Is the Indian Government Impeding Infrastructure Development in North East India?

The geopolitical distancing of North East India from its main markets and trade gateways has led to economic insulation and caused immense structural damage to the North Eastern Region (NER) economy (Loitongbam 2018). Today, as the world looks to engage with the emerging economic hotspot, the East, we must remember that it is in North East India that South East Asia begins. Thus, improving transport connectivity and developing other infrastructure will have  to be a priority to ensure economic mobility and market integration. While inter-regional, intra-regional and regional connectivity to mainland India is necessary, critical to improving this connectivity are issues of diplomacy and an improvement in border infrastructure and trade facilitation with neighbouring countries.

The economy of the NER is still primarily agrarian with the industrial sector grown around tea, petroleum (crude), natural gas, mining and steel fabrication (Dev 2016). Inadequate and flawed industrial growth, however, has resulted in the NER’s resources being underused, which has been accompanied by growing unemployment. The economic potential of Eastern South Asia, comprising the Indian states of West Bengal, Bihar, Odisha, Jharkhand, the NER, Nepal, Bhutan, Bangladesh and Myanmar have natural gas reserves of 190 billion cubic metres, coal reserves of 909 million tonnes, hydroelectric potential estimated at 49,000 megawatts, oil reserves estimated at 513 million tonnes, limestone reserves of 4,933 million tonnes and a forest cover that accounts for a fourth of India’s entire forest area (Raza Hasan 2003). The Government of India, using the North-East’s resources should take the initiative in economic diplomacy to advance India’s South Asian adventure.

Government Intervention in the Region

Certain initiatives of various governments, such as the “Look East Policy”, 1991, the North East Industrial and Investment Promotion Policy (NEIIPP), 2007, and the NER Vision 2020 released in 2008, are pivots in the right direction but need to be shored up by concerted efforts (Dev 2016). The present government launched the  "Act East Policy" (AEP) in 2014 to promote economic co-operation, cultural ties and develop strategic relationship with the countries in the Asia-Pacific region through continuous engagement in bilateral, regional and multilateral levels, thereby ending the economic isolation of the states of the NER (Dev 2016).

Despite planned investments in the region, infrastructure development in the North East has been poor, which has been highlighted by the NER Vision document (Dev 2016).  Under the North-East Industrial and Investment Promotion Policy, 2007, the government made far-reaching policy interventions by extending huge tax exemptions and subsidies to all new and existing industrial units located anywhere in the eight states of the North East (Lama 2018). This package of fiscal incentives and other concessions included 100% excise duty exemption, 100% income tax exemption, capital investment subsidy of 30%, interest subsidy at three percent on a working capital loan, a comprehensive insurance plan and a transport subsidy (Lama 2018), applicable on units in the private, joint, cooperative and public sectors. A Parliamentary Committee Report of 2017 mentioned that the NEIIPP, which was terminated in 2014, attracted 27,644 industrial and service sector units with a total investment of Rs. 11,466.22 crore and generated employment for roughly 2,28,000 people. However, it generated over 46% of total employment in the whole region (Lama 2018a). An overwhelming majority of these industries are in the micro, small and medium enterprises sector. Among the reasons attributed to much lower investment participation in the North Eastern states are security concerns, lack of connectivity, limited access to raw materials, fuel and demand centres, land acquisition concerns, difficulty in obtaining forest and environmental clearance and lack of banking infrastructure were noticeable.

The announcement of the new North East Industrial Development Scheme (NEIDS) by the Government of India in April 2018 for the period 2017–22 is a boon for entrepreneurs and investors in India and the immediate neighbouring countries like those in the Association of South East Asian Nations (ASEAN), Bay of Bengal Initiative for Multisectoral Technological and Economic Cooperation (BIMSTEC) and the Bangladesh, Bhutan, India and Nepal Initiative (BBIN) (Lama 2018b). NEIDS is a further improved version of the NEIIPP with more focused incentives and subsidies. Entrepreneurs from South and Southeast Asia need to participate as more diverse investors in a variety of production processes, which would link products and services with market access. This could be consciously carried out under the Act East Policy framework. These participations could be both traditional (bamboo, dairy, food processing, traditional medicines, tea, agriculture, tourism) and non-traditional (education, health, finance, engineering, IT, etc) (Lama 2018). Less developed countries like Bhutan, Nepal, Cambodia, Laos, Myanmar and Vietnam could undertake production and market integration with India and the NEIDS provisions would provide them a first ladder of opportunity. However, commercial banks are unwilling to provide loans to Indian entrepreneurs in the absence of acceptable collateral. Goods produced with foreign investment also have difficulty getting access  to “green channels” in the the ASEAN market.  Nepal, Bhutan and Bangladesh are not included as partners in India’s Act East policy, exempting them from using the  India-Myanmar–Thailand trilateral highway for the import and export of goods and services. The development map of the NER can be transformed, but existing protocol hampers regional integration (Lama 2018).

In continuation, inspired by the “Make in India” initiative, a concept paper entitled “Make in North-East” has also been prepared which will not only generate revenue for the North-east, but will also create job opportunities to prevent the exodus of youth which is presently taking place from the region to the rest of the country (Dev 2016). This initiative will not only help in promoting industry and business, but will also bridge the psychological barriers and bring North-east closer to mainstream India’s brisk march on the road to development and growth. In addition, the North-East is emerging as the destination for new "start-ups." The provision of two years of tax-free facility and 3 months’ exit period are unique features of this plan on behalf of the Ministry of DoNER (Dev 2016). This is an added incentive in the form of a “Venture” fund for new entrepreneurs to provide relief from financial liabilities. This will not only boost employability and revenue in the region, but would also offer an incentive and thus attract youth from other parts of the country to come and participate in the development of the North-east states.

Indian Inhibitions Impeding Investment

In the absence of cooperation among these countries, a “withdrawal syndrome” can be seen. India withdrew from the Myanmar–Bangladesh–India trilateral gas pipeline signed in 2005 primarily due to Bangladesh’s demand for electricity produced in Bhutan and Nepal via India’s transmission grids, as well as unilateral free trade access to Indian markets (Lama 2018). India considered this to be an intrusion into its sovereignty. Similarly, the much talked about Bangladesh-China-India-Myanmar (BCIM) Economic Corridor has been effectively abandoned, mainly on the grounds that it would impinge upon India’s perceived security interests. Here, within a cooperation venture, the "hidden power struggle" and national power demonstration have remained conspicuous (Lama 2018). This stands regardless of the countries’ military power, political system, economic orientation, topography and natural resource endowments. 

The GoI has launched several programmes to connect the NER with South East Asia. Regional connectivity, now under the process of resuscitation within the BBIN sub-region, could serve as a pathway to larger trans-regional connectivity.  Despite these claims, New Delhi’s repeated extensions to deadlines for projects in the region are a sign of their inability to deliver on its promises. India is responsible for two big projects—the Kaladan multi-modal transport project and India-Myanmar-Thailand trilateral highway which was conceived in 2003 and slated to be ready by 2015. Despite the $484-million projects serving as an opportunity to showcase its Act East policy, both projects have drastically fallen behind schedule (Bagchi 2018). The project entirely financed and controlled by the Indian government was expected to promote economic activity in the underdeveloped Myanmarese provinces like Rakhine and Chin along with the North Eastern states of India (Thakuria 2018). Moreover, these projects were expected to counter China’s growing influence in Myanmar.

Establishing connectivity within the NER and with neighbouring countries are an integral part of the Act East Policy. Until infrastructure in the region—roads, rail, inland water transport, telecom, airports, power, etc—are fully established, the micro and macro benefits of the policy cannot be assessed. Although North-East India is where South East Asia begins, all considerable economic benefits that have flowed out of the Act East Policy have gone to other parts of the country.