Connecting The Northeast With Prosperity

Emerging East: A Business Line feature.

Set for a new rise:The potential of the North-Eastern States can be tapped only by building sound financial and physical connectivity with the other States.

Since Independence, the socio-economic development of the Northeast has taken place in a stop-go fashion.

Assam – the biggest State in the region – had a per capita income higher than that of India in 1950-51. But, by 1980-81 it fell behind in growth rate.

This created a gap in per capita income of Rs 749, which widened to Rs 3,776 in 2000-01 (1993-94 prices) and further to Rs 7,632 in 2007-08 (1999-00 prices). The per capita income in the North Eastern region on an average is Rs 12,918 as compared with the national average of Rs 17,947 at current prices of 2001-02. Some smaller States have done better in the last decade, but a lack of investment by private and the public sectors have meant a far slower growth than the country.

Assam has enjoyed relative prosperity due to the tea and oil businesses, as also its connectivity with the rest of India, while the other States have fallen behind. But with enormous forest and hydropower resources at their disposal, and a 4,500 km-long international border with four countries available for trade, the growth potential remains huge. The weak borders ensure easy cross-border movement of people and goods, though the actual volume of trade remains very low at each instance. A large portion of this low volume commerce goes under the Government's radar, mainly because the traded utilities have very small sizes per transaction. But there can be huge benefits by developing the region as a channel for exports of domestically manufactured goods. It will also attract private investment for bringing industry into the area.

Railway network

A transformational step towards development of the region would be building an extensive Railways network. Since it is cheaper to carry heavy freight by rail compared with airways and roadways, a good rail network would give a strong boost to the region by making businesses more viable and reducing the cost of business by increasing market access to the rest of India.

For this a line across Bangladesh, as mooted by the Government, is most feasible. But given larger political concerns, the 37-km long wide Siliguri corridor could also be utilised better. Currently, only one broad gauge line passes through the corridor carrying both passengers and goods and touches only Assam and Meghalaya. The rest of the region has only metre or narrow gauge lines, which offer too few connections.

The North Eastern Council and the Central Government's North-East Vision 2020 underline these facts. In its vision for development of the region, it recognises how the region can “connect Myanmar and through it to China and South-East Asia. Develop transit routes through road, rail and inland water cargo across Bangladesh to the rest of India.”   It also calls for the creation of a hospitable investment climate for private investment as an important element in the strategy for the development of transportation, power through hydro, coal, bio-fuel, besides communication in the region.

Prepared by the National Institute for Public Finance and Policy (NIPFP), the Vision 2020 document estimates an investment of Rs 2,11,613 crore in the 11 thPlan period (2007-12), which is two and a half times the 10 thPlan investment.

Besides, it calls for further investment of Rs 5,05,499 crore and Rs 6,12,779 crore in the 12 thand 13th Plans. Though the Planning Commission has targeted a more modest 11 thPlan expenditure of Rs 1,83,018 crore in the region, the higher target of the Vision 2020 can be achieved with significant private investment.

Financial infrastructure

A sound financial infrastructure is also essential. The growth of financial services in the region over the past decade have been painfully slow compared to the other parts of India which perhaps goes to show why economic development has been slow in the North-East.

According to the RBI, in the 2002-10 period, only 223 bank branches have come up in the eight States of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim and Tripura. More than half of this has come up in Assam alone. Compare this to 3,325 new bank branches opened in the four southern States.

South India's emergence as a hub for economic activity, over the last decade, is not just a coincidence. Increasing number of banking facilities has made financial services more accessible to the people and contributing to a healthier atmosphere for development. From major commercial hubs to small towns, South India dominates India's list of top 200 centres in terms of credit and deposits. However, the absence of easy availability to capital and financing has subdued the entrepreneurial spirit of the North-Eastern region. North-Eastern centres lag behind in the list of top 200 centres in India according to size of Gross Bank Credit. The region's top representative in the list is Guwahati at number 34 with a Gross Bank Credit of Rs 6,042 crore. One would have to go down to 139 on the list to find the next North Eastern city, Shillong with a Gross Bank credit Rs 1,050 crore. The size of deposits too fails to attract many private banks towards the region.

In the list of top 200 centres in India according to size of deposits, Guwahati is the highest ranked North Eastern centre at number 23 with total deposits of Rs 16,618 crore. Shillong at number 72 is the next North Eastern centre with total deposits of Rs 4,620 crore.

The numbers are very low a for a region with 3,88,57,769 people accounting for nearly four per cent of India's total population. Such small numbers fail to attract banks to invest in branches. But things are moving in a different direction. Commercial activity at present remains confined to Guwahati because of its connectivity to the rest of India. But with industries such as tourism, rubber and cement starting to come up in Tripura, Mizoram and Sikkim, opportunities for development have been opened up.

New commercial centres

However, to capitalise on the opportunity, connectivity across the region needs to be improved. Movement of commercial traffic needs to be simplified for the creation of new commercial centres.

To catch up with the India's per capita income, assuming that India's GDP grows at nine per cent constant, the North Eastern States have to accelerate their collective Gross State Domestic Product (DSDP) growth rate from the present level of 5.34 per cent to 12.95 per cent during 11th to 13th Five-Year Plans, according to the NIPFP estimate.

The acceleration starts from 10 per cent in the 11th Plan to 16.37 per cent in the 13th Plan. By 2020, the average per capita income of the North Eastern States will be equal to that of India's at Rs 87,459 from the base level of Rs 22,139 (2006-07), a rise of about 400 per cent.