Remove Obstacles To Implement `Look East` For Trade, Prosperity

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Review of the book

By Anil Bhat
Considering the geo-strategic importance of India’s vast north eastern region (NER), now comprising eight states and sharing borders with four countries, its scenic beauty, its valuable natural resources etc, it is baffling as to why nation’s decision makers remained lackadaisical about its development for half a century at least.

The British developed road and rail communications in this region mainly to exploit at least three major resources viz., oil, timber and tea. Whatever air communications infrastructure they developed was what they needed for deployment of Allied tr/ops in World War II. For about five decades after Independence, not much was done to develop and meaningfully integrate a region, whose people comprised various communities, culturally and ethnically varying from those of the Indian mainland, but quite talented, nonetheless.

This collection of articles analyses the potential of the North East Indian economy, discussing ways in which it can be reconnected to the mainstream economic activities of India. Analysing the historical factors responsible for the economic failure of NER-the partition in 1947, weak infrastructure, lack of technological know-how and poor access to marketing networks-it assesses the region’s present production scenario.

The chapters discuss comparative advantages of the NER economy in the competitive environment of the Indian mainland with reference to its export potential, cost of production and demand-supply relations. They also present a comprehensive data set explaining the value chain analysis on the North East map and a visual model measuring the development capacity of North East firms.

It becomes clear as one reads the book that the potential of the North East region has not even been scratched as compared to the economic development that is possible. The “Look East” policy of the central government has often laid out policies and offered stimulus for growth in the area, but the emerging markets are nowhere near realizing their true development prospects.

With regards to economic governance in the North East, M. Govinda Rao, one of the contributors, is of the view that growth acceleration in most of the north eastern states needs structural changes in their economies. In most of the states economies are based on income from public administration constitutes as a major source and the government sector dominates the economy. Acceleration of the economic growth will have to come from agriculture, manufacturing and non-government service sectors thus creating a friendly environment for private investment in productive sectors.

A lot of work has to be done with the Ministry of development of the NER (DONER), the Planning Commission, the Ministry of Finance, the Ministry of commerce to ensure there is enough knowledge and support for an initiative. Rao concludes that the north east suffers from a rent- seeking culture where institutional resistance to new trade technology and opposition to outside private investment is still prevalent. The way forward is to expose the north east to the competition of international value chains with technology support, institution strengthening and policy change. So, it is important to mobilize the motivated business community and pro-reform government sections to escape the subsidy mentality, and to help them succeed with a do-it-yourself mentality he said.

The States in the NER comprising Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Tripura and since some years Sikkim too, are endowed with rich natural resources such as oil, natural gas, limestone, coal, other minerals and nearly one-third of the country’s hydro power potential (84,000 MW). With such amazing natural resources at their beck and call it is indeed surprising that the states are still considered economically backward for lack of exploitation of these resources.

The Region, however, is yet to experience industrial development on a scale achieved by other regions of the country. Reasons are not far to seek as per the government. Large infrastructure deficiency, basic service backlog, high educated unemployment and fluid law and order situation has crippled economic development initiatives in the region.

Remove Obstacles To Implement `Look East` Policy For Trade, Prosperity
Political Map Of India, showing nieghbouring countries bordering the North Eastern Part of India: Photo coutesy: wikipedia

For historical reasons and also for the reasons mentioned above, the NER has lacked entrepreneurial success stories in the past. But in the recent years, a new breed of entrepreneurial class is emerging, who are well educated and well informed and who want to do something on their own. Hence, the need for a regional development financial institution having grass root knowledge of the region was felt so that financial assistance as well as professional guidance can be provided to the local entrepreneurs. It was also felt that a special financial institution would go a long way in solving some of the problems mentioned above, if not all.

The then Finance Minister, Dr. Manmohan Singh, in his budget speech for the year 1995-96 announced setting up of a development bank for the North East Region. The North Eastern Development Finance Corporation Ltd. (NEDFi) was incorporated under the Companies Act, 1956, on August 9, 1995 with its registered office at Guwahati, Assam. The Corporation was formally inaugurated by the then Prime Minister P.V. Narashima Rao on February 23, 1996.

The government continues to give economic growth its support. The North Eastern Development Finance Corporation Ltd. (NEDFC) continues to act as the nodal agency for disbursal of subsidies under NEIIPP, 2007. Incentives are being extended to service sectors and other sectors like biotechnology and power generation besides the manufacturing sector. It is now up to the local population to turn their respective cities and towns into growth centers that can reap the benefit of all the incentives being offered by the central government.

The integrated value chain analysis of bamboo, pineapple and rubber covered in the second appendix of the book provide us with a key understanding of the problem areas and the possible interventions that can make the businesses work. One of the primary concerns is the law and order situation which makes logistics and transportation a problem, affecting the entire manufacturing and supply chain.

The main contributor to the book is Hans-Peter Brunner, who has been working with the Asian Development Bank (ADB) since December 1995. A doctorate from the University of Maryland, College Park, he has taught economics at universities in Germany during 1991-95. He is a consultant to various international organizations and government institutes like the EU, World Bank, Science Center Berlin and US A.I.D.

Brunner has brought out many interesting facts in the book. A few of these include the fact that Assam accounts for slightly less than half of the total crude oil production, 52% of tea output and 55% of plywood production in the country. Assam has a severe flooding problem during the monsoon season which leads to substantial agricultural loses for the farming community.

Another contributor to the book, Amitabh Kundu says that accelerating the NER economy requires a significant rise in competition. This will result in higher economic growth with increase in employment. North East is a closed, non-diverse economy with low efficiency.

The Brahmaputra river’s role in the economy needs to be fully grasped and exploited so that it can become an asset rather than a liability. There is an absence of small market towns that can afford commercial farmers ventilation for their produce. The number of bank branches in the area indicates low level of commercial and financial penetration.

Another fact is that the eight states are homogenous regarding population size and area, Arunachal being the exception, which is large but sparsely populated because of the sub Himalayan topography. The female literacy rates are quite high in the NES. The trouble is with all the resources at their fingertips the states of the north east are unable to reach their true economic potential due to the uncertainty of the law and order situation in the region.

One major obstacle to the entry of business houses in NER is insurgencies in a number of its states, which degenerated to terrorism and thereby not only inhibited multi-national corporations from the setting up of businesses there, but also chased away those established since before independence, like the tea industry. Thanks to extortion, abductions and assassinations by terrorist groups, many mainland India-based business families from Manipur-Nagaland and tea industry main offices from Assam. The use of the Army to quell these violent and now plainly criminal outfits amounts to gross misuse. Because firstly it is not the Army’s job to deal with internal groups, but governments resorted to do so as neither state police nor central police organizations could effectively counter these groups. And secondly, there has never been enough sincerity to totally break these groups as they have strong links to political parties / their leaders.

The central government’s much discussed Look East policy has much to offer to the people of NER and now is the time when it must be given all impetus to start off, particularly in view of the Awami League government ruling in Bangladesh and the democratic government in place Burma/Myanmar for the first time in the post-colonial era. In 2000, India’s Border Roads Organisation has constructed a 160 kms long good quality road from Manipur’s border town Moreh till Kalemyo in Myanmar, which has great potential of opening up the region for trade and more so by getting linked further for the Mekong project. However, nothing can happen to ameliorate the lot of NER’s people, till these insurgent-turned -terrorist groups are not fully neutralized. Talks with only parts of groups will not work till breakaway factions are not apprehended and their weapons confiscated. Both state governments concerned and the centre must not lose any more time in exercising political will with effective diplomacy to end these violent movements.

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