Understanding Economic Growth in the North Eastern Region of India

Nothing describes the North eastern region (hereafter to be referred to as NER) of India comprising of 8 states better than NER VISION which describes the region as “a rainbow country—extraordinarily diverse and colourful ,mysterious when seen through parted clouds”. To me it is an admission of the state of understanding of matters related with the region and it is also painful because it is so after six decades of independence. Most of us have seen it only through parted clouds. A sense of urgency has been aroused in response to the people’s pursuit for a place in the sun to ensure that the region catches up with the country by including it in the process of development. The most important thing is to identify the matrix of policy variables impinging on target variables such as per capita income, employment, expectancy of life at birth, literacy rate and poverty ratio. However unfortunately economic policies have either failed to deliver or delivered an unrecognisable baby due to the simple fact that economic policies used to base on fleeting glimpses of the North eastern reality seen through parted clouds. There is a persistent denial to recognise the constraints to growth in the region. The issue of Interstate disparities in income growth has become more prominent in the post reform era. The question of convergence or divergence has not been answered unequivocally. The Eleventh plan notes a widespread perception all over the country that disparities among states and regions within states, between urban and rural areas and between various sections of the community have been steadily increasing in the past few years. This has been vindicated by available statistics on a number of indicators. The North eastern region has always remained at the other side of the divide. That something is seriously wrong is clear from the turmoil the region has been going through during the last few decades . In 2006 22.47% of civilian killings and 20.73% of security forces killings in terrorist related violence in India occurred in the NER .1 This is like circumstantial evidence in a criminal case. What is attempted here is to examine the nature of economic growth among the states in the region

The current paper will be divided into two parts. The first part will survey selectively a cross section of thinking on the reasons of backwardness. The second part will analyse the nature of growth , both at the aggregate level and sectoral level, among the eight states in the region using NSDP data . A proper understanding of the nature of growth in the region should be one of the essential building blocks on which any growth strategy should be based.

The starting point of any narrative of India’s NER will invariably point out the richness and diversity of natural resources along with the backwardness of the region. They however differ on the diagnosis of why these states have remained backward , literally a black box of economic policy. Unlike other parts of India where the problems of poverty and unemployment are borne stoically as the outcome of one’s karma , in the NER ideas of secession easily sprout in response to any problem indicating the incomplete process of nation formation in the region. The sense of identification with the country to say the least is highly fragile. It also reflects the inadequacies in the diffusion of modern democratic values in the region.

Sarma (2006) puts forward five I’s which are still acting as binding constraints on the economic development of the NER viz initial conditions, infrastructure deficiency, insurgency, imperfection in factor and product market and indifferent governance. No other region in India had been as adversely affected as the NER due to partition in 1947 which disrupted the centuries old channels of exchange in the region with neighbours which had become foreign countries. He argues that the development initiatives for the region are largely based on security perspective and the perspective based on least interference in traditional practices and institutions. Shukla commission (1997) diagnosed correctly the handicap with which the region had started in the post independence era.” Partition further isolated an already isolated geo-politically sequestered region. It was left with over 4500 km of external frontier with Bhutan,China, Myanmar and Bangladesh but not more than a slender 22km connection with Indian hinterland through the tenous Siliguri corridor, the gateway to the north east. The very considerable market disruption,socio-economic distancing and retardation that resulted has not been adequately appreciated and compensated.”Madhab (1999) opined that “ it would have been simpler to describe these phenomena as a natural corollary to or a fallout from the process when society modernises. While this is partially true, the main problems lie elsewhere. The crisis is one of identity,security and underdevelopment- all interlinked.” The issue of losing one’s identity is nowhere better show-cased than that of Tripura as the classic and uncontested case of a region being swamped by immigrants. The ever increasing inflow of migrant workers from Bangladesh and regions outside the NER threaten to affect the character of society with implications for contested political space. That explains the continual outbursts against outsiders experienced by every state in the region .2 Madhab (1999) further comments “ At the beginning of the planning era , the north east economy compared well with the rest of the states. No sooner the effects of partition were felt, the economies started faltering. For the region lost the most vital transportation routes through East Pakistan. Instead it had to take a long, fragile and circuitous route which was costly.”Yumnam (2005) argues that the various policies for the NER implemented so far have led to growth of political competition rather than economic competition. He emphasised three factors hindering economic growth in the region– basing national policy for regional development on political weights, region’s inability to articulate its own development agenda and the government of India’s approach of basing policies towards the region on security principle. Elangbam (2005) and Sachdeva (2005) argued that wrong assumptions and inappropriate policy framework have led to this impasse. The false paradigm model attributes underdevelopment in NER to faulty and inappropriate advice provided by well meaning but biased advisors. It is argued that behind the problem of the NER lies the inability of policy makers to appreciate the north east reality in proper perspective. The subsequent policy measures accentuated the problem further.3

At this juncture India’s Look East Policy has emerged as an alternative vintage point from which the development paradigm for the NER can be discussed. It is essentially an export led growth strategy. The most successful example of how IT and trade policy can transform an underdeveloped country from a condition of widespread poverty to one of high income status in a single generation is South Korea. Lacking natural resources Korea’s greatest assets are its industrious literate people and its strategic alliance between government and private industries in selecting and promoting exports. Taiwan is another example of export led growth. Its imports are dominated by raw materials and capital goods which account for more than 90 % of all import. It relies on import to meet more than 75% of its energy needs. All along in the case of the NER the emphasis for export has been on natural resource based products with little regard for the demand pattern in the emerging South East Asian markets.

The Eleventh Five Year Plan (2008)discusses the critical parameters for growth of the North Eastern Region. The growth strategy proposed consists of creation of critical infrastructure and creation of employment opportunities. Governance, capacity building, connectivity & power, social infrastructure, realising the full potential of the primary sector, active involvement of the grass root social institutions in development planning, encouragement of private investment and PPP, and capitalising on the opportunities provided by India’s Look east policy constitute the critical parameters.

Finally there is the NER Vision 2020 (2008) incorporating the principles of participatory planning. The NER Vision 2020 diagnoses the challenges confronting the region and closely examines the developmental aspirations of the people to identify as clearly as possible the felt needs of the people through a survey of 40,000 households. The realisation of people’s vision of development requires a paradigm shift in the planning process – from the one in which investment allocations are imposed from above to the one determined according to the needs and requirements of the people. The document stresses the following five components of development strategy

(i) Participatory development strategy articulated through grass roots planning to harness the natural resource advantage of the region

(ii) Capacity development of the people and institutions to reach the targeted groups

(iii) Augmenting infrastructure particularly connectivity and transport infrastructure

(iv) Ensuring adequate resources for public investment in infrastructure alongwith a framework for private participation in augmenting infrastructure and an enabling environment for the flow of investments

(v) Transforming governance by providing a secure, responsive and market friendly environment including protection of property rights of the investors and ensuring a corruption free administration. It includes resolving insurgencies and putting an end to the leakages in the system.

No other scheme for the NER has been as comprehensive as the strategy spelt out in the Vision document.

The growth rates of all the NER states have increased during the 3 five year plans with Manipur and Tripura registering persistently higher growth. Sikkim and Manipur grew fastest among Indian states during IXth and X th plan.

target

Notes: *Average of 2002-3 to 2005-6 for all states except J & K, Mizoram, Nagaland 2002-03 to 2004-5 and Tripura 2002-3 to 2003-4 at 1999-2000 prices.

However this growth has not been adequate to catch up with all India per capita income. The challenge of growth before the North eastern states is shown by table 2 which shows how fast these states should grow to catch up with the per capita GDP of the country by 2020. The enormity of the challenge becomes clear when it is examined in the context of the achievements of the states in the last three five year plans in table 1.

States 2007-12 2012-17 2017-20 2007-20

Primary Secondary Tertiary

1980-1 1990-1 2006-7 1980-1 1990-1 2006-7 1980-1 1990-1 2006-7

The structure of the economy in terms of the relative importance of primary, secondary and tertiary sectors will throw light on the quality of growth.The evolving structure of the state economies is shown by table 3.

During the entire period the share of primary sector has declined substantially and that of tertiary has increased. By 2006-7 except for Manipur tertiary sector has become the predominant sector in all the states. In Manipur due to a spurt in construction activities secondary sector surpassed the tertiary sector. Besides Manipur Arunachal pradesh is another state with a high share of secondary sector. The contribution of these sectors to growth of real NSDP is shown in table 4.

Contribution of sectors to growth of NSDP (in percent) 1980-81 to 2006-7 at 1980-1 prices

State Average annual Contribution of

growth rate primary secondary tertiary

Except for Arunachal Pradesh and Manipur the main source of growth in per capita income is tertiary sector. In Mizoram the contribution of tertiary sector is exceedingly high. In Manipur and Arunachal Pradesh the main source of growth is the secondary sector. In none of the states is the primary sector the main source of growth though it contributes a significant proportion in Arunachal Pradesh, Assam and Sikkim. It shows the growing role of the non commodity producing sector in the growth of the economy. It should be noted that public administration is an important sub sector of the tertiary sector and it is not related with commodity production as directly as the activities in primary and secondary sector. An interesting aspect of analysis of growth is the search for structural breaks because such breaks indicate the impact of identifiable phases of economic policy. One such episode is the structural reforms initiated in 1991. The break years for time series of per capita income, net state domestic product, income generated in primary, secondary and tertiary sector during the period 1980-1 and 2006-7 all in 1999-2000 prices are shown in table 5. 5 It shows no close association between the period of structural reforms and structural breaks implying the irrelevancy of the much lauded economic policy measures

State Per capita Net state Income Income Income income domestic generated generated generated in product at in primary in tertiary 1999-2000 sector secondary sector prices sector

Having identified the break years , the next question is about the growth rate after the break. Table 6 shows that growth of per capita income declined in all states except in Meghalaya and Tripura which registered increases in all series except for tertiary sector. Only Sikkim registered higher growth rate after the break in tertiary sector which has become more dominant than the primary sector in most of the states. This result further substantiates the irrelevancy of economic policy .

The falling share of primary sector in income generation alongwith the high share in employment indicates falling productivity in this sector. The benefits of growth accrue largely to the small portion of workers in the tertiary sector. This will accentuate the extent of inequality.

Household amenities such as pucca housing, access to safe drinking water, per capita consumption of electricity and the extent of urbanisation indicate the quality of life. The proportion of pucca houses except for Mizoram is much lower than the all India level. Both Manipur and Tripura have low proportion of pucca houses and the per capita consumption of electricity is uniformly low in all states. Deprivation index of rural areas is much higher than that of urban area. The low level of urbanisation and relatively higher deprivation index of rural areas indicate the low overall quality of life.

State Per capita Net state Income Income Income income domestic generated generated generated in

prices sector

Primary Secondary Tertiary Primary Secondary Tertiary

Kwh rural urban

Arunachal 20.68 77.5 95.5 54.7 41.54 18.15 20.4 pradesh Assam 19.47 58.8 95.5 24.9 43.59 18.47 12.7 Manipur 8.39 37.0 69.5 60.0 39.22 23.18 23.9 Meghalaya 22.14 39.0 160.3 42.7 49.55 16.50 19.6 Mizoram 52.84 36.0 120.8 69.6 42.55 19.43 49.5 Nagaland 16.19 46.5 84.7 63.6 40.92 18.96 17.7 Sikkim 37.87 70.7 192.4 77.8 37.7 4.93 11.1 Tripura 9.81 52.5 95.5 41.8 40.3 17.43 17.0 India 51.62 77.9 354.7 55.9 45.74 16.79 27.8

Note : PH pucca housing SW access to safe drinking water PCe per capita consumption of electricity in kwh Hec Household with electricity connection DI deprivation index UP urban population

Youth unemployment rate in urban areas is quite high, with most of the states having a much higher unemployment rate than the all India rate. This is in sharp contrast with the overall unemployment rates which are much lower than the all India rate. Low rural unemployment rate need not necessarily mean abundant work opportunities in rural areas. It may be attributed to the inability of the rural labour force to remain unemployed for long because of their poverty.

State Rural Urban

Male Female Total Male Female Total

Source: NSSO(2006) “Employment and Unemployment Situation in India 2004-05” Report no.515

Does a low growth rate or a declining growth rate of various income aggregates doom the people of the region in an unenviable position? Not necessarily so because table 9 shows that in terms of the more encompassing measure of development i.e. human development index the states in the region have been doing quite well. In 1981 Manipur ‘s rank was fourth and in 1991 Mizoram was the 7th Indian state. In 2001 also three out of the five states whose HDI have been estimated had HDI higher than that of all India. Thus the income gap has been made up by better performance in education and health. This indicates the strength of social capital which needs to be nurtured to attain higher level, by not insisting on mainstreaming. The problem arises when we try to impose on others what we consider to be good for them without regard to how they themselves feel about it. If some amount of growth has to be sacrificed to develop the special capital that may be more productive in the long run. Afterall nation building is not a short term exercise.

State 1981 1991 2001*

Note: *The HDI’s in 2001 are from HDRs of the states n.e. not estimated Figures in parenthesis are all India ranks

Lots of changes have occurred in the development discourse. Yet one cannot free oneself of what one may call the minority syndrome. What does development mean when the people for whom it is meant are no longer there ? The unchecked influx of migrants from UP, Bihar, Orissa and other states and also from Bangladesh , Nepal and Myanmar is a threat to demographic balance. Globalisation surprisingly can also immiserise the region by further outcompeting the industries in the region. The knee- jerk response to these challenges is to advocate for restrictions to labour movement e.g. the inner line permit and also restricting the import of items which are both anachronisms. Globalisation and liberalization need not solve the problems of the region. Both are opportunities and challenges. Better preparation of infrastructure along with higher degree of industrialization can convert them as engines of growth. Lack of preparation can endanger us further intensifying the alienation process. Much of the problems of this region can be attributed to deficiencies in nation building. One of the lessons of nation building is that accountability for past injustices can be a powerful component of nation building. It should be attempted only if there a long term commitment to it. The region has become notorious because of the regular cycle of violence and increasing use of violence in making any point. But there are many activities in which our people have excelled. What is needed is imagination to tap the hidden potential of individuals and institutions of the region so that their genius can flower. We should realise that nation building is an incomplete exercise in the NER. Any insensitivity of policy makers can undo painstakingly developed edifices in a short time.

Government of India (1997) Transforming the North East, High Level Commission report to the Prime Minister, Planning Commission

Madhab, J. (1999) North east:” Crisis of Identity, Security and Underdevelopment” Economic and political Weekly Feb 6

Sachdeva,G. (2005) Preparing the North Eastern Economy for the Future Eastern Quarterly, Vol 3 Issue III Oct- Dec,

Shetty,S.L. (2006) “ Growth of SDP and Structural changes in the state economies: Interstate Comparisons” in Uma Kapila edt (2006) Indian economy since Independence : Academic Foundation.

Singh, E.Bijoykumar & N.Bhupendra Singh (2007) “Nature of Unemployment and Employment in the North east: A case Study of Manipur “ ICCSR sponsored project , Manipur University

1 Source: Indiastat.com In 2006 29.4 % of terrorist related violence in India happened in NER with Manipur topping with 10.87% closely followed by Assam with 8.68%

2 Sikkim is an exception. The problems of Sikkim need to be looked at from a different perspective.

3 For instance the poverty ratios in the NER states have been proxied all along with the poverty ratio of Assam. The North eastern council is waiting for the approval of the Planning Commission for state specific poverty ratios estimated by its Expert Committee. In the meantime the experience of Assam in poverty alleviation has been superimposed on the other NER states.

4 The 1999-2000 series has been constructed by splicing the trend values of the values for the period 1980-1 to 1998-99.

5 The breakpoints are identified by using Chow test. The year with the highest F statistic is taken as the break year. The test is applied sequentially .