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Harnessing economic potential in India’s northeast

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In Brief

Northeast India is increasingly being viewed as a key region for private investment. More than 90 per cent of the area is bordered by other countries, including Bangladesh, Bhutan, Burma, China and Nepal. There are eight federal states in the northeast, as well as a number of autonomous territories.


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The region is characterised by poverty rates well above the national average, by insurgency and counterinsurgency action, by exceptional laws and constitutional provisions, and often-opaque governance structures. For this reason, private investment and the rhetoric and policy surrounding it may seem a minor concern. However, private investment reveals a great deal about India’s northeast frontier — and local and national attempts to benefit from its location on the edge of South Asia.

Private investment seeks to harness the economic potential of the northeast. Unlike other parts of India where land, coasts, rivers and forests have been exploited, the northeast is imagined as almost virginal: a place full of valuable resources that local people cannot, or will not, utilise. The potential for profits is concentrated in extractive industries and, somewhat contradictorily, ecology and biodiversity.

The industrial policies of the federal states in the region illustrate this perceived potential. The Arunachal Pradesh State Industrial Policy 2008 notes that ‘at present, the industrial growth in the State is dismal and at a nascent stage despite enormous potential’. A key objective of the Industrial Policy of Nagaland is to create ‘conditions for rapid industrial development and [a] conducive investment climate’ that would help to ‘accelerate exploration of mines and minerals for enhancing the resource base of the State’ and strengthen the organic agriculture, handicrafts and tourism sectors. Other federal states have followed suit, and outside attention is growing.

The region’s proximity to China and Southeast Asia frequently prompts discussion of its potential for investment. That potential is elaborated in the flagship North Eastern Region Vision 2020 (NEV2020) policy document written by the Ministry of Development of North Eastern Region and released in 2008. The report refers to ‘underdevelopment’ as the region’s ‘economic imprisonment’, and argues that to alleviate poverty in the region a ‘paradigm shift in development strategy’ is needed to allow ‘people-centric programmes based on harnessing the natural resources of the region’. NEV2020 posits that investment will create opportunities, opportunities will create jobs, and jobs will cultivate a peaceful region.

The region is also seen as an emerging, if challenging, consumer market. Growing incomes from decades of political reservations in the bureaucracy for members of tribal communities under the Sixth schedule of the constitution, bureaucratic expansion and patronage politics, along with the growth in remittances to the region by family members working in Indian cities, have expanded the consumer base. Mobile telephone and internet providers are well established, and the automobile, retail, hospitality, airline and information technology industries continue to eye the region. As a market for consumer items, the northeast is India’s last domestic market to ‘crack’, as it were.

Despite this potential, attracting private investment to the region has proven difficult. The North East Industrial and Investment Promotion Policy 2007 (NEIIPP), a 2007 to 2017 federal government initiative, has transformed the entire northeast into a special economic zone. It provides major incentives (mostly over a 10-year period) for new investments and for the expansion of existing investments. These incentives include 100 per cent tax exemption, 100 per cent duty exemption, capital subsidies of up to 30 per cent, interest rate caps on loans, insurance reimbursements (a major incentive in the unstable northeast), and special incentives for the services sector, biotechnology and power generation.

Finance is coordinated by the North Eastern Development Finance Corporation Ltd, which has showcased ‘success stories’ from the first five years of the NEIIP in its half-term report. The success stories reflect fairly modest ventures and showcase individual entrepreneurship: a silk factory in Assam, a compost facility in Meghalaya, a bakery in Mizoram. The massive projects that are coveted by proponents of private investment, and feared by critics, do not feature.

There are two reasons for this. First, uptake of the NEIIP has been poor. Massive privately funded projects are not being profiled because there are not many. Despite generous incentives the policy has had a limited impact. Secondly, most large-scale projects in the region are overwhelmingly funded and operated by state agencies, such as the Oil and Natural Gas Corporation (a group of companies in which the Indian government has a 69.23 per cent stake), the Uranium Corporation of India Ltd, and the North Eastern Electric Power Corporation Ltd, though often in partnership with private investors.

In addition to national agencies, the governments of the region’s federal states continue to seek private investment, even with limited prospects of success. For elites in the northeast, both inside and outside the formal political system, showing willingness and openness to private capital can increase the possibility of government subsidies and incentives. Actually implementing the promised investment is another matter, however.

Certainly different states within the region hold different prospects for private investment. A 2013 report by the Indian Chamber of Commerce and PricewaterhouseCoopers, titled India’s North-East: Diversifying Growth Opportunities, reflects the usual aspirational sentiments: ‘as multiple avenues for growth and development emerge, it is of paramount importance that the region, as a collective identity, embarks on a vibrant journey to realise the dreams of a better future’. However, the report also attempts to differentiate investment potential within the region, commenting that ‘all the eight states have different developmental prospects and resources to support their efforts in contributing to the regional as well as national economy’. States are compared based on their level of forest cover (the less the better), fertiliser use (the more the better), agricultural productivity, the length and type of roads, power-generating capacity, and education levels, suggesting a region-wide approach may not be feasible when seeking to attract private investment.

Peace, or the prospect of peace, is another important way of differentiating between states. Thus Arunachal Pradesh, Mizoram and Sikkim have pushed their own prospects and sought to distance themselves from Manipur, Nagaland and Assam. But while instability might affect private investment in a food-processing plant or hospitality-training college, it does little to dissuade public investment in oil, gas, hydropower or uranium — industries that have shown limited capacity or willingness to lift communities in the region out of poverty.

Duncan McDuie-Ra is an Associate Professor in Development Studies at the University of New South Wales. 

This article appeared in the most recent edition of the East Asia Forum Quarterly,‘On the edge in Asia’.

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