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Connectivity is the new energiser in the otherwise-laidback North-East. Assam is pressing ahead with its ‘Act East’ policy, with road connectivity to South-East Asia. The other States are not far behind. Industry chambers are making regular rounds to Myanmar or Thailand.
Everyone expects good days ahead. But there is not much of debate over whether the economy of the North-East is ready to take on and reap the benefits of intense competition, which is inevitable in the next five to 10 years.
The North-East is betting on its geographical proximity to China and the ASEAN region, but the underlying assumption is somewhat naive. The benefits of India’s $16-billion trade with Bangladesh and Nepal are reaped by industries in Tamil Nadu or Maharashtra. Border States such as West Bengal and Bihar merely offer transit facilities.
The North-East is unlikely to be a transit corridor for the Indian industry because there is no point in taking the costly and circuitous land route to trade with ASEAN when sea freight is cheap.
However, connectivity might pave the way for cheaper imports from South-East Asia.
Considering the North-Eastern region’s thin population, difficult terrain, fragile ecology and volatile political environment, it was never seen as a natural destination for investment. It is a market with marginal production opportunities.
Indeed, there is a risk that better connectivity may wipe out whatever production opportunity is left in the North-East. West Bengal, Bangladesh or Myanmar may gain as natural investment destinations to cater to the regional market. The trends are already visible.
The reasons why the North-East remains an unviable production centre starts from labour.
The pre-industrial local population is not keen to participate in the unskilled job market, and their skillset is not marketable. Local industries say that labour is slow to adopt new skills and is low in productivity, and that wages are relatively high.
As of 2012, the notified daily wages for unskilled labour in Assam and Manipur were ₹136 and ₹144, respectively against ₹120 in Bihar, ₹134 in Gujarat and ₹145 in Maharashtra.
Other than three or four districts in lower Assam, the rest of the region produces one crop, mostly rice, a year, using archaic techniques, which impacts yield. From pork to ginger, bamboo to black rice, the North-East is not efficient in producing any crop. Its products are either too low in volume or suffer from low acceptability in the market.
Serious inadequacies in the back-end supply chain doomed the prospects of agri-processing.
All four processing units of the North East Regional Agricultural Marketing Corporation (NERAMC) are idling. Bangladesh-based PRAN imports raw material for its Tripura facility. The North East Mega Food Park and Bamboo Park are gross failures.
Driven on subsidy
Subsidy is the primary driver of the North-Eastern economy. The public sector units are nothing but dole machines. The majority of the exploration and production (E&P) and oil refining activities remain in operation although they are inefficient.
Even the private sector is not immune to this affliction. The investment rush, particularly by the FMCG sector, in Assam in the past decade, was triggered by huge subsidies offered under the North East Industrial & Investment Promotion Policy, 2007.
As the policy was discontinued in 2017, investment flow reduced. And most of those units, are likely to relocate when the subsidies dry up in 2027. Bringing raw materials from Uttar Pradesh or Maharashtra and selling it back there makes no economic sense.
Services deserves attention
Strikingly, however, the North-East has done better in areas that barely receive attention.
Some 20 years ago, the region was dependent on the rest of India for basic medical treatment. Today, it has a range of quality private healthcare facilities, which have now spread to other parts of the country.
There is also a small IT sector, which came up without even a proper policy framework. But such examples are few and the flow of easy money is not helping the North-East.
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