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Extending a neighbourly hand

What is required now is to let entrepreneurs from South and South-east Asia participate in the Northeast’s economy as more diverse investors in a variety of production processes would also link products and services with the larger market access.

Mahendra P Lama |

The North-east has once again come to development focus mainly because this geography is now key to promoting the Act East policy and engaging with South East Asian countries. Besides the substantive presence of China and its connectivity tentacles around this sensitive ecology, the region is also the fulcrum of subregionalism architecture like the Bangladesh, Bhutan, India, Nepal Initiative.

The North-east literally remained inaccessible for almost six decades after 1947. That was due to a protracted and large scale insurgency, incursion of Japanese forces during World War II and deep intrusion by the Chinese Army during the 1962 Sino-India conflict.

Dismal level of physical infrastructure, poor governance, security centered development policies and an absence of growth-triggering institutions further kept the region isolated. Even neighbouring countries, including Bangladesh, Bhutan, China, Myanmar and Nepal, were blatantly ignored thereby keeping the region absolutely isolated from any meaningful crossborder economic or cultural exchange.

During the last two decades, the Government of India has made substantive policy interventions for the region including setting up an exclusive Ministry for the Development of the North East region. Several investment- triggering and production base enhancing policies, primarily aimed at promoting industrialisation and generating employment for local people, have been floated by both the central and state governments.

A modified version of the North East Industrial Policy 1997 was introduced as the North East Industrial and Investment Promotion Policy 2007 against the backdrop of relatively successful interventions of similar nature in other Special Category states like Jammu and Kashmir, Uttarakhand and Himachal Pradesh.

Under the NEIIPP, 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. It covered crucial industries like bio-technology and power generation. In the services sector, these provisions covered hotels, medical and health services and vocational training institutes.

This package of fiscal incentives and other concessions included 100 per cent excise duty exemption, 100 per cent income tax exemption, capital investment subsidy of 30 per cent, interest subsidy at three per cent on a working capital loan, a comprehensive insurance plan and a transport subsidy. These are applicable on units in the private, joint, cooperative and public sector.

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.

There are interesting revelations. For instance, Meghalaya with nine percent and Sikkim with 0.4 percent had much lower numbers of established units whereas investment with 37 per cent and 22 per cent respectively is the highest in those two states. This is attributed to the capital-intensive nature of investments. Assam constituted over 48 per cent of the number of established units with hardly 19 per cent of the total investment. However, it generated over 46 per cent of the total employment in the whole of the region. 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 other states like Arunachal Pradesh, Manipur and Nagaland, security concerns, lack of connectivity — road/rail/air — 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.

During 2000-2017, a total of Rs 3,919.54 crore was disbursed as subsidies in which transport subsidies alone constituted 68 per cent followed by capital investment subsidy of 25 per cent. In the total transport subsidy also, Assam with 48 per cent (9,375 units) of the total established units in the region, alone constituted 45 per cent of the total subsidy followed by a relatively small state like Meghalaya with not even one percent (59 units) of the total industrial units taking 38 per cent. Hardly 17 per cent was left to be shared among the remaining six states. In the capital investment subsidy too, Assam and Meghalaya usurped almost 88 per cent of the total subsidy.

In Sikkim, the share of pharmaceutical industries stands at 40 per cent of total industrial production while the breweries stand at 16 per cent and the service units at 17 per cent. However, most of the skilled employees have come from outside the state and the local employment has been mostly in non-skilled domains.

The policy makers have been treading a very cautious path since they don’t want to fall into the same trap of the “sudden withdrawal” syndrome that was witnessed in Sikkim in the early 1980s. When Sikkim became a constituent state of India in 1975 many central government acts like the Central Excise Act and Industries (Development and Regulation) Act were not extended to Sikkim.

As a result, a large number of industrial units promoted by “bonanza companies” were set up. This was mainly in the manufacture of items like cigarettes, cosmetics and pharmaceuticals, which otherwise attracted a very high rate of excise duty (200 to 300 per cent in tobacco and cosmetic products) and they mushroomed in the state.

It was all actually produced outside and given the packaging label in Sikkim under some industrial sheds. Many of these “fly by night industrialists” and “pariah entrepreneurs” who jumped into the gold rush had only a trading and merchant background. Such industries vanished as soon as the Central Excise Act was made applicable to Sikkim in January 1983. There are strong evidences to show that these units fleeced the state government on many counts including the usurping of loans from state level institutions and excise duty avoidance of Rs 150 to 300 crore.

The announcement of the new North East Industrial Development Scheme by the Government of India in April for the period of 2017-2022 is a boon for entrepreneurs and investors in India and the immediate neighbouring countries like those in the Association of Southeast Asian Nations, Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation and Bangladesh, Bhutan, India, and Nepal Initiative. The Neids is a further improved version of the NEIIPP 2007 with more focused incentives and subsidies.

What is required now is to let entrepreneurs from South and Southeast Asia participate as more diverse investors in a variety of production processes would also link products and services with the larger 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 medicinal system, tea, agriculture, tourism) and non-traditional (renewable energy sources up to 10 MW, education, health, finance, capital market, engineering, IT and climate change resistance products, slow food, car pools, herbal products, et al).

Least 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. Could the products that come out of the factories promoted by a Vietnamese investor with an Assamese/Naga entrepreneur under the Neids 2018, get green channel access to the Asean market under the India-Asean free trade agreement? This could transform the industrial and development map of the North-east.

Could Nepal, Bhutan and Bangladesh be included as partners in India’s Act East policy so that a Nepali trader could use the India-Myanmar and Thailand trilateral highway for exports and imports of goods and Bhutan for electricity exports? The protocols and frameworks already exist.

The writer is a senior professor in Jawaharlal Nehru University, New Delhi, and has served in various national committees of India for the development of the North-east.

The Kathmandu post/ann.