the industrial sector for the 2012-13 financial year in Tripura, Sikkim, Nagaland, Mizoram, Meghalaya, Manipur, Arunachal Pradesh and Assam were 2.75 per cent, 6.74 per cent, 6.57 per cent, 4.28 per cent, 5.76 per cent, 5.33 per cent, 6.71 per cent and 3.34 per cent respectively, compared to an all-India average of growth below below one per cent. Specific areas, such as physical infrastructure (mainly transport) and power, will help tap the huge development potential of the Northeast and help its integration with mainland India.
Going by factor endowments, the northeastern region is a primary goods exporter; the goods are tea, coal, fruits, rubber and so on. The manufacturing sector needs to be built around these sectors, in addition to opening up opportunities for trade with Myanmar, Bangladesh and other neighbouring countries, as well as the east Asian countries, in order to exploit these factor endowments. The region’s share in the total exports of India is negligible, as is its trade with the rest of India. This is also reflective of a trifling participation of manufactured goods. Both the lack of a market and a constrained supply chain — reasons for the poor state of affairs in the Northeast — can be somewhat rectified by building infrastructure.
The Narendra Modi-led government at the Centre, in keeping with its pre-poll promises of taking care of the needs of the Northeast, made allocations of Rs 53,706 crore in the interim budget earlier this year for the region, mostly focusing on the infrastructure sector. This, however, is not a Northeast-specific attribute of the government’s economic policy, as Arun Jaitley’s focus on infrastructure spreads throughout India. While the Northeast is essentially landlocked, air connectivity and rail networks are limited, partly owing to the hilly terrain and its associated difficulties. There is a very nominal presence of railway lines in Arunachal Pradesh, Manipur, Meghalaya and Mizoram. From 1990 to 2010, the entire railway network in the Northeast increased from 3,846 kms to 4,253 kms. This reflects a tardy building pace of only 20 kms per year. In this context, the new government allocated Rs 1,000 crore, in addition to the amount already provided in the interim budget, for rail connectivity. Further, the rail budget earmarks Rs 5,116 crore for various projects in the Northeast. But plans are afoot to put the region firmly on the Indian railways map, and it remains to be seen whether work will pick up.
Meanwhile, roughly eight per cent of the total Rs 37,880 crore allocations to the National Highway Authority of India and state roads also went to the Northeast. This is important as roads are a reasonable means of transport, but also a more viable option in the region. Once these plans for roads are implemented, the infrastructural bottlenecks hindering trade will be smoothened out, and this will attract investments to the region. In turn, these investments should help build up reliable supply chains — mostly agriculture-industry based — over time. The development of cold-chain storages supported by improved electricity supply is also expected, preferably through both state and private sector participation. Better physical infrastructure will also unlock trade potentials with neighbouring countries in the east, with whom the Northeast shares more than 90 per cent of its borders.
Crucially, infrastructure development will help the northeastern region develop its agro-industry and food processing sectors, which are hindered owing to the lack of connectivity as well as power shortages, among other things. The Indian food processing industry, which is mostly export-oriented, is expected to be worth $ 194 billion by 2015. The northeastern region’s agrarian strengths make it an ideal place for the development and expansion of export-oriented agro-based industries. The sector’s labour intensity also reflects the potential to provide gainful employment to many. Improving infrastructure, apart from its own set of benefits, will help bring in investments, raise productivity, aid in modernization and provide jobs to people, and the benefits will eventually spill over to the wider economy. The potential is particularly strong in fruits like oranges and pineapples, and also in foodgrains, mainly rice (picture).
With the initiation of the North East Industrial and Investment Promotion Policy, the Central government practically made the entire Northeast a special economic zone in 2007, providing major incentives to investors, including 100 per cent tax exemptions and duty cuts, capital subsidies of up to 30 per cent and even insurance reimbursements. But private investment has so far been elusive, mainly due to the lack of quality infrastructure. This is what the current budget, much like the earlier ones, hopes to reverse in some ways.
The power sector provides immense potential for the northeastern region. If the resources available are properly developed, the region will not only be able to export power, but, over time, will also end up attracting investments in the kind of manufacturing in which uninterrupted electricity supply is essential. The estimated hydropower generation potential of the Northeast is huge, but capacity development is woefully short of potential. For example, capacity development in Arunachal Pradesh and Meghalaya is only 10 per cent and 13 per cent of the existing potential. The Planning Commission had estimated that the northeastern region could earn as much as Rs 679 crores annually courtesy hydropower generation. But, that potential revenue is lost owing to lacklustre power generation. The present government’s policy includes the prioritization of power generation projects, and it comes as no surprise that procedures and clearances are being fast-tracked. It has also been said that foreign direct investment will be needed to develop the existing water resources in the northeastern region (which makes up more than 40 per cent of the water resources found in India). But foreign investors, whether in the power sector or elsewhere, are likely to respond to such calls only when the basic infrastructure is in place, and also when political instability, conflict and violence are curbed. It remains to be seen whether the prime minister is capable of addressing the trickier political problems plaguing the Northeast as well. Just like the proof of the pudding is in the eating, the proof of economic policies is in their implementation.
Curbing electricity shortages might not suddenly start a gold rush of investments, but providing stable electricity to countless homes is a developmental achievement in its own. Also, while most of the natural resources in the northeastern region are, at present, used internally, power generation to its full potential will ensure that the region has enough power to export to power-starved Bangladesh and Myanmar. The region’s geographical location and factor endowments provide it with unique economic opportunities. To make the best out of existing strengths, building domestic infrastructure is a good place to start.
P. Sahoo is Associate Professor and A. Bhunia is researcher at the Institute of Economic Growth, Delhi University
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