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Promoting Trade and Investment in the Northeastern India

M. Govinda RaoDirector, National Institute of Public

Finance and Policy.mgr@nipfp.org.in

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Scheme of PresentationIntroductionA profile of NER.Vision of peace and progress towards prosperity.Six interdependent components of strategy.Ending Economic Isolation: Improving Relations With Neighbours.Concluding remarks

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IntroductionNortheastern region in India is a sub-region, comprising of peoples largely with Mongoloid features but forming a variety of cultures. It is a landlocked area with high literacy rates but low market development and low income levels.The sub-regional developmental vision focuses on the interdependence in development between the countries of the region. Focuses on infrastructure and trade and most of all governance.The region has tremendous potential and opening up the natural trade routes and connectivity and promotion of trade with the countries of the sub-region and beyond could make the region, the gateway to Southeast Asia and a connecting link to ASEAN.

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Northeastern Region: A ProfileGeo-political, geo-cultural and geo-strategic concept of Northeastern Region.

India’s Northeast: Beautiful land stretching from the foothills of theHimalayas in the eastern range. Surrounded by Bangladesh, Bhutan, China and Myanmar.Described as “rainbow country: mystic and grandeur with bountiful and mysterious when seen through parted clouds”. Yet, a troubled land surrounded by frontiers not always friendly. The region has 8 States with a total of 262179 sq. kms constituting 7.9 percent of country’s area and has 39 million people accounting for 3.8 percent of country’s population . Predominantly rural (80%).Significant tribal population – home to 200 of 635 tribal communities; constitute over a fourth of population in the region.Variation in size – Assam the largest (26.7 million); Sikkim is the smallest (0.54 million) . 68.5% literate (64.8 percent in India); 61.5% female literacy (53.7%); Biodiversity hotspot; 52% forest cover; Brahmaputra-Meghna river systems and small rivulets; Large river systems – Source of misery more than livelihood. Harnessing the potential of the river systems is a challenge.

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Northeastern Region: Salient Features

Low market developmentVery little manufacturing activity –whatever exists is in Assam. Low per capita income levels; 62 per cent of the national average. Top down development strategy;Lack of employment opportunities despite high literacy rate.Pockets of law and order problem – Much exaggerated.

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Northeastern Economy: Salient Features

The region was in the forefront of development 150 years ago; Dibrugarh –Chittagong railway; First tea gardens and export of tea (1838); discovery of oil and establishment of Digboi (1890); Missionaries and literacy. Indeed the British exploited the potential for their benefit. We need to harness the potential for the benefit of the people.The trauma of partition: Took the economy backwards; land-locked and remote; severance with natural transportation routes. Isolation, quest for ethnic identity; poor connectivity and lack of progress leading to insurgency; Unfriendly neighbourhood.98% boundary of the region is international border. Connectivity with the mainland is just 2%. Lagging in percapita income (lower by 38%); In 2004-05 per capita income varied from Rs. 15924 in Sikkim to Rs. 7513 in Assam. Divergence over time. Lopsided structure of income – government spending dominated economic activity; Lack of market development, poor infrastructure.Less than 8% potential power generation and less than one-third of national average consumption; high unemployment rate despite high literacy; high incidence of poverty; lack of people’s involvement in planning.

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Political Map of Northeastern India

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Vision: Peace and Prosperity in NERChallenges of Development

Need to catch up with the rest of the country in development. Critical importance of regional cooperation.Catching up to level the incomes: Assuming national GDP growth at 9%, GSDP in the NER should grow at 12.95 % or percapita GDP at 11.6 %. Gradual acceleration in the average annual growth rate to 10%, 13.67% and 16.64% in 11th, 12th and 13th Plan Periods. Large investment needs to achieve the desired growth. Additional investment estimated at Rs. 1320 billion (USD. 28 billion)Structural transformation: From government based economic activity and subsistence agriculture to sustainable agriculture, manufacturing and service sectors to productively harness the resources of theregion. Increase in productivity of agriculture, manufacturing and non-governmental services and a secure climate for investments. Development of markets and fostering trade within and with othercountries in the region and beyond are critical. Given the geography, the Northeastern region could serve as a gateway for trade with Southeast Asian countries. For India, look-east should begin with Northeast.

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Vision 2020: Strategy for Development

Need for a shift in strategy to achieve people-centric development. The Strategy Comprises of:

Improvement in Governance;Development of Market Institutions;Attracting investment into the region;Fostering trade and commerce;Capacity Development;Harnessing resources for inclusive development.

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Components of Strategy

Empowerment of the people for participatory governance and grass-roots planning;Rural development through acceleration in agricultural growth and creation of non-farm employment opportunities.Developing sectors with comparative advantage.Capacity development of the people and institutions;Creating an investment climate in the region: Infrastructure and connectivity; Promotion of externalities with neighbouring countries. ”Look-east” policyResources for development- Augmenting public and private investments.

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Empowering People to Govern and PlanNeed to maximise people’s participation;Large parts of the area is covered under Schedule VI: PESA.Total rural local bodies – 7561; Gram Panchayats: 5106; VDCs: 2023; Intermediate Panchayats: 376; DPs: 47; ADCs: 9.Activating people’s participation in village development councils, district development councils and Area development councils. Harmonise the work of development institutions with the traditional institutions. Communitisation.Standardisation of the functions of Regional autonomous councils with minimum assignment given to Panchayati Raj institutions. Grass-roots planning - build planning from below for efficiency and accountability; provision of public services according to people’s requirements.

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Responsive AdministrationResponsive and proactive administration is critical to progress.Ensuring peace for development: Poor law and order situation is an exaggeration.Network of connectivity, focus on social interaction, and acceleration in development are the keys. Solutions to the problems should be found in an accommodating environment. Need to provide corruption free administration. Participatory governance by activating Panchayati Raj. Strengthen traditional institutions for public service delivery.

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Rural Development and Increasing Non-farm Employment Opportunities

Primary sector: Different plans for plains and hills. Single crop and low productivity; high acidity in land; Shiftingcultivation in hills; subsistence agriculture; Need to increase production to 110 lakh MT by 2020 acceleration in the growth from to 2%, 3% and 4% in phases –increase in productivity from 1520Kg/ha to 1650Kg/ha. Plains: increase cultivable area and crop intensity; adoption of short duration high-yielding varieties; balanced use of fertilizers; balance acidity; flood control and strengthening embankments is critical to agricultural growth;Hills: Reduce the crop cycle; work with the tribals to take up improved farm practices and create market for their products wean away from jhum; horticultural crops; organic farming; strengthening rural infrastructure; IFAD experiment in Manipur; Need for private investment.Focus on rural infrastructure and extension activities; Development of handlooms and handicrafts and other non-farm activities; skill development.

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Developing Sectors with Comparative Advantage

Manufacturing Sector:Agro-processing industries; Handloom and handicrafts: Silk industry. Cement – oil and bamboo based industries; Utilisation of hydroelectric potential. and its use in manufacturing

Non-governmental services: Tourism and cultural rejuvenation;Music and dance carnivals;Adventure tourism;IT development – BPO promotion;

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Capacity DevelopmentCapacity development – necessary for participatory development and structural transformation;Over 40 % of the population is young and the focus should be on them; Particular focus on capacity development of women and socially disadvantaged sections.Primary sector: improved agricultural practices; extension; skills required for commercial farming; horticulture;Vocational education and skill development and employability; self –employment skills; focus on agro-processing, IT, paramedical services, bio-technology, entertainment and hospitality. Involvement of youth in productive economic and social activities; focus on sports, cultural festivals and carnivals.Capacity development of institutions for governance and planning: Panchayati raj institutions, autonomous councils and state governments. District and State officials; Upgrade NEC as a full fledged planning agency to coordinate inter-state developmental issues.Capacity development of governmental agencies.

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Infrastructure and ConnectivityConnectivity is critical to market access, mobility, controllinginsurgency and social interaction. Infrastructure is a major constraint for development. Rail, road and air connectivity is poor and the region is land locked. Strengthening intra-regional connectivity helps to activate development, helps market development and enables trade with neighbouring countriesNeed to speed up execution of central master Plan. Completion ofrail connectivity between state capitals. New trains between Guwahati and New Jalpaiguri and extension to Sabroom. Activating the 9 old airstrips. Activating inland waterways. Access to Chittagong port. Bridgeacross Feni River “Look – east from the NER. Development of infrastructure at border posts – fostering trade with China and ASEAN countries.

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InfrastructureTransport:

Roads: Phased development of National Highways, Major district roads and state highways; 2966 Kms in addition to the 7616 kms.Railways: Bogibeel rail bridge commissioned in 1996 started in 2002. Benefits – Assam, Meghalaya and Aru. Pradesh. Jiribum section; Dimapurto Kohima; Azara to Bunnia; Kumaraghat to Agartala. Bridges across North and South Guwahati; Dhola and Sadia; Jorhar and North Lakhimpur; Dhubri and Phulburi. Air: Connecting all state capitals. Guwahati as the hub; Inland water: Need to expand Indo-Bangladesh protocol to cover passenger transportation.

Aricha – Dhulian – Rajsahi – Dacca route to reduce distance between Kolkata and Northeast. Giomti – Meghna to foster Tripura –Bangladesh trade; Tizu – Chidwani - Irrawady between Nagaland and Myanmar. Activation of the routes specified in IWT Transit and Trade Protocol between India and Bangladesh

Power.Telecommunication;Information Technology

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Ending Economic Imprisonment – Trade with Neighbours and Beyond

Look East Policy for more than a decade, but has not benefited the region. Look-East Policy should start from the Northeastern Region.Region has 98% international borders with Bangladesh, Bhutan, China, Myanmar and Nepal. Fortunes of the people depends on theinteraction with people and strengthening economic linkages withneighbouring countries and beyond. Promotion of economic ties with neighbours is critical to end economic isolation, market development and attracting investment. This is not an option, but an imperative. The government is seized of this.Infrastructure development, particularly opening up natural transportation routes could enhance trade significantly. This will be a win-win situation. Trade facilitation and Border trade infrastructure: Facilities for trade facilitation at Checkpoints. Road infrastructure, weigh- bridges; Cultural Dimensions: 1643 Kms border with Myanmar. Large number of migrants from neighbouring countries; Cultural links with neighbouring countries will help to foster better understanding.

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Ending Economic Isolation – Trade With Myanmar

Promotion of Border Trade.Trade volume small – just about Rs. 4 billion. Exports: Tea and Coal. Negligible manufactured goods. Imports are mainly processed food items. Bay of Bengal Initiative for Multi-sectoral Technical and Economic Cooperation (BIMSTEC) and Meckong – GangaCooperation.

Trade with Myanmar: Trade with Myanmar is much less than Myanmar’s trade with China despite sharp increase in the 1990s.

Infrastructure: Asian Highway Link- Asian Railway Network; Natural Gas Pipeline Grid; _ Active Consideration.Connectivity to Asian Highway through Imphal – Tamu feeder road; Link Indo-Myanmar rail link at Dibrugarh railhead. Proposal to construct 1360 Km Trilateral Highway from Moreh in India to Mae Sot in Thailand through Bagan in Myanmar. Four Check-points to be opened: Pangsau pass; Paletwa; Lungwaanyong and Pangsha-Pangnyo.

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Trade With Neighboring Countries

India’s Trade with South Asian Countries: Exports: 5%; Imports: 0.8%Trade with ASEAN:

ASEAN: Exports: 10%; Imports: 9.5%.China: Exports: 6.6: Imports: 9%.

Fostering trade with Bangladesh is particularly important. Most contentious issue: trade imbalance with Bangladesh. Exports to Bangladesh: 1.3%; Imports: 0.12%Myanmar – Exports: 0.11; Imports: 0.41

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Ending Economic Isolation –Trade with Bangladesh

Concentrated on a few items: Water-borne trade is more important than land-borne trade.Perennial trade deficit and Bangladesh has serious concerns.Land trade is mainly through informal trade (largely in agricultural commodities) is significant.Need to eliminate tariffs, removal of non-tariff barriers, harmonisation of customs procedures, facilitation of trade and cross border investments.Natural Gas pipeline from Myanmar to Kolkata through Bangladesh. Transit fees could reduce trade imbalance.Political and diplomatic initiatives needed.

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Ending Economic Isolation: Trade with China

Main route is through Nathu La. Need to develop the infrastructure. Presently only barter trade is permitted.Poor road connectivity and limited trade facilitation. Border dispute is a major problem in promoting trade.

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Administrative MeasuresTrade agreementsKunmang Initiative – 1999 on-official policy makers and business men meet to discuss ways of promoting cooperation. Inland waterway project between India and Myanmar on the Kaladin river to link NER with Sitwe port. Task force on the development of border trade.Empowered Committee under the Chairmanship of Commerce Secretary attempts to implement and monitor various initiatives. 136 land customs stations; 11 priority stations.Export infrastructure. Transport assistance;

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Infrastructure

Infrastructure deficit – important issue.Poor road and rail densityPoor air connectivity.Need to develop inland waterways. Intensify protocol.Access to sea port – Chittagong port.Telecommunications

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RecommendationsMove away from bureaucratic and security oriented approach.Export infrastructure. Transport assistance; India should assist Bangladesh by developing Chittagong as a modern port. Transit fees could reduce trade deficit.Trade facilitation: Not necessarily based on geographical contiguity.Expansion of agricultural trade. Proximity is important. Trade in perishables.Improving border trade infrastructure: approach roads, storage, weigh bridges; telecommunication link, electricity, custom/immigration counters, bonded warehouses: Private facilities such as hotels and restaurants; petrol bunks, convenience stores and repair stations, banks, cyber cafes.

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Resources for DevelopmentIf the growth rate has to be accelerated to 12.95% investment requirements are large.Total investment required is estimated upto 2020 is estimated at Rs 1,156.78 billion at 2006-07 prices. Much of this has to come from the private sector. Strengthening infrastructure by augmenting public investment andprivate partnership. Large part of the infrastructure requirement has to come from the government. Quantum jump in public investment is required.Creation of enabling environment for private investment. Significant increase in investment by the Central government in highways, railways, airports etc.Need to augment own resources for social sector development;Despite creation of non-lapsable pool based on Shukla Commission recommendation the actual investment has not been adequate;

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Concluding RemarksFortunes of the region is inextricably intertwined with promoting trade.Strengthening market institutions and capacity development is the key.Market institutions development requires good governance, infrastructure and responsive administration and proper structure of incentives. Infrastructure, governance and trade are the key issues. Activating the local institutions for participatory development process is a key part of governance.Progress is possible only with peace and that requires a spirit of accommodation by all.Harnessing the resources of the region for the benefit of people is necessary.Multilateral Institutions like ASDB have an important role in the development of the sub-region. Initiative similar to the Mekong Sub-region will do considerable good.