The 16th World Bank report on Doing Business: Training for Reforms applauded India for achieving the 77th rank in the club of business-friendly nations by jumping 23 points from the previous year; and attributes it to the government’s efforts for sustained policies on business reforms.
Unlike in the past — as India’s ongoing business policy aims for expansion across geographical regions — the North-east, which for a prolonged period was at the periphery of the country’s industrial progress, has started gaining attention.
To attract investors in the region, the North Eastern Industrial and Investment Promotion Policy was revised in 2017. In February 2018, the summit Destination Assam was held in Guwahati to explore business collaboration between India and its neighbouring nations.
The North-east’s “chronic industrial underdevelopment” is a legacy from the colonial period, when only the plains of Assam was connected to the global market with its booming tea and oil sectors, while the traditional handicraft industry was destroyed and pushed back to the hills and remote areas.
In the post-colonial period, the resources and location of the Northeast were used for surplus-extraction and territorial security, creating an alarming disparity in India’s industrial landscape with almost 37 per cent activities concentrated in the western region and only one per cent in the North-eastern segment till the last decade.
The first “North East India Industrial Policy” was introduced in 1997 after India’s economic liberalisation, which allocated a meagre Rs 15 crore as the “necessary costs” for creating a manufacturing sector in the region. An investment subsidy was offered up to the ceiling of Rs 30 lakh with other tax exemptions and a transport subsidy to encourage indigenous capital, infrastructure network and entrepreneurial skills. But the policy was not successful due to high externalities and lack of market linkages, and there was need for a “second edition” of industrial policy.
A decade later in 2007, a revised NEIIP was announced, raising the investment subsidy ceiling up to Rs 1.5 crores, which also failed to bring any substantive change. The Sixth Economic Census data shows a mere increase in the North-east’s industrial share to 3.4 per cent in the current decade from 3.46 lakhs manufacturing units in the region, including both the formal and informal sectors. It employs less than a million people (8.5 lakh), sharing 2.81 per cent of India’s workforce, and continues to remain unrepresented in the country’s industrial landscape.
The formal manufacturing sector has registered a marginal improvement by doubling the units from 2,089 to 4,798 from 1999-00 to 2014-15, sharing only two per cent in India’s total. The invested capital has also increased from Rs 3,997 crore in 1999- 00 to Rs 33,854 crore in 2014-15, sharing only about 0.7 percent of India’s total; while the workforce employed has increased from 1.06 to 2.24 lakh, sharing 1.9 percent of India’s total.
About 70.8 per cent of such manufacturing units are located in the rural areas of the North-east with 6.09 lakh workforce. Such rural-based manufacturing activity is primarily in the informal category with handloom and handicraft units, which is traditional in nature with low capital base, playing an important role in the region’s economy. The revival of this traditional sector, which was devastated largely in colonial times took place way back in 1977when India focused on small-scale, cottage and village industries.
The North Eastern Handicrafts and Handlooms Development Corporation Limited was created to revive the region’s traditional manufacturing industry with financial capital and by connecting it to the larger market of India through credit, incentive and infrastructure.
The result, over time, has been positive, and after four decades, the region now adds 1.7 lakh handloom and handicraft industrial units sharing 9.1 per cent of India’s total. It absorbs a workforce of 3.1 lakh, sharing 7.4 per cent of India’s in the handloom sector; making this informal traditional sector the “core” of the manufacturing activities in the region.
With historical and geographical reality, Assam has been the hub for both traditional and modern economic activity since colonial times, which produced a sharp intra-regional industrial disparity even within the North-east. Today, it has the highest concentration —2.1 lakh manufacturing units out of 3.46 lakh in the region with 60.6 per cent share and employs the highest number of people at 5.9 lakh out of 8.5 lakh in the region’s manufacturing industry.
In the formal manufacturing sector, Assam has a monopoly with the maximum workforce and industrial capital (73 and 76 per cent shares respectively), and leads even the informal sector in size and workforce, followed by Manipur and Tripura.
Assam thus dominates the Northeastern industrial sector with the largest concentration of units, size, employability and capital. The NEIIP could neither address this intraregional industrial disparity, nor could significantly improve the region’s industrial share in India’s total. The policy actually failed to recognise the diversities of the region, which are state-specific, location-specific and skill-specific.
As India turns its focus on the economic and infrastructural development of the North-east, it revised the NEIIP in 2017 for the next 10 years and introduced the North East Industrial Development Scheme in 2018 with Rs 3,000 crore in capital to generate employment in the Northeastern states and encourage micro, small and medium enterprises.
As investors are encouraged in the region, Assam has already invited 27 firms with Rs 4,781 crore in capital and Sikkim is becoming a major “pharma hub” with over $400 million investment from 22 major pharma companies in the last three years. With the Economic Census data showing 64 manufacturing units with more than 500 workers and 3,420 units with 10 plus workers, are concentrated in Assam, it continues to be the leading state in the region.
The challenge therefore lies with other smaller states, which together have only 12 such units. The new industrial opportunities are expected to transform the region with more economic vibrancy to break the perpetual low equilibrium trap but care should be taken to avoid further intraregional disparities. It needs to be remembered that in this ethnoecological sensitive region, industrial transformation, which depletes the non-replenishable natural resources may harm the ecology irreparably without generating sufficient sustainable employment.
The “start-up” ventures at this hour need to create scope in the small states of the North-east with activities to promote entrepreneurship towards a green growth model and with an anchor with small and medium enterprises, which is also the major objective of this year’s World Bank report on Doing Business.
With a gradual increase in demand for traditional activities of the North-east, MSMEs need more support for modernisation, technical expertise and investments, which have the potential to revive local markets and can also attract global players in the long run.
Current industrial endeavours like the NEIIP and NEIDS need careful implementation with appropriate thrust on the economic activities of the smaller states to sustain the local economy of the North-east; add to India’s business index and reduce the prolonged industrial disparity within the region and beyond it.
The writer is on the faculty of Jawaharlal Nehru University, New Delhi.