AN INTRODUCTION TO INDIA’S NORTHEAST
Governor of Meghalaya
(Speech at GOPIO Convention –2000, Zurich, Switzerland, July 22, 2000)
If the history of world civilization can be described in terms of the gradual diminution of the significance of geography, the 1990s should be regarded as the most important decade in the history of mankind. Two developments make it so – the integration of the world economy spearheaded by the WTO and the emergence of Information Technology. India was one of the first among the developing countries to recognize the opportunities and challenges thrown up by the new forces of world integration. In 1991 the Government of India set into motion a wide–ranging reform agenda, which has acquired national acceptance already. India, happily, has also found itself more than ready for the IT revolution because of its vast trained manpower resources.
But even as we are speaking of the integration of the world economy, there is at least one region of India that is yet to be fully integrated even with the national economy. I am referring to the northeast of India, joined with the rest of the country by a narrow corridor, aptly called the chicken’s neck. Land-locked and geographically isolated, this region has continued to stagnate, though myriad studies have confirmed its great economic potential. In this presentation I shall briefly outline the broad features of the region’s economy, chiefly for the benefit of prospective investors.
2. The Region
The Northeastern Region (NER) comprises the states of Arunanchal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland and Tripura, with about 8 per cent of the country’s geographical area and about 4 per cent of its population. The region is known for its physiographic, ethnic and linguistic diversity. It is one of the most bio-diverse zones of the world. Some 75 population groups inhabit the area, speaking something like 200 languages and dialects. For convenience the people are usually divided into three groups – hill tribes, plains tribes and others. The tribes constitute only about one fourth of the population though they are distributed over large areas and four of the states are almost entirely tribal. The plains are inhabited by Hindus and Muslims, by and large. Christians are the majority in the hill states of Meghalaya, Mizoram and Nagaland. In spite of the heterogeneity, the region is quite homogeneous in other respects. The tribal societies have an egalitarian milieu. The Hindus do not observe the caste system at all rigidly. Restrictions on inter-dining are unknown. Except in some parts of Assam and Tripura, the type of economic disparity and poverty that is found in the rest of India is also not in evidence here.
The population of the region was estimated at 34.79 million in 1995 of which Assam alone accounts for 24.61 million. Arunanchal Pradesh has the lowest population of less than a million. The average population density is 123. But this can be misleading because of the wide diversity. Assam and Tripura have a fairly high population density of 286 and 263 respectively. Aruanchal has the lowest density, just 10. Others range between 33 and 82. The decennial growth of population in all the states has been higher than the national average. It has been argued that immigration from Bangladesh and Nepal is an important contributory factor for the high rate of population growth.
Literacy is higher than the national average in all states but Arunanchal, with Mizoram boasting of near 100 per cent literacy.
The valleys in Assam and Manipur are economically more active in the basically agricultural economy. The hills and foothills, though comprising two thirds of the total geographical area, are not equally active. Except in the plains, land is controlled by the community through a traditional system of land tenure.
3. Unbalanced Economy
There are differences among the seven states of the region with respect to their resource endowments, levels of industrialization and infrastructure facilities. Yet on the whole all these economies are underdeveloped, agrarian economies with very weak industrial sectors and inflated service sectors. The industrial sector has mainly developed around tea, oil, timber and mining. Only the tea plantation industry employs a large labour force. In Assam it employs more than 500,000 workers. State-sponsored industrialization in the form of sugar mills, jute mills, paper mills and even food processing units has not been successful. Therefore, the economy of the region is still primarily agricultural. But the full potential of even this sector is yet to be exploited. This is because of primitive farm practices of slash and burn, shifting cultivation (Jhum) in the hills and mainly single-crop, traditional farming in the plains. As a result, the region is not able to produce even adequate food grain to feed its population. The states of the region import food items worth Rs.20 to Rs.25 billion annually from other parts of the country. Since agriculture and industry have not really taken off, the pressure for employment is on the service sector. As a result, this sector has expanded disproportionately. Due to low economic activity, the states of the region are resource deficit. But a large portion of these limited resources is spent mainly to maintain the service sector. Except in Meghalaya and Nagaland, the contribution of agriculture to Net State Domestic Product (NSDP) is much higher in the region. Mining is an important contributor to the Meghalaya economy. Similarly, forestry and logging play an important role in Arunachal and Nagaland. But after the Supreme Court’s restrictions on tree felling, the future of this sector is in doubt. Compared to all India average of 20 per cent, manufacturing’s contribution is between 5 and 8 percent in the region. The contribution of construction is high in the region. In Arunachal it is 20 percent and in Nagaland, it is as high as 31 percent of the NSDP. Public administration and other services play a very important role in the region. Compared to the national average of 11 percent, its contribution in the region ranges from 15 percent in Assam to more than 40 percent in Tripura.
Employment is mainly in agriculture and the service sector. In Assam, Meghalaya and Nagaland about three fourths of the work force is engaged in agriculture.
4. Economic Growth
In the eighties, the economic growth rates were higher than the national average in Arunachal and Nagaland. And, except in Assam, they were quite comparable to the national economic growth in other states. This was quite natural as the region was starting from a low level of economic development.
It would also be interesting to know the performance of these economies since the 1991 reforms. There was severe contraction at the national level in 1991- 92. But, by and large, there was no visible impact on the Northeast economies. They did not experience the stabilization impact. Later, when the national economy started recovering fast, these economies started slowing down. They have clearly failed to take advantage of the national expansion.
Agriculture, with allied activities, is the mainstay of the NER economy. Despite the large geographical area, the land available for cultivation is limited. The area of agriculture operations is confined to only 5 per cent of total geographical area in Arunachal Pradesh and 8 per cent in Manipur. It is less than one third of the total area in Mizoram and Tripura . Compared to All India average of 64 per cent, area under agricultural use is between 40 and 50 per cent in Assam, Meghalaya and Nagaland. Further, out of this limited area, only a small portion is irrigated. It is about 15 per cent in Assam and Arunachal, and 12 per cent in Tripura. In Nagaland and Meghalaya the gross irrigated area is slightly higher. Only in Manipur, the gross irrigated area is about 40 per cent of the cropped area, which is higher than the national average of 36 per cent. But the unique feature of the region is its high rainfall, which ranges between 3,000 and 12,000 mm. In the hilly areas, jhum cultivation continues to be a major agricultural practice adding to soil erosion and destruction of forests. The average size of operational holdings is smaller than the national average in Assam, Manipur and Tripura. But in other states, due to jhum cultivation and common ownership, it is larger.
Except Arunachal Pradesh, no other state in the region is self sufficient in food grains. Barring Manipur, the consumption of fertilizers and improved seeds is very low. Consumption of electricity in agriculture is picking up only in Tripura. In 1995-96, the food grain production in the region was more than 5 million tonnes. Food grain yields were higher than the national average in Manipur, Mizoram and Tripura. Food grain productivity has increased substantially in Manipur and Mizoram in the last couple of years. But it has declined in Arunachal. Rice is the principal crop of the region. Rice yield per hectare is highest in Manipur followed by Tripura. Both are above the national average. Compared to that, yield of rice is only 72 per cent of the national average in Assam. Apart from Assam, Tripura also produces tea. Other States such as Meghalaya and Arunanchal are also experimenting with tea cultivation successfully.
Since the agro-climatic conditions of the region are congenial for horticulture and spice cultivation, most of these States produce a wide range of such crops as fruits, nuts, vegetables, spices, plantation crops and aromatic and medicinal plants. The major horticulture crops grown are banana, oranges, pineapple, coconut, jackfruit etc. In 1995-96, NE region produced about half of the total ginger production of India. Major contributing States were Meghalaya, Arunachal and Mizoram. Other spices such as chilies, turmeric, cardamom etc. are also grown. Potatoes, sugarcane and oilseeds are important too. Rubber plantation is becoming important, particularly in Tripura. In animal husbandry, the region produces only about 20 per cent of its meat requirement and about 15 per cent of the egg requirement. In 1993-94, the NER produced about two hundred thousand tonnes of fish. But this was way behind the region’s requirements.
As in March 1994, the region had 166 large and medium scale industries. Out of these industries, more than 70 per cent were in Assam. Some of them have already been declared sick. There is hardly any large or medium private industry outside Assam. And even within Assam, about half of the industrial units are located in only three districts - Kamrup, Tinsukia and Dibrugarh. On paper, there are about 40,000 small scale units in the region. According to government statistics, half of them are sick. This indicates that disproportionate emphasis on small industry may also not be the right approach in the region. In fact, there will not be more than a few thousand units actually operating.
Gross output per employee as well as fixed capital per employee is less in the region compared to all India averages. This indicates either low fixed capital or over-manning. Net value added is high in States having oil and gas or mining industries like Assam, Meghalaya and Tripura. But it is negative in Manipur.
Percent distribution of value of output by manufacturing industries in the NER indicates that most of the industrial units are in food processing, wood and wood products, non-metallic mineral products, rubber, plastic, petroleum and paper. In Assam and Tripura about half of the units are in the food sector. In Nagaland 71 percent are in wood products. In Meghalaya, 64 per cent are based on mineral products. Outside these four or five areas, there is hardly any industry. Overall, the region contributes only a little over 1 per cent to the value of the output of the manufacturing sector in India.
The infrastructure index for the states of the northeast has been worked out by the Tenth Finance Commission appointed by the Government of India as follows (against an all India index of 100):
(weights given: power 20%, irrigation 20%, roads 15%, railways 20%, post offices 5%, education 10%, healthcare 4%, banking 6%)
The low scores are partly explained by the fact that the hill states have little or no rail links. Except Meghalaya, which is surplus in power, all other states are short of their requirement of power. The region has about 6 percent of national roads and 13 percent of national highways. Road communication is thus not much behind the national average. The Guwahati airport in Assam has been developed as an international airport. All the state capitals of NER will be connected by air services in the next two or three years. Most of the NER states have also made good progress in telecommunications. Most of these states are much above the national average in terms of schools and teachers.
8. Human Resource
One point on which the region scores over most other states of India is its high literacy rate. Female literacy in the region is significantly higher than the national average. In most of the states English is the medium of instruction. Educated young people are usually fairly fluent in written and spoken English. This is perceived now as an advantage that the region enjoys over many other parts of India in the age of IT-enabled services. The NER has 35 institutions of higher and technical education. The capital of Meghalaya, Shillong, has always enjoyed the status of a major centre of education in India and attracts students not only from other states of the northeast but also from places outside the NER. Unemployment among the educated is lower than the national average but still quite high.
9. Potential, Prospects and Investment Opportunities
9.1 Geographical Advantage—Contrary to traditional wisdom, the NER is increasingly being viewed as having a location advantage, having extensive borders with Bhutan, Bangladesh, Myanmar and China. In addition, these states are very close to the dynamic East and Southeast Asian economies. There are some studies, which reveal that movement of people and merchandise between NER and China, Burma and Thailand did exist in the past. In recent years trade routes to Myanmar have been reopened and traditional trade with Bangladesh has been increasing. As of date, the estimated value of trade with Bangladesh is Rs. one billion and that with Myanmar is of the order of Rs. two billion. In addition a considerable volume of cross border trade, formal and informal, with Myanmar and Bangladesh is in existence. The value of informal cross border trade has never been properly assessed; but it is believed to be worth much more than the official trade.
The Government of India has already made a small beginning for expansion of trade with neighbouring countries. Trade talks with Bangladesh and Myanmar are on. The Government of Meghalaya has set up an export promotion industrial park at Bynihat, about 20 km from Guwahati, with central assistance. The Central Government is also setting up a trade fair exhibition centre in Guwahati. There is a proposal to set up an NER trade promotion council. Opening up of old trade routes with China is also under consideration. The Guwahati airport has been upgraded as an international airport, as already stated. There is a possibility that a trans Asian railway linking Myanmar and Bangladesh will go through the NER. All this is good augury.
9.2 Natural Resources— The NER has oil reserves of over 500 million tonnes, natural gas reserves of 190 billion cubic meters, coal deposits estimated at over 900 million tonnes, limestone reserves of about 5000 million tonnes, clay deposits of more than 11 million tonnes and granite deposits of 2 million cubic meters. It has 49 percent of its total geographic area under forest cover. The hydel power potential of the region is 32000 mw at the most conservative estimate, one third of India’s total potential. Two thirds of the region is covered by hills of great natural beauty, an ideal resource for adventure and eco tourism. The forests of northeast abound in various kinds of medicinal plants and there is a rich folklore about the healing properties of various plants.
I am only highlighting some of the major natural endowments that come readily to mind. A detailed and systematic survey will no doubt yield many more valuable data on the region’s natural resources.
9.3 Food Processing—There is a tremendous scope for food processing industries in almost all the states of northeast. These industries will be based on local resources as well as local demand. As for local resources, the region grows a wide variety of horticultural crops and spices. I have mentioned them earlier in this presentation. These products find markets far and wide in Indian cities and in Bangladesh. Unfortunately, there are few fruit processing units worth the name. This has acted as a dampener on farm production and productivity.
Tea is becoming a very popular crop in the entire region. Whereas Assam alone was the tea growing state in the past, at present almost every other state has experimented with this plantation crop with success and more and more tea gardens are coming up in so-called non-traditional areas. This crop could afford very attractive investment opportunities along with tea processing.
Demand-based food processing industry has great potential in animal products. Nearly the entire population of the region is meat eating. On the other hand, rearing of animals for meat is neglected and there are no meat processing industries at all.
9.4 Tourism—The whole of NER is one of the most beautiful areas in the world. It is home to one of the richest varieties of flora and fauna on the globe. The bio reserve in Meghalaya is regarded as the richest one known. The Kaziranga National Park in Assam was once adjudged the best small wild life sanctuary in the world. There are numerous such sanctuaries spread all over the northeast. Opportunities for trekking, rock climbing, hang gliding, angling etc. are practically inexhaustible. There are several golf courses, the most famous one being the one in Shillong. Cultural, pilgrimage and conference tourism have very attractive possibilities too. Tourism in this region requires a great deal of investment, which, unfortunately, has not been forthcoming so far.
9.5 IT Industry and IT Enabled Services—There are many reasons why IT industry and IT enabled services should be an attractive investment opportunity in the NER. The excellent climatic conditions of the hills, pollution free environment, high literacy rates, a large body of trained manpower, proficiency in English amongst the educated, and huge investments proposed by the Government of India into IT related infrastructure together constitute a favourable environment for investment in this sector. Proximity with the countries of south East Asia is also an added advantage for this purpose.
9.6 Government of India Initiatives—Since 1996 successive Prime Ministers of India have taken a personal interest in formulating a special package for the NER to promote economic development, the most recent one being a Rs. 10 billion package announced by Prime Minister Atal Bihari Vajpayee. These initiatives cover the following general ground:
In 1997 the central government declared a separate industrial policy for the NER. Among other things, this policy declared specified industrial areas as excise and tax-free zones for all kinds of industries. For industries based on local raw material the same benefits have been made available in any part of each state of the NER. The new policy has brought about a marked change in the industry’s perception of NER as an investment destination. From 1998 onwards Indian industry has shown a great deal of interest in this region. More than a hundred proposals have been cleared by the respective state governments, with many more in the pipeline. In the designated tax-free zones new industries are coming up at a very encouraging pace.
10. The State of Meghalaya
I shall like to conclude this presentation with a few words about my own state, Meghalaya. Meghalaya has everything going for it, economically speaking. It is one of the few states in India that is surplus in power. Financially, it is one of the best-managed states in the country and has been recognized as such by the Government of India. It has a massive 4200 million tonne limestone deposit, coupled with a fairly impressive 550 million tonne coal deposit. It has other minerals such as granite, sillimanite, china clay, fire clay, phosphorite and quartz. It has a salubrious climate and a dust and pollution free atmosphere, itself a resource for high tech and service industries. It grows oranges, pineapple, peaches, pears, plums and bananas in abundance. It also grows plenty of ginger, turmeric and other spices. Finally, it is a beautiful tourist destination with opportunities for golf, nature and eco tourism, adventure tourism and caving.
The Government of Meghalaya has identified agro-based and food processing industries, mineral-based industries, electronics and IT industry, hydel and thermal power generation, orchid cultivation, spices, oleoresin and other essential oils, medicinal plants, tea and healthcare & recuperation as the thrust areas for investment.
One reason I can think of why Meghalaya has not attracted much private capital in the past is that the state was created to safeguard tribal interests. For years after its creation the government and the people were preoccupied with this perceived need to protect the people from outside pressures. In recent years there has been a major shift in attitudes. Both the government and the people have come to the realization that the state can grow and develop only with massive private investment. In 1997 the state government declared its Industrial Policy with several incentives and an aggressive agenda for attracting outside capital. This initiative has been supported by the Government of India with a special package of incentives if its own. The combined effect is that Meghalaya has, for the first time since its creation in 1972, started receiving attention from the industry. Today the multinational company Lafarge has indicated its interest in setting up a cement plant in Meghalaya. There is a Rs. 600 million potato processing plant under construction. An Indian cement company, Saurashtra Cements, has already entered the state. A number of other industrial projects are in the pipeline.
The Government of Meghalaya has decided to set up a new township near Shillong to meet the growing needs of urbanization and industrialization. It will be a Rs. 8 billion project. We are very keen on foreign and PIO involvement in consultancy services and financing for this project.
Before I close, I shall like to make a suggestion to the GOPIO. The organization should consider opening up a regular communication channel with NER by setting up an office at Shillong. The region is looking to people of Indian origin for advice, guidance and finance to realize its true potential and to find its place in the sun.