Dialogue  April-June 2008 , Volume 9 No. 4


Economic Consequences of Insurgency in the North East

H.N. Das*


        Militancy has unleashed untold violence and destruction halt economic activities. In recent decades, the economic growth of NE has been stunted to a considerable extent by such militant activities. However, we must also acknowledge that it is economic backwardness and ethnic tension that gave rise to agitations, and ultimately militancy, in the region.1

        In this paper, it is proposed to examine the ways in which the economy of NE has been affected by insurgency. The analysis will be based on incidents that have occurred and on impressions gathered, particularly from media reports.

         The Nagas were the first to resort to militancy. Their movement began in 1918, when the Nagas formed the Naga Club through which they expressed their grievances to the British. During the past six decades, since independence, Naga militants have caused extensive damage to the region's economy by resorting to violence and destruction. Despite their continuing tryst with violencein the North East (NE). Thousands of people have been killed all over NE in bomb blasts, grenade attacks and assassinations. Militancy affects the economy in several ways. Destruction of public and private property, death of earning members of families and hesitancy among investors and entrepreneurs interrupt or, they have been able to draw the attention of New Delhi, and substantial funds for economic development have poured into the state of Nagaland. These funds have primarily benefited north Indian businessmen, Punjabi contractors, Bangladeshi and Bihari labourers, Naga politician, and Naga and non-Naga bureaucrats and technocrats. Only a small portion of the benefits seem to have percolated down to the common people through the work done by the village councils.2  The general impression is that the percentage of funds actually received by those for whom the schemes and programmes are intended is rather small.                                  

        Funds directed to NE from New Delhi in years could be termed as substantial. A recent media report makes the following revealing statement. ‘Surprisingly, shortage of funds is not the root cause of poverty in the region. The expenditure of [the] eight North East states is almost Rupees 30,000 Crore a year – which means Rupees 10,000 per person per year, is spent annually. In states like Arunachal Pradesh, Nagaland and Manipur, more than 80  percent of the amount comes from New Delhi. According to some estimate, as high [a sum] as Rupees 20,000 crore comes as a direct transfer from the Central Government to the North Eastern states.'3 Such a summation of the present situation is correct. But the point that needs to be made is that in the past when NE needed funds, New Delhi did not help. With the advent of militancy, however, New Delhi started directing massive funds, and in many an instance, on an ad hoc basis. These funds rarely reached those genuinely stricken by poverty. New Delhi has also realized that this money is not going for development. Nor is this helping cohesiveness of NE with the rest of India.

       In  Assam, almost two centuries of neglect and isolation, ever since the British occupation of the Brahmaputra Valley in 1826, has produced a deep sense of ambivalence – there is resentment against mainstream India, but at the same time there is reluctance to completely abandon the Indian identity. After partition, Assam and the North East got physically delinked from the rest of India. The only conduit at present is the narrow 22-kilometre corridor through West Bengal. The rail link, hurriedly built after partition, has remained as the lifeline between NE and the Indian heartland. The general feeling in NE is that oil has been continually extracted from this area and the region’s rich forest wealth has been denuded for the benefit of the rest of India. But when a refinery or a gas cracker, based entirely on local natural resources, has to be built, New Delhi feels that NE is not suitable, or is unsafe as the region is too near the international borders.4

   Within Assam, many ethnic groups, particularly the Bodos, seek to consolidate their own identity. Each of these groups feel discriminated by the ethnic Assamese. This led to the setting up of the Bodo Territorial Council and seven other councils for the Misings, Rabha-Hajongs, Sonowal-Kacharis, Thengal-Kacharis, Deuris, Barrack Valley tribes and Tiwas. But neither has the political situation stabilized nor has the economic condition improved. The situation is similar in the other states of NE. Exact figures are not available, but militancy has affected the economy of all the states of NE.

    The United Liberation Front of Asom (ULFA) had declared certain economic policies in conjunction with their objective of making Assam politically and economically independent. A booklet that ULFA circulated some years ago on Assam’s tea industry is a revealing document – it sought to provide an idea of how the industry could ‘help’ in the economic regeneration of Assam. In the early 1990s, ULFA cadres had taken a group of tea planters through a maze of roads in Dibrugarh to a remote and abandoned tea estate bungalow, avowedly for holding discussion on the subject. The planters were blindfolded. What transpired has not been officially divulged. But the ‘invitation letter’ to the tea planters said that economic development of Assam would be discussed.5

          In practice, however, except for a few Robinhood-style advantages, ULFA has done nothing for the economic development of Assam. The organization’s fellow travelers set up a few agricultural farms, but even these disappeared within a short time. On the other hand, ULFA has extorted substantial amounts of money from the tea barons as also from other industrial and business establishments in Assam. One of the tea companies listed an amount of Rs 1 crore on the balance sheet as security-related expenditure. The entire amount is believed to have been given to ULFA. Moreover, various sums of monies were talked about as ransom amounts paid for the release of kidnapped tea executives. In return for such huge payments most tea gardens earned comparative respite from militant attacks. Not a single day’s works was lost because tea gardens were exempted from bandhs, etc. As far as physical violence is concerned, a number of cases have been reported. But it is believed that the number could have been several times more if payments had not been made to the militant organization. The murder of Surendra Paul of the Assam Frontier Tea Company is an important tea industry related assassination. Paul was gunned down in upper Assam by ULFA for reportedly resisting their attempts at extortion.6 He was also accused of discriminatory treatment against some of his Assamese employees.

       It would be of interest to note that there have been some cases of collusion and collaboration by tea industry executives with ULFA. In the case of Tata Tea, for instance, the company’s senior executives were alleged to have travelled in a clandestine manner to meet ULFA cadres in Bangkok. Tata Tea is also said to have provided travel and medical expenses for ULFA’s cultural secretary, Pranati Deka, during her pregnancy. Deka gave birth to her child in a Mumbai hospital, the expenses for which were paid by Tata Tea. The issue of a possible nexus between Tata Tea and ULFA generated much controversy, and certain arrests were made by the Government. It is generally opined that Tata Tea probably had to engineer linkage with ULFA under duress. But the episode highlights the considerable influence wielded by ULFA in Assam and in the tea industry. It is also interesting to note that nothing has been done by the Government to pursue the police case against Tata Tea.7

         Other militant organizations, which were established later, have also been following ULFA’s example of extortion by means of terror, threats, physical and mental violence, and kidnappings. According to Nitin Gokhale, ‘audited accounts revealed that even companies such as Williamson Magor had paid over Rupees One crore inn 1994-95 and 1995-96 to the National Democratic Front of Bodoland…… smaller companies such as Bhergaon tea estate paid up to Rupees 25 lakh (it faced kidnappings twice in two years).’8

       The oil sector too has been badly affected by militant activities. Oil was the target of the Assam movement launched by the All Assam Students’ Union (AASU) in 1979. ASSU’s most significant slogan was “Tej dim, tel nidium” (we will give blood, not oil). When the oil blockade was launched by AASU, New Delhi got rather worried because till the 1980s Assam supplied a substantial portion of India’s oil requirement. The then Union Home Minister, Zail Singh, visited Assam in the wake of the oil blockade. During discussions with AASU, he made a special request to the leaders to lift the blockade. The manner in which he made his request seemed to imply that the students’ organization could carry on with their agitation programmes, but they should lift the oil blockade because the national-economy was getting hurt.9

      An estimate prepared by a security agency will show the extent to which the oil industry has been affected by militancy. In the past sixteen years, there have been 1681 bomb explosions in Assam, many of which affected oil installations. Oil India Ltd (OIL) and Oil and Natural Gas Corporation (ONGC) lost over Rs. 3500 crores in militant-related activities during the period. The oil industry is now reported to be seriously considering a proposal to convert the oil pipelines in Assam into explosion resistant pipelines.10

     Meanwhile, the explosions continue and the industry is incurring huge losses. A report in the media indicated that OIL spends Rs. 20 crores every year on security cover for its oil wells and other installations in Assam and that ONGC is reportedly going to raise a dedicated battalion of its own at an initial cost of Rs. 40 crores in order to guard its installations in Assam. The battalion’s upkeep will cost an additional Rs. 20 crores per year.11 such expenditure impinges on the profits of these companies – money that would have otherwise gone to the state coffers.

      In November 1990, the then Governor of Assam, Devi Das Thakur, in his report to the President of India, estimated that the amount extorted by ULFA, until the time of submitting the report, was more than Rs. 400 crores. Similar indications about the huge sums extracted by the other militant organization are also available from media reports and from raids and seizures conducted by the army, police and paramilitary forces. Large sums of money are required to run militant organizations. ULFA’s annual expenditure for running the headquarters' organization alone, excluding the cost of arms and ammunition, food and clothes of its huge armed battalions, seems to exceed Rs.30 crores. The ULFA budget for 2001-02, for instance, presented at the ULFA general headquarters in Bhutan’s Sukhni Basti on the 18th March 2001 gives a detailed break-up of expenditure on different items.13

     The major portion of such funds seems to have come indirectly from government sources. Militants can easily blackmail corrupt officials because they know the illegal activities of such officials, as also those of unscrupulous businessmen. Such people pay up easily. One senior ULFA cadre, who was the quartermaster in charge of a camp, revealed during interrogation that ‘officials’ and other ‘important functionaries’ who had earlier been paying money to ULFA were still working in government in different capacities. He claimed that many of them are still paying money to the outfit. The cadre also spoke of a businessman from Nalbari, who was paying regular extortion money to the outfit.14

        It is often remarked that the Government of India (GOI) is the main source of founds for the militant organizations in the North East. It is also commonly believed that government, public sector and bank officials pay the militants from what they siphon off from provisions for development programmes and projects. Such funds also go to insurgents, in the same way, from out of allocations from the World Bank, the World Health Organization, the United Nations Development Programme and other multinational and bilateral agencies. Officials pay up out of fear or as a result of threats, or because of blackmail. Rural development has been identified as a lucrative sector and it is estimated that as much as seventy per cent of all funds available to the Government of Assam (GOA) under this head is systematically siphoned off by ULFA and surrendered ULFA (SULFA), contractors, civil servants as well as members of the political executive. Sources estimate that out of the total Rupees 11.65 billion made available under this head [rural development] during the period 1992-93 to February 1998, less than Rupees four billion went into legitimate schemes. There is little evidence of projects executed on the ground that supports the claim that even a fraction of this amount was spent as “legitimate” expenditure.15

     It is in this way that the national and state priorities for economic development have been distorted – funds meant for development have been diverted for destructive and anti-social purposes. The gravity of the situation can be discerned from the statement of a former union minister for rural development, Venkaiah Naidu, who once reportedly warned that the centre would stop disbursing rural development funds to those states where the bulk of the funds go to the coffers of extremist outfits.16 In this connection it will be pertinent to quote the prominent NE columnist Patricia Mary Mukhim who said that “it is no secret that a good chunk of development funds go to the coffers of sundry militant outfits.”

       Business people who are subjected to periodical illegitimate taxation by insurgents have resorted to the practice of making up for their losses – as a result of extortion – by creating artificial scarcities and consequently raising the prices of goods and commodities. The most affected by such illegitimate taxation are the people residing below the poverty line (BPL), who till recently formed 36.09 per cent of Assam’s population as against the all-India average of 26.10 per cent. There has been a revision of the BPL figure last year. What is important, however, is the fact that even the people living below the poverty line, and in remote areas, are periodically made to pay militant tax out of their meager earnings. These include peons, menials, daily-wage earners and pan-bidi shopkeepers. This situation has led to further impoverishment of these people.

       Under the pretext of controlling the movement of militants a section of the police set up numerous checkpoints. In reality these double up as checkpoints for collecting large sums of money from truck drivers and such others. According to a past government estimate, there were as many as 184 such checkpoints in Assam at one point of time. A few years ago, several of these illegal checkpoints were demolished and the guilty police personnel involved in this illegal activity were taken to task. Again these checkpoints have proliferated. Extortion through checkpoints, especially in the case of truck drivers, has really become a nuisance. Many truck drivers refuse to come to Assam or pass through Assam to other NE states primarily for this reason. Some unload their cargo at the border which is then picked up by trucks from Assam. Such practices not only cause delay but have resulted in unjustified increases in the prices of essential commodities brought from outside the state. Unfortunately, such practices still continue.

     There has also been a flight of capital from Assam. This is clear from the steadily declining credit-deposit ratio of banks and the diversion of surplus funds and earnings by industrial establishments of the state to units outside in the name of diversification. Some tea companies have taken out surplus funds to units outside Assam. The credit-deposit ratio has declined from 50.20 percent as on 31 December 1991 to 31 percent on 31 December 2001. There has been some increase since then. A committee appointed under the integrated rural development programme of GOI even found a flight of capital from rural to urban areas of Assam due to the threat posed by militancy. The committee also found that ‘an upsurge in insurgency in Assam’ was responsible for ‘practically no developmental activities in rural areas.17

        Siliguri’s unbelievable growth in recent times for instance, is at the expense of Guwahati and other towns in Assam from where a number of traders and businessmen have partially shifted. Taking away their capital stocks from Assam, these businessmen have set up shops in Siliguri. Consequently, West Bengal’s tax collections are reported to be going up in Siliguri. Similarly, some industrial units from Assam are now shifting to Byrnihat area of Meghalaya due to threats particularly by the so-called syndicates of the Beltola area of Guwahati, many of which are peopled reportedly by surrendered members of ULFA. These syndicates are extortion units, allegedly having official blessings, which levy ‘goonda tax’ from each commercial transaction and on every consignment of goods produced.

        Large-scale destruction of public properties-such as roads, bridges, buildings, schools, flora and fauna, factories, public and private vehicles- by different Bodo militant outfits have also had a telling effect on the economy. For quite some time, many Bodo-inhabited areas remained cut off and inaccessible due to destruction in the wake of violence following agitations by the All Bodo Students Union and Bodo militant organizations such as the National Democratic Front of Bodoland and the Bodo Liberation Tigers. More than three lakh people were displaced and had to take shelter in refugee camps due to ethnic clashes in Bodo areas. There have been instances of these refugees in government camps attempting ethnic cleaning. This could have been a psychological reaction because they were forced to spend inordinately long periods in such camps. Their houses were torched, their kin killed and their harvest destroyed. More importantly, their spirit was damaged beyond repair. The Bodos, Santhals, Koch-Rajbongshis and Bangladeshi Muslims suffered equally. There were periods when all economic activities had ceased in certain areas. Similar destructions have taken place in the districts of Karbi Anglong and North Cachar Hills, primarily due to similar problems created by Karbi and Dimasa militant organizations, as well as Naga militant organizations attempting to gain a foothold in the area in their quest for a greater Nagalim. It must also be mentioned that illegal tax collection by both factions of the National Socialist Council of Nagaland (NSCN) is organized and systematic in Nagaland and parts of Manipur, such that there exists a virtual parallel economy. Almost everyone living in the areas under the influence of NSCN have to pay a certain percentage of their earnings as illegal taxes to militants. Therefore, much of the development fund for Nagaland, parts of Manipur and Arunachal Pradesh go to the ‘war-coffers’ of the NSCN.

       After the economic reform process was set in motion in India in the 1990s, the rise of the Indian middle class has been accelerated. This class cannot be exactly defined, but can be known ‘culturally, through consumption patterns and psychographic. 18            

       They mainly belong to the service sector and have high disposable incomes.19 The middle class in NE, Assam in particular, has benefited from money diverted from the allocations for development plan. In the past two decades, militancy in Assam has added fuel to the general trend of bribery and corruption among the middle class.

       Economic gain from militancy has further enriched a section of the middle class and also added to their numbers. Middle class businessmen often take their cash away, to places outside the state and invest it in places like New Delhi, Jaipur, Ajmer, Jodhpur, Kolkata, Siliguri, Bangalore, Mumbai etc. They spend conspicuously. The wealth of the middle class is reflected by the artificial boom in Guwahati as revealed by a survey conducted by the Federation of Industries and Commerce of the North Eastern Region and a later report.20 In Guwahati city alone, over seven hundred apartment buildings have come up in the period 1997-2001, involving an investment of Rs 1400 crore. Many more have come up later. Thousands of other commercial and residential buildings have also been constructed. The economically better of people in Guwahati spend Rs. 1.5 crore on ‘eating out’ in restaurants every month. These figures have gone up considerably in recent years. This type of development has taken place in quite a few other towns in NE including Shillong, Silchar, Tinsukia, Aizwal and Kohima. It is true that a portion of the money has come from legal earnings; however, it is believed that the major portion of the investment and spending have emanated from black money. A study by researches of the New Delhi-based Institute for Conflict Management has revealed several ways in which funds have been diverted through corruption.21 A series of articles in the media, particularly the Telegraph, showcased the interiors of residences where the affluent live in Guwahati city. The photographs accompanying the arcicles show elegant living rooms, kitchens and bedrooms. These photographs by S.H. Patgiri are quite revealing. Some SULFA members seem to have spent on conspicuous consumption the huge sums of subsidy given to them by the government as also the loans advanced to them by banks at the time of their surrender which were meant for their rehabilitation through self-employment. They are reported to be having a hand in every type of economic activity from which they raise a ‘tax’. In a report in the Economic Times, the following facts have been revealed:

      “Security-related expenditure in the North East has been over Rupees 100 Crore annually from 2000-01 onwards. A 10 to 20 percent of leakage of development fund in some states goes to militants. Militants in Nagaland and Manipur levy illegal tax on all business operations. Every government employee pays a part of his salary to militants. Some militant outfits charge an oil tanker Rupees 3,000 per trip, followed by trucks carrying cooking gas cylinders at Rupees 2,000, and those carrying cement at Rupees 1,000. They charge a truck Rupees 7,000 and a tourist bus Rupees 12,000 annually as ‘permit fee’ to operate.”

       In the general elections held in Nagaland in March, 2008, as many as 58 candidates were reported to be crorepaties. The figures were worked out jointly by a few NGOs and social activists in the “Nagaland Election Watch (NEW) “which has been described as “a first of its kind disclosure of criminal, financial and educational backgrounds of contestants.”22 In Meghalaya 27 candidates were reported to be crorepaties in the general elections held in March, 2008. These are small tribal states which were poor till recently in terms of per capita income and wealth. It would be interesting to know many thousands of other people have become crorepaties out of money siphoned of by various means from Plan funds of the NE states. Most of them live outside NER.

      The situation is uncannily similar in the other states of NE as well.

In Manipur, for example, the militants have virtually stopped all economic activities in the evening hours. Between dusk and dawn, when the state takes a back seat, the militants take over. Beside the numerous bomb blasts, explosions and other destructive activities, they raise substantial amounts of money by devious means. Many Manipuri middle class families have temporarily shifted to places outside Manipur. The usual practice seems to be that the earning member remains behind while the others, especially the school and college-going children, live outside the state. In Guwahati there are several hundred such Manipuri families. A majority of Manipuri young men and women now prefer to study in colleges and universities outside the state.23

       In Nagaland, although destruction of property as well as killings have gone down considerably after the ceasefire, except for factional killings between the two factions of NSCN, extortion and ‘tax collection’ continue. These practices have been institutionalized. Rates of payment to militant organizations are fixed and made on a regular basis. No one can avoid such payments and no one is usually hurt unless there is a default in payment.

       In Tripura, the situation has now become much better. The Tripura Government has been able to implement development work at tremendous speed and control militancy to a considerable extent. The cumulative annual rate of growth in Tripura is now more than nine per cent. Even corruption and diversion of development funds have been controlled to a great extent by the enlightened government of the present Chief Minister, Manik Sarkar. Although sporadic incidents of violence take place and regular payments to militants continue, if the current trend of economic development is not stunted in the coming years, Tripura’s economic growth will be steady.

      In Arunachal Pradesh and Meghalaya militancy seem to be on the rise but its economic consequences are still peripheral. In Mizoram after the militant activities of 1960 there has been a modicum of peace. The hill state has become so peaceful that it is purportedly missing New Delhi’s largesse and packages because it is no longer a troubled state. Although, New Delhi has now provided Mizoram ‘peace bonus’, in order to allay such misgivings, New Delhi’s behaviour showcases its unfortunate policy towards the region in the past.

     The only positive result of militancy has been that GOI has now developed a proactive outlook towards NE. It is taking active steps to assist economic development of NE. For this purpose GOI has created the non-lapsable pool from out of ten per cent of the budget allocations of a number of ministries and departments of GOI. This fund is to be spent for NE. The pool is carried forward from year to year and is not allowed to lapse at the end of a particular financial year. Grants out of this fund are made to projects and schemes recommended by the State Governments of NE. This will hopefully improve the economic situation and reverse the feeling of neglect and discrimination. However, if diversion of money continues to insurgent units, even these funds might dry up. The cardinal fact to remember is that no economic development can take place unless the misuse of such funds by politicians, bureaucrats, bank mangers, contractors and their associates can be stopped.


Dialogue (A quarterly journal of Astha Bharati)

Astha Bharati