Dialogue July-September 2009, Volume 11 No.1
Arunachal Pradesh and the Dilemma of Development
The economy of Arunachal Pradesh is growing at a yearly average of more than 7 percent, and its per capita income is more than Rs. 20000. The share of agriculture to Gross State Domestic product is declining and industry and services are increasing. .All these figures generally give us an impression that the economy of Arunachal Pradesh is performing much better in comparison to country as a whole. It is to be mentioned that though the contribution of primary sector has fallen but the people relying on it has not been fallen neither in percentage or absolute term. It is quite evident that in secondary sector, the construction sector is contributing most. The contribution of manufacturing sector is negligible and this proves the virtual non existence or little existence of industrial activities. And most of the construction activities are led by the government. Again, in tertiary sector, public administration and other services are making bulk of the contribution to the State Gross Domestic Product. These two sectors primarily include different types of government jobs. Meagre and stagnant contributions of trade, hotels, banking and insurance, real estate and legal and business services suggest low level of private sector in the economy. In addition, the fiscal situation in Arunachal Pradesh lacks buoyancy. It primarily depends on grants-in-aid from Centre. The tax revenue collection in the state is abysmally low. Therefore, government seems all pervasive and its withdrawal in any form will make the economy fragile. Economy, outside agriculture is virtually run by Government alone and this may be considered as deterrent towards achieving a self sustaining economy.
How does an economy function? How does an economy grow and develop? The quest for plausible answers to these questions might have been started by Adam Smith but the process is still continuing and is likely to continue as long as human civilisation exists. The answer at our disposal can even explain the rational behaviour of the earliest society known as Palaeolithic age or primitive age of human civilisation. The general discourse on development economics says that economy is a cycle of regeneration of production, consumption, saving and investment. A primitive caveman may have saved his time from hunting, which is the means of his consumption and invested it in making bow and arrow or stone implements. Similarly, a traditional farmer saves some crop, sells it in the market and uses the proceeds to purchase a pair of bullocks. Economic growth will be positive when investment surpasses depreciated capital. Otherwise it stagnates or shrinks (Ray, D.1999).
According to Kuznets (1966), the concept of economic growth has become popular after Industrial Revolution in Great Britain. Relatively long period of time has been devoted to judge the development process by the growth of per capita gross national product. In the last few decades, narrowness of this concept has been challenged and development and the critical estimations thus that development must encompass the parameters like increase in life expectancy, access to sanitation, clean drinking water, improvement in health services, reduction of infant mortality, and increase in literacy rate of women, adults and women empowerment and so on so forth. As it is pointed out by Drčze and Sen, “… it is perhaps a mistake to see the development of education, health care and other basic achievements only or primarily as expansions of ‘human resources’ –the accumulation of ‘human capital “. However, several authors have pointed out that higher per-capita income is correlated with indicators of the quality of life (Dasgupta, 1993; Mauro, 1993; Boone, 1996; Barro, 1996).
We shall prefer to fall back on Kuznets again. If we want to achieve Kuznets’s prescribed path of development, then the process will follow a path where rapid increase in total factor productivity will bring high rates of per capita output and high rate of per capita income will put the per capita consumption at higher level and in the process it will provide an incentive to bring in changes in production process backed by suitable technological changes through a process of continuous investment on research and development. With the steady rise in per capita income demand for manufactured goods as well as services will rise faster than the demand for agricultural products and this brings so called structural changes within the economy.
May be, he was primarily concerned with required doubling time of per capita output, population growth and real GNP for developed nations, the extent of structural change and total factor productivity growth but at the same time he put enough emphasis on social and ideological transformations. Tony Killick has rightly pointed out that for significant economic change to happen in any society, concomitant transformations in attitudes, institutions and ideologies are necessary (Killick, 1995). Similarly, Gunnar Myrdal (1968) while dealing with underdevelopment in Asia has put emphasis on rationality, economic planning, social and economic equalization and improved institutions and attitudes. Jawaharlal Nehru (1961) has defined rationality in a very simplistic manner, he told, “…Modern technique is not a matter of just getting a tool and using it. Modern technique follows modern thinking. You can not get hold of a modern tool and have an ancient mind. It would not work”.
Looking at the economies of most of the North Eastern States, Nehru’s comments find its relevance. Arunachal Pradesh is no exception too because the economy is growing at an yearly average of more than 7 percent, per capita income is more than Rs. 20000, population growth per annum is 2.7 per cent, share of agriculture to Gross State Domestic product is declining and even though industry and services are increasing. The literacy rate increased from 25.55 per cent in 1981 to 54.34 per cent in 2001.All these figures generally give us an impression that the economy of Arunachal Pradesh is performing much better in comparison to country as a whole. And this may be a perfect example of Kuznet’s model of economic development. However, almost all the North Eastern states are generally treated as laggard States and very loosely connected with main land India specially in terms of economic functioning. Moreover these states have not got the resilience the Indian economy as a whole possesses.
This paper is an attempt to find out first the pattern of economic growth experienced by the State of Arunachal Pradesh, the process of structural change it is passing through and finally why the State has been bracketed as one of the most remotely developed state in India. What are the possible ways so that the economy of Arunachal Pradesh can become a self sufficient one? And finally is it a correct approach to judge the economic functioning of different states by using same economic indicators and suggest same development strategies for the upliftment of the economy and society per se?
Arunachal Pradesh which means Land of Dawn is the abode of some to 26 major tribes and 110 sub-tribes and minor tribes and its population is roughly around 11 lakhs and almost 70 per cent belong to schedule tribe category. The State is located in the farthest north-eastern part of India, surrounded by Bhutan on the west, China (Tibet) on the north and north-east, Myanmar on the east and south-east and the Assam and Nagaland to its south (Human Development Report, Arunachal Pradesh, 2005). It is aptly pointed out by M. Elizabeth Taylor (1998) that, ‘The land is unparalleled in the world, for the concentration, isolation and diversity of tribal cultures it contains. Nowhere else can one find such a patchwork of discrete types of pre-industrial political economies in such a small area, including semi-nomadic swidden agriculture, terraced wet agriculture, high mountain pastoralism and traditional trade and barter. Traditionally, the political organization ranged from aristocratic ranking or stratified chiefdoms to egalitarian clan or lineage-based societies and highly corporate villages run by democratic debate in traditional councils’. It is also well gifted with outstanding biodiversity reserves, which has been preserved for centuries by its indigenous communities, and remoteness and relative isolation of the state may have acted positively in this regard.
In Arunachal Pradesh, modernisation is a largely post-independence phenomenon. The biggest changes came into the institution of ownership, especially the ownership of land. Community-owned land was individualised in many areas, which moved to permanent cultivation from jhum cultivation (slash and burn method). This followed the general hypothesis that establishment of property rights and do away with common property rights help the production and efficiency to increase in the economy.
Process of Structural Change
By structural change we generally mean how the share of different sectors of the economy to Gross State Domestic Product (at current prices) is changing. If we see that the share of primary sector is declining over the periods and that of secondary and tertiary sectors are increasing, then a conclusion follows that the economy is moving in positive direction or the economy is moving in Kuznet’s way. From the following figure (Figure-A) it is evident that the contribution of agriculture has come down from 35 percent to 28.1 per cent, contribution of secondary sector has considerably improved from 19.1 per cent to 28.1 per cent. For tertiary sector, however the contribution has declined but it remained much higher in comparison to primary or secondary sectors. It is to be mentioned that though the contribution of primary sector has fallen but the people relying on it has not fallen neither in percentage or absolute terms. Therefore, so called Kuznet’s hypothesis does not fit in and in wider sense it does not fit for most of the underdeveloped countries. But, even if the contribution of secondary sector and tertiary sector is increasing, it needs to be seen which sectors of secondary and tertiary sectors are contributing (Table-1). It is quite evident that in secondary sector, the construction sector is contributing
SHARE OF PRIMARY, SECONDARY AND TERTIARY SECTOR TO GSDP (1999-2000 to 2005-2006)
construction activities are led by the government. Again, in tertiary sector, public administration and other services are making bulk of the most. The contribution of manufacturing sector is negligible and this proves the little existence of industrial activities. And most of the contribution to the State Gross Domestic Product. These two sectors primarily include different types of government jobs. Meagre and stagnant contributions of trade, hotels, banking and insurance, real estate and legal and business services suggest virtual non existence of private sector in the economy. Therefore, government seems all pervasive and its withdrawal in any form will make the economy fragile. Economy, outside agriculture is virtually run by Government alone and this may be considered as major deterrent towards achieving a self sustaining economy.
Table-1:SectoralContribution to GSDP (At Current Prices)
ORIGIN OF INDUSTRY 1999- 2000- 2001- 2002- 2003- 2004- 2005-
2000 2001 2002 2003 2004 2005 2006
AGRICULTURE 27.3 29.6 25.7 27.1 26.2 22.4 21.5
FORESTRY & LOGGING 4.3 4.8 3.3 3.1 2.2 1.9 2.0
FISHING 0.9 0.9 0.8 0.8 0.7 0.7 0.8
AGRICULTURE & ALLIED 32.5 35.2 29.8 31.0 29.1 25.1 24.4
MININIG & QUARRYING 2.5 2.0 1.6 2.9 2.2 3.0 3.7
TOTAL PRIMARY 35.0 37.2 31.4 33.9 31.3 28.1 28.1
MANU-REGISTERED 0.0 0.0 0.0 0.0 0.0 0.0 0.0
MANU UNREGISTERED 2.9 3.1 2.4 2.6 2.2 2.2 2.4
MANUFACTURING 2.9 3.1 2.4 2.6 2.2 2.2 2.4
CONSTRUCTION 13.9 12.1 23.2 16.6 17.2 21.4 20.8
ELECTRICITY,GAS & 2.2 2.1 1.8 2.6 6.9 8.7 8.7
TOTAL SECONDARY 19.1 17.2 27.5 21.9 26.3 32.3 31.9
TRANSPORT, STORAGE & 5.4 4.9 4.4 5.0 4.6 4.1 4.1
TRADE,HOTELS & 5.9 6.4 5.4 5.8 5.3 4.8 5.1
BANKING &INSURANCE 2.4 2.7 2.5 3.0 2.7 2.0 2.0
REAL ESTATE, LEGAL & 3.2 3.2 2.8 3.0 2.9 2.6 2.7
PUBLIC ADMINISTRATION 15.8 16.7 15.1 16.4 15.7 15.5 15.0
OTHER SERVICES 13.3 11.8 10.8 11.0 11.2 10.5 11.1
TOTAL TERITARY 46.0 45.6 41.1 44.2 42.4 39.5 40.0
SDP AT CURRENT PRICES 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Source: calculated by using GSDP data at current prices and
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Pattern of Economic Growth
The economy of Arunachal Pradesh is roughly growing at an average of around 8 percent which is closer to the National average growth rate. By any measurement it is impressive but the question is which sectors of the economy are driving the growth. If the growth is primarily driven by the sectors where government is playing direct role then the sustenance of the economy will be in question. Table-2 will give us clearer picture in this regard. In primary sector the agriculture has achieved a compound annual rate of growth (CAGR) of 1.6 (from 2000-01 to 20065-06) and during that period population has grown at almost the same rate. It implicitly indicates low income base for the agricultural community and possibility of food scarcity can not be ruled out. Secondary sector has registered a healthy growth but it is primarily driven by construction. However, 2002 onwards, electricity, gas and water have registered phenomenal growth and contribution to GSDP has also increased in the same period, and it partially offsets the negligible contribution of manufacturing sector. In tertiary sector, the highest compound annual growth rate was achieved by public administration. The contribution of trade, hotels, banking and insurance, real estate and legal and business services to GSDP may not be on expected line but in terms of growth rate they are quite consistent. However growth is pronounced in those sectors where government is playing a direct role.
Table-2: SECTORWISE REAL ECONOMIC GROWTH (in percentage)
ORIGIN OF INDUSTRY 2000- 2001- 2002- 2003- 2004- 2005- CAGR
01 02 03 04 05 06
AGRICULTURE 13.0 -2.3 0.4 6.7 -3.5 2.0 2.6
FORESTRY & LOGGING 16.0 -25.0 -9.7 -22.6 3.3 4.1 -6.8
FISHING 3.3 5.2 0.0 2.0 9.0 3.8 3.8
AGRI & ALLIED 13.1 -5.2 -0.7 3.7 -2.6 2.2 1.6
MININIG & QUARRYING -26.3 -3.5 18.5 -7.8 15.3 25.7 2.0
TOTAL PRIMARY 10.3 -5.2 0.3 3.0 -1.7 3.6 1.6
MANU UNREGISTERED 16.8 -6.2 9.9 -6.4 2.4 10.4 4.1
MANUFACTURING 16.8 -6.2 9.9 -6.4 2.4 10.4 4.1
CONSTRUCTION -3.8 124.7 -30.1 14.3 38.9 1.0 15.9
ELECTRICITY,GAS & 3.5 1.3 40.6 173.4 41.0 8.7 35.5
TOTAL SECONDARY 0.2 86.6 -21.9 30.2 36.1 3.6 17.9
TRANSPORT, STORAGE 5.1 5.1 16.5 4.1 3.6 4.6 6.4
TRADE,HOTELS & 19.5 0.2 4.2 1.6 1.2 11.0 6.1
BANKING &INSURANCE 20.8 0.5 14.6 -4.6 9.9 0.0 6.5
REAL ESTATE, LEGAL & 4.2 3.9 3.7 4.1 4.2 3.9 4.0
PUBLIC 16.0 5.1 6.0 5.4 10.0 0.8 7.1
OTHER SERVICES - 1.9 8.0 -0.9 12.4 5.0 10.5 5.4
TOTAL TERITARY 9.5 4.8 5.5 5.8 6.4 5.2 6.2
SDP 8.0 15.7 -3.9 10.6 12.2 4.3 7.6
Source: calculated by using GSDP data at constant prices and
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Fiscal Scenario of the State
Before getting into the details of the fiscal scenario of the State, it should be mentioned that Arunachal Pradesh is one of the Special Category States which receive substantial financial and non financial support from the central government. It currently gets 90 per cent of its plan assistance as grants and the remaining 10 per cent as loans which is 30:70 for non Special category states. Special Category States receive preferential treatment in the distribution of normal central assistance from state plans. From the total central assistance available for State plans, funds are earmarked for externally aided projects and special area programmes (hill areas, tribal sub plans, border areas, North-East Council, etc.). The Gadgil formula does not apply in the determination of the distribution between non Special Category States and Special Category States. Had the Gadgil formula applied on Special Category States, they would have been in disadvantageous position since the formula assigns higher weights to population and deviation of per capita income from the national average.
As it stands, fiscal situation in Arunachal Pradesh lacks buoyancy. It primarily depends on grants-in-aid from Centre. As figures suggest, it is increasing by leaps and bounds, in 2001-02 it was 55.9 per cent of GSDP and it has reached to 89.7 per cent in 2006-07.The tax revenue collection in the state is very low. As a percentage of GSDP, it was mere 1.2 per cent in 2000-2001 and in 2006-07 it reached to only 2.7 percent. On the contrary, non tax revenue receipts have shown better result. Apparently it is the central assistance which is pushing up the growth of GSDP in the State. However, the positive aspect on the fiscal front is that development expenditure is slowly increasing from 35:6/- in 2001-02 to 46:3/- in 2006-07. If it continues it should bring perceptible changes in different human development indicators. Another positive aspect that has emerged is that after experiencing almost double digit fiscal deficit from 2001 to 2006, the State has finally able to reverse it in 2006-07 and has added a fiscal surplus of 3.8 per cent of GSDP. But the over all fiscal scenario clearly reveals that the State has failed to show enough fiscal prudence by which it creates an economy that can sustain the state’s high economic growth even in a situation of lesser Central assistance. It is also true that barring from agricultural sector and government sector the State has failed to create enough employment opportunity.
May be the above scenario is a gloomy one but at the same time we need to bear in mind some important inherent limitations that the State is continuously facing. First, its physical remoteness, hilly terrain, and limited connectivity with rest of the country. The Government has taken measures for terracing of hillsides for permanent cultivation and the replacement of jhum fields by horticulture, and the plantation of commercial trees and crops. These efforts have failed to bring about a substantial change since majority of the people of the farming community are yet to be in tuned with alternatives like settled agricultural practices and horticulture to jhum. There are no cold storage facilities to prevent distress sales. In many areas, commercial production or production for marketable surplus and profit is new to many farmers. Therefore, incentives to switch over from traditional mode of farming to relatively modern mode of farming are yet to get into the psyche of the majority of the farmers. Various risk factors like climate, price, crop or plant diseases, and calamities associated to commercial farming are also acting as deterrent. To minimize the risk factors, insurance cover to the farmers may be considered. Certain cash crops like ginger may thrive well due to the use of technological intervention like biotechnology. It is indeed heartening to note that Arunachal Pradesh has the potential to become the ‘orchard’ of the entire North East. But it is disheartening that this potential has never been exploited to its fullest due to problems like lack of connectivity and communication facilities, poor marketing condition etc. The state also has considerable potential for hydro-electricity in view of the large numbers of rivers that crisscross the entire state. Horticulture, floriculture, plantation agriculture, organic farming, food processing medicinal plants and eco tourism are all areas waiting to be economically exploited in the state. Of course, to create a truly sustainable development model there is a need to use appropriate eco-friendly technologies and also keep in mind the aspirations of the lay persons. Tourism and hospitality industry is yet another sector that holds tremendous potentiality for expansion for Arunachal Pradesh because of its natural beauty and clean weather. The tourism potential remains untapped as the state has failed to provide adequate infrastructure for transport and communication. Inner-line permit system another deterrent. Finally, the insurgency problem in the most of the North Eastern States has also acted as major hindrance to have cohesive connectivity with main land India and its economy. It also needs to be seen that grass root level governance with traditional institutions should be in place and linked with development initiatives. From the point of view of the Central Government, mere doling out central assistance will not make the State self sustainable. Had it been so, all the North Eastern states should be at par with other Indian States. This implies that the money received by these North Eastern states in terms of Grant-in-aid has limited multiplier effect and diffusion effect on the economy. The benefits of development must percolate down, otherwise only certain segments of the society are benefited and the rest keep on struggling with their identity and priority.
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