Abstract
The government as well as a large section of experts claimed that the Look (Act) East Policy (LEP) could become an instrument of economic development for Northeast India through the expansion of trade and investments to the East and Southeast Asian countries. The claim is not only due to the strategic location of Northeast India but also to the abundant resources and potential for trade in the region. In this light, the present paper examines the achievements of Northeast India in terms of expansion of trade and investments during three decades of the LEP. The paper argues that the policy has failed to augment exports and also could not contribute to the economic development of the region as the region still continues to decelerate in socio-economic parameters, largely depending on central grants and aid. Moreover, Northeast India could attract a negligible amount of foreign direct investment even after three decades of economic reforms and the LEP. Finally, the paper also made a reality check of the ‘export-led growth’ strategy for the region, especially under the aegis of Act East Policy, given the stress on ‘connectivity’ development projects with South Asia, East Asia and Southeast Asia, where Northeast India is centrally located.
Introduction
India’s Look East Policy (LEP) was framed in the early 1990s to deepen economic, cultural, political and strategic ties with East and Southeast Asian countries.The LEP was launched as a response to many national and international incidents, which include the end of the Cold War, the world-wide rising trend of regionalism, the notable performance of East Asia, the China factor and giving a focus to Northeast India in the development sphere. The LEP has now been rechristened as Act East Policy (AEP), which goes beyond ASEAN to reach out to other countries in the Indo-Pacific region. It also goes beyond economic and commercial engagements to strengthen political, strategic, security cooperation and people-to-people connectivity. Moreover, AEP focuses on integrating Northeast India with its neighbouring countries by developing both physical and digital connectivity. Thus, AEP is a blend of India’s diplomatic outreach, economic and trade partnerships, and strategic collaboration with Southeast Asian countries and the wider Indo-Pacific region.
It is to be noted that India’s LEP completed a span of three decades. During this period, the magnitude and intensity of India’s economic engagements with East and Southeast Asian countries reached new heights. It is often claimed that the LEP could become an instrument of economic prosperity for Northeast India through the expansion of trade and commercial links with Southeast Asian countries. The claim is made not only because of its strategic location but also because of its abundant resources and potential for trade in the region. However, many experts from within the region also argue that the LEP would serve as an ‘instrument of exploitation’ of the resources of the region, similar to what the colonial imperialists did, without any remarkable impact on the real economy of Northeast India. The policy would turn the region into mere ‘corridor’ between mainland India and Southeast Asia that could never become a hub of economic activities. The paper, however, does not aim to engage in such a debate. The paper simply intends to study the achievements of Northeast India in terms of expansion of trade and investments during three decades of the LEP and how far this policy was able to contribute to the economic development of this region. The paper also tries to make a reality check of the ‘export-led growth’ strategy in the region under the aegis of the LEP.
Look (Act) East Policy and Northeast India: The Government’s Claim
Northeast India is the easternmost region of India, comprising eight states: Assam, Arunachal Pradesh, Nagaland, Manipur, Meghalaya, Mizoram, Tripura and Sikkim. The region shares an international border of 5,182 kilometres (about 99 per cent of its total geographical boundary) with several neighbouring countries. It shares a border with Tibet Autonomous Region, China in the north, Myanmar in the east, Bangladesh in the south-west, Nepal in the west and Bhutan in the northwest. Northeast India is a diverse land from an ethnic, linguistic and cultural point of view and represents a distinct region from the rest of India. The region is connected with the rest of India with about 60-kilometre-long and 22-kilometre-wide Siliguri Corridor of the Indian state of West Bengal, also known as ‘Chicken’s Neck’. The whole region would be separated from the rest of India if this corridor got affected for any reason. That is why Northeast India is sometimes termed the ‘Landlocked Region’ of India.
The geographical location of Northeast India provides a greater possibility to be gainfully integrated with South Asia, East Asia and Southeast Asia. In this respect, the Look (Act) Policy has proved to be a suitable policy instrument to integrate Northeast India with Southeast Asia to expand economic activities. It is often argued that Northeast India is an economically backward region due to its inaccessible geographical location. But in this era of globalization where borderless nations are imagined, this ‘landlocked’ argument of Northeast India may not be true. With 99 per cent borders with China, Myanmar, Bhutan, Nepal and Bangladesh, the region appears to have a better scope for development through regional and sub-regional integration. That is why now Indian policymakers consider the LEP as an instrument to integrate Northeast India with ASEAN nations.
But when the LEP was framed the integration of Northeast India was not the primary concern (Srikanth, 2016). The studies have shown that India-ASEAN economic relations have bypassed India’s Northeast since the initiation of the LEP. This is because India’s trade expansion with ASEAN, East Asia and Asia-Pacific countries mainly took place through sea routes. As a result states like Tamil Nadu, Andhra Pradesh and West Bengal benefitted under the LEP.
Recently, the AEP has not only given due importance to Northeast India but also taken some concrete steps in this regard. In the connectivity projects, the AEP has paid much attention to the North Eastern Region (NER) of India. In this context, the former Foreign Minister of India Mrs. Sushma Swaraj 2015 described NER as a ‘natural partner of India’s AEP’ and also a ‘land bridge to ASEAN’, with AEP as a ‘means to strengthen the stability, economy and prospects of our Northeast region’. The AEP proposes to develop border trade, connectivity, people-to-people contacts and cultural exchanges and enhance the capabilities of the NER. According to Gen V.K Singh (2015):
“The North East of India has been a priority in our Act East Policy (AEP). AEP provides an interface between North East India including the state of Arunachal Pradesh, and the ASEAN region. Various plans at bilateral and regional levels include steady efforts to develop and strengthen the connectivity of Northeast with the ASEAN region through trade, culture, people-to-people contacts and physical infrastructure (road, airport, telecommunication, power, etc.). Some of the major projects include the Kaladan Multi-modal Transit Transport Project, the India-Myanmar-Thailand Trilateral Highway Project, the Rhi-Tiddim Road Project, Border Haats, etc.”
The states of Northeast India also desire to connect with the ASEAN countries under the AEP initiative. The Government of India wants to make Guwahati, the capital city of Assam, a business hub for ASEAN and connect it to all the eastern countries by air. The Government of India (GOI) also has encouraged the neighbouring countries to open consulates in Guwahati. The Assam government has also established a separate ministry called ‘Act East’ to pursue the broader objective of ‘connectivity, commerce and culture’ in relation to the eastern extended neighbours. The Assam state government has also established a new Centre of Southeast Asian Studies to create academic and intellectual discussion and support. The noble and honest effort of the government of India to accommodate Northeast India in AEP can further be understood from the statement of Prime Minister Modi after the India-ASEAN Commemorative Summit while addressing a business conclave in Assam said: ‘we created Act East Policy and the Northeast is at the heart of it’.
The above analysis indicates that Northeast India has received sufficient attention from the Government of India in the AEP and some concrete steps have been undertaken in this direction for connectivity development with ASEAN countries with a focus on Northeast India. The claim for ‘export-led growth’ in the region has strengthened with these steps and the present paper intends to make a reality check of this claim.
Look (Act) East Policy and Northeast India: What Studies Say?
The government’s claim regarding the benefit of Northeast India in the Look (Act) East turns into just rhetoric and mere assumptions when we take note of some empirical and analytical research works in this area. According to Rajiv Sikri (2009), India’s LEP envisages the Northeast region not as the periphery of India, but as the centre of a thriving and integrated space linking two dynamic regions with a network of highways, railways, pipelines and transmission lines crisscrossing the regions. The LEP should promote commercial links between NER and ASEAN economies to break the economic and geographic isolation of NER from the rest of India. The LEP can help the region to transform from a consumer to a production hub by opening up some key sectors which remained underutilized due to autarky. The NER Vision document (2020) stated that LEP should be an important factor in promoting economic ties of the NER states with its neighbours with a view to ending its economic isolation. The document further mentioned that LEP should begin with NER. However, as far as the region is concerned, the policy has remained a slogan and has yet not as yet evolved into a harmonious and productive relationship with neighbouring countries. The economic integration of Northeast India with Southeast Asia will enable the region to counteract the disadvantages of partition and liberate it from the present ‘landlocked’ and ‘peripheral’ status, thereby making it an ‘extended Northeast’. However, the LEP has very little to deliver to Northeast India given the way it is designed and crafted by the government. While the aspirations and hopes are high these do not match with ground realities in Northeast India (Das, 2010). The ‘imaginary extended space’ of Northeast India in the framework of LEP and also in the context of historical and cultural linkages with Southeast Asia created an atmosphere of ‘hope of prosperity’ in the region. But it is very hard to materialize in reality. Baruah (2004) argues that India’s LEP could provide Northeast India access to global markets and technology and help the region achieve economic progress from the current ‘landlocked’ status. Northeast India’s affinity with respect to history and culture with Southeast Asian countries could work as a ‘soft power source’ in the LEP. However, the difficult physical terrain of the region and also the political uncertainties are critical challenges in this regard. The maritime route as compared to the continental route is cheaper and easier for India to trade with ASEAN countries. The risks involved, as commented in the study, include drugs, illegal migrants, infectious diseases and small arms. However, these risks can be addressed by formulating a ‘robust’ the LEP suited for Northeast India. Baruah (2007) viewed the LEP as a remedy for ‘durable disorder’ in Northeast India caused by many factors including historical, geographical, economic and political. Globalization and transnationalism open up opportunities for Northeast India to get out of the ‘territorial trap’ and integrate with Southeast Asia to reap economic benefits. The risks, fears and challenges involved in the pursuit of the policy should be addressed by giving a ‘continental orientation’ to LEP as against maritime route. Then Northeast India is expected to benefit from LEP.
Haokip (2015) argues that the LEP can as a tool for transforming Northeast India into a developed economic region. The region has many prospects for development if integrated with East and Southeast Asian nations. The paper also identifies certain challenges in this respect. Baruah (2020) points out that LEP provides the impetus for growth and development in Northeast India by improving connectivity constructions, development of transport routes and related industrial and trade infrastructures. The paper argues for an LEP/AEP-driven development model in Northeast India. Barua and Das (2008) criticized the LEP that it could provide opportunities for trade with emerging Southeast Asian nations and thus have a positive impact on economic growth in Northeastern states. The paper stated that the Northeastern region of India had been exposed to international trade on a massive scale during the late-nineteenth century which continued until India’s independence. The paper made a conclusion that the real problem of the Northeastern region is not the lack of trading opportunities, but the constraints faced by the region such as intra-state connectivity and trade, infrastructure, security and governance. Although the LEP was formally initiated with the advent of liberalization in the early 1990s, Northeast India gained prominence in 2008 with the launch of the NER Vision Document 2020 (Chakraborty, 2017). This shows that NER was a neglected space in India’s highly ambitious foreign policy called LEP. Northeast India got minimal benefit from the expansion of India’s trade with ASEAN countries. However, the paper stated that Northeast India has the prospect if integrating with Southeast Asian nations under the renewed policy of LEP called Act East Policy with an emphasis on connectivity, infrastructure development and a better climate for private investment. AEP should focus on the NER so that Southeast Asia begins from the Northeastern part of India. Although India’s LEP has made considerable achievements in terms of trade and investment with Southeast Asian countries, it has failed to initiate growth in the NER of India (Das, Paul and Mathur, 2017). As much of India’s trade with Southeast Asian nations occurred through sea routes, the continental route passing through the NER has remained in oblivion. In fact, LEP has neglected India’s Northeast. Saikia (2017) maintained that despite huge potentialities, NER is still in a backward position from the socio-economic point of view. Since the implementation of LEP two and half decades have passed, but no significant sign of development is envisaged in Northeast India. Massive investment is needed in the construction of roads, railways, airports etc. which is the main barrier of development in this region. Sarma (2018) in a seminal work concluded that Northeast India’s engagement with Southeast and East Asian countries under the aegis of LEP is undoubtedly a great vision for this landlocked region. But to make this happen in the real sense would require a huge investment and time frame even if the Government of India were serious about it. The paper suggested bringing down the high transaction costs of doing business and improving efficiency in the business environment.
According to Fernandes (2018), the LEP did not ever belong to Northeast India. The Delhi-centred LEP treated NER as a corridor from Delhi to ASEAN with limited commitment from NEI. The paper concludes that several positive steps must be undertaken such as infrastructure development, people’s participation and the development of education, health and tourism sectors so that LEP becomes truly beneficial for NER. According to Singh (2010), the initiatives for economic integration of the NER with ASEAN need to be preceded by an effective integration of the region with the mainstream of the Indian polity and economics. The study remarked that this requires the removal of Northeast India’s population’s general sentiment that they are alienated from the rest of India, the creation of adequate infrastructure and a conducive environment for free movement of economic and non-economic resources. In another study, Rao (2009) remarked that the LEP should start from the Northeastern Region and the best link is the land route through Myanmar, Thailand and beyond. The economic fortunes of NER are interlinked with the expansion of trade and investment of the region with neighbouring countries. The improvement of relations with these countries is not a choice but an imperative. Thus, the heavy investment must be made in infrastructure not only on the Indian side but also from other neighboring countries. The North East India is not only a crucial driver of India’s AEP but can also serve as an impetus for enhancing India’s partnerships with both the West and the East (Basu and Bhowmick, 2021). Besides policy initiatives such as Look East and the recently refined AEP, the region has remained economically impaired due to many development-hindering factors. However, due to resource base and labour potential together with its strategic geographical location, trade connections can be expedited under AEP.
According to Goswami (2009), since the people of Northeast India share cultural ties with Southeast Asian countries and China, the Government of India must be a key driver in strengthening the relations between Northeast India and Southeast Asia. However, there are some policy challenges that must be addressed first before integration with Southeast Asia on a massive scale. The challenges are, according to the study, lack of infrastructure, the crisis of insurgency, elite consensus and social disjuncture, the incapacities of the state and so on. In a work, Das (2007) opined that Northeast India must get ready for the LEP that is to integrate with East and Southeast Asia. Northeast India requires huge investments in various fields to expand trade with neighbouring countries. The paper stated that Northeast India possess huge potential to expand trading activities with Southeast Asia. The indigenous products of Northeastern states have high demand in Asian markets. Fresh fruits and vegetables are of good quality and have demand in foreign markets, but the government must invest in setting up cold storage and cold chain management. According to the Sukla Commission (1997), NER suffers from four deficits: a basic needs deficit; an infrastructural deficit; a resource deficit and most importantly, a two-way deficit of understanding with the rest of the country which compounds the others. So, bridging these deficits would require a huge investment which the government alone cannot afford. This region requires massive investments in infrastructure: construction of roads, railways, airports and communication facilities. Hotels, resorts and restaurants need to be built to give a boost to the tourism sector in this region. Sarma (2005) puts forward five I’s which are still acting as stumbling blocks on the economic development of the NER: initial conditions, infrastructure deficiency, insurgency, imperfection in factor and product market and indifferent governance.
Almost all the studies above have consensus on one point that the LEP can act as a vehicle for the economic prosperity of Northeast India but with some preconditions. The preconditions are infrastructure development, increased private investment, political stability, peace and tranquillity, improved connectivity, etc. Thus, the mere drive for integration of Northeast India with Southeast Asian countries will not lead to sustained economic growth in this region.
Research Questions
Against this backdrop, the present paper tries to explore the following research questions: Why is Northeast India central to the LEP? What has Northeast India achieved in terms of economic parameters during the three decades of the LEP? Why did Northeast India fail to reap the benefits of the LEP despite having the potential for that? Is AEP a renewed instrument for the development of Northeast India given the present stress on ‘connectivity’ projects? Is the ‘export-led growth’ strategy suitable for Northeast India given serious market imperfections? The present paper intends to contribute to the growing literature on the LEP and Northeast India by addressing these research questions.
Methodology
The article is descriptive, analytical and interpretative in nature. The analytical approach has been applied to study the achievements of Northeast India in terms of trade and investments during three decades of the LEP. The paper made an extensive review of the literature on LEP and Northeast India to formulate and address the research questions. The knowledge gathered from an extensive literature review has been applied to analyse, compare and interpret the quantitative data to fulfill the objective of the paper. The article is based on secondary data collected from different sources like the Handbook of Statistics on Indian Economy (RBI), Global Data Lab, Handbook of Statistics on State Government Finances (RBI), Export-Import Data Bank, Department of Commerce (Government of India), Secretariat of Industrial Assistance (SIA), DIPP (Government of India).
Key Findings and Discussion
The LEP could not make any significant contribution to the economic scenario of Northeast India during its three decades tenure. The primary reason for this failure is the fact that Northeast India was not a part of India’s LEP and the trade expansion between India and Southeast Asian countries did not take place from the states of Northeast India. The present economic situation questions the ‘new development paradigm’ for Northeast India that the government tried to initiate with the launch of LEP.
The overall growth rate of Northeast India has never been at par with the Indian growth story. The contribution of the region to India’s national income exhibits a falling trend between 1980–1981 and 2012–2013 (Chakraborty, 2017). The growth performance of the states in Northeast India is not very satisfactory. This is clearly visible if we compare the compound annual growth rate (CAGR) of NSDP of the North Eastern states with other states in India. The CAGR of NSDP of Arunachal Pradesh was 8.1 per cent during 1980–1981 to 1989–1990 and Arunachal Pradesh was ranked number 1 during this period. But the rank of Arunachal Pradesh slipped to 20 during the period 1990–1991 to 1999–2000 and 2000–2001 to 2008–09 with CAGR 4.6 per cent and 5.9 per cent, respectively. Similarly, the all-India rank of Assam was 21 during 1980–1981 to 1989–1990 and 26 during 1990–1991 to 1999–2000 and 25 during 2000–2001 to 2008–2009 (See Figure 1). Assam stands in the lower strata with respect to the CAGR of NSDP which is an indicator of growth. The rank of Manipur is also not very satisfactory as shown in figure 1. Manipur ranked 13 during 1980–1981 to 1989–1990 and slipped to 18 during 1990–1991 to 1999–1900 and again slipped to 22 during 2000–2001 to 2008–2009.
The position of Meghalaya in growth performance is also not praiseworthy which ranked 19 in India during 1980–1981 to 1989–1990 and then climbed up to 15 during 1990–1991 to 1999–2000 and then again slipped to 21 during 2000–2001 to 2008–2009. The analysis of Mizoram was not attempted due to non-availability of data for the three consecutive periods. The position of Nagaland, Sikkim and Tripura with respect to the CAGR of NSDP is quite satisfactory as seen from Figure 1. Nagaland ranked 2 in India during 1980–1981 to 1989–1990 and then slipped to 13 during the period 1990–1991 to 1999–2000 and then improved to the rank of 7 during 2000–2001 to 2008–2009. Sikkim ranked 10 and 11 during the period 1990–1991 to 1999–2000 and 2000–2001 to 2008–2009, respectively. Tripura ranked 10 in India during 1980–1981 to 1989–1990 and then improved to the rank of 3 during 1990–1991 to 1999–2000 and slipped again to the position of 10 during 2000–2001 to 2008–2009.
An attempt has been made to calculate the CAGR of NSDP of the NE states for the period 2011–2012 to 2018–2019 and it is seen that the first two positions in this respect in India are occupied by two states of Northeast, namely, Mizoram (rank 1) and Tripura (rank 2) which is really a remarkable story. Assam occupied the rank of 10 during the same period and Sikkim ranked 11 in India. The performance of Assam in this respect is notable which ranked 25 during 2000–2001 to 2008–2009. But the performance of Arunachal Pradesh (rank 28), Manipur (rank 22), Meghalaya (rank 32) and Nagaland (rank 23) is not satisfactory. It can be said that the states of the Northeastern region could not progress economically in the desired manner (except Tripura and Sikkim) even after three decades of economic reforms and LEP.
The analysis of the Compound Annual Growth Rate (CAGR) of NSDP per capita and the associated all-India ranks of NE states shows a similar picture as in the case of the CAGR of NSDP. Mizoram ranks number 1 in India in respect of NSDP per capita growth rate during the period 2011–2012 to 2018–2019 as seen from Figure 2 above which is a matter of pride for Northeast India. The rank of Tripura is 3 during the same period. Assam ranked 16 and Sikkim ranked 12 during the same period with respect to the CAGR of NSDP per capita. Assam improved its rank in India as seen from Figure 2. But the ranks of Arunachal Pradesh (rank 22), Manipur (rank 30), Meghalaya (rank 32) and Nagaland (rank 24) during 2011–2012 to 2018–2019. It is mentioned here that the rank of Arunachal Pradesh was number 1 in India in respect of CAGR of NSDP per capita and that of Nagaland was 5 during the period 1980–2081 to 1989–2090. But overall it can be said that the economic prosperity of Northeastern states (except Tripura, Mizoram and Sikkim) is far from the desired level even in this era of globalisation and regional cooperation.
The states in Northeast India are lagging behind other states not only in respect of NSDP and NSDP per capita, but their performance is also not satisfactory in other socio-economic parameters such as human development and poverty reduction. This is given in Figures 3 and 4 below.
It is clearly seen that NE states show a dismal picture in terms of achievement in human development (see Figure 3). The ranks of NE states in India in HDI values are above 20 except Manipur (rank 16), Mizoram (rank 14) and Sikkim (rank 10). This means that NEI states could not perform well in three dimensions of human development, namely, Education, health and income. Human development combines three parameters together to reach to value called the Human Development Index (HDI). This value also reflects the quality of life.
We have also compiled the level of poverty in NEI states. The incidence of poverty in NEI states has been quite high since 1983. The economic reform measures could not sufficiently reduce the incidence of poverty in NEI states. Though HDI does not take into account the magnitude of poverty, it is a negative factor for human development. The all-India ranks of NEI states in respect of poverty level measured in the percentage of poor households (with an IWI value under 70) are given in Figure 4. In this figure, a lower rank in poverty reduction implies a higher percentage of poor households and vice-versa. All NEI states show a higher percentage of poor households except Sikkim in 2019. Nagaland (rank 1), Manipur (rank 2), Assam (rank 4), Meghalaya (rank 5), Arunachal Pradesh (rank 13) and Mizoram (rank 16) show that the percentage of poor households in these states is very high.
Any effort to improve a region’s economic scenario must be people-centric implying that the benefits of development must reach to the greater level of the society. This is reflected in the improvement of the quality of life of the people and the hindrances to the achievement of better quality of life for people must be curtailed to the minimum possible level. Northeast India could not achieve much in this respect because NE states failed to deliver better education, health facilities, safety and security of life, good governance, better population management and law and order which are reflected in the low human development profile of NE states. This has also resulted in a dismal picture in the socio-economic profile of the region in the country. The economic stagnation of Northeast India can be attributable to the ‘non-economic factors’ to a large extent and among them, the insurgency problem and ethnic conflicts are the most cited reasons. Many experts call this region a ‘troubled periphery’ which actually restricts the required inflow of investments into the region and thereby infrastructure development and production hub accelerating the economic growth of the region. Thus, Northeast India lags behind not only in economic parameters but also in socio-political aspects. It is to be noted that lack of strong political will, political instability, cultural and ethnological diversity, insurgency, foreign hands, drugs and guns have resulted in economic backwardness and stagnation of the region over decades. This always compels the region to search for alternative and new development paradigms and strategies and LEP is thought to be an instrument of economic prosperity of the region through expansion of trade and commerce.
Another much-cited reason for the economic backwardness of the Northeastern region is the dependency of the region on the central government for central transfers and grants. The development plans of NEI states are almost entirely centrally financed on the basis of 90 per cent grants and 10 per cent loans by the Centre. This is one of the reasons these states even now could not become economically self-reliant. Instead of investing in infrastructure development and technological improvement to productively utilize the rich resource endowments of the region, the central government pumped a huge amount of money in the form of grants in the region since independence. This also paved the way for rampant corruption without any addition to the productive capacity of the region. The abundance of resource endowments does not make a region an economically prosperous one and this is applicable for Northeast India also. The investments and technological upgradation convert the resources to yield economic prosperity. This argument has been totally neglected as the region completely depended on central grants and transfers which were mainly used for meeting recurring expenditures with minimal addition to the capital stock of the region. The prolonged dependency on central grants has led the region to remain on the lower ladder in the country in respect of socio-economic indicators.
The dependency of the NER on the centre for resource transfers has been on the rise over the years. Total central transfers as a ratio of total revenue receipts in the region as a whole were as high as 77.88 per cent in 2000–2001. Of this, the share of central tax was 29.33 per cent, while 48.55 per cent were accounted for central grants. In 2020
Central Transfers as a Ratio of Revenue Receipts in 2020–2021 (in percentage).
These indicators show that Northeast India could not attain sustained economic growth and become a self-reliant economic region even after three decades of economic reforms and the adoption of LEP. The economic backwardness has resulted in other socio-political problems in the region because of which some experts call a ‘troubled periphery’.
The region, as seen above, remained as a ‘backward’ economic zone for a number of reasons. The factors contributing to the backwardness of the region can broadly be historical and contemporary. The establishment of colonial rule in Assam and Northeast India actually caused economic stagnation and deterioration in the region. The British rulers’ motive was the exploitation of the resources of the region. The British built transportation infrastructure to take tea and other resources out of Assam distorting the old trade routes that exited in the region. The disruption of old trade routes remained colonialism’s most enduring negative legacy (Baruah, 2007). Northeast India’s trade took place through the Silk Road that existed during the ancient and medieval times. Silk Road also facilitated the flow of art, culture and ideas apart from goods and services from Assam and the region as a whole. The advent of colonial and post-colonial geo-politics led to the disruption of the Silk Road, thereby converting the region as ‘landlocked’ making it sensitive in respect of security concerns. Moreover, the trauma of partition in 1947 put serious obstacles in the path of economic progress of the region. The Partition caused loss of connectivity and market access and Verghese (2001) said ‘it sets its economy back by at least a quarter century’. Northeast India’s economic backwardness can be attributable to the historical incidents which went against the fate of the region.
Apart from this, in the post-independence period and more recently after the adoption of new economic reforms and the LEP in the 1990s, no special attention has been given in the region to change its economic graph. Instead of preparing a development plan based on the strengths and resources of the region, the central government pumped money into the region which converted it to a ‘dependent’ zone without much attention to augment its productive capacity. As contemporary factors contributing to the economic backwardness of the region we can once again refer to Sarma (2005) who puts forward five I’s which are still acting as stumbling blocks on the economic development of NER: initial conditions, infrastructure deficiency, insurgency, imperfection in factor and product market and indifferent governance. These factors summarize the reasons which actually block the paths for self-sustaining economic growth of the region.
There has been a tectonic shift in India’s foreign trade since the adoption of LEP in 1992. Moreover, the economic engagements with ASEAN countries have deepened and the direction of India’s foreign trade has gradually shifted from the West to the East which has caused a fundamental change in India’s economic interdependence. The exports of India to ASEAN increased from Rs. 9695.70 million in 1999–2000 to Rs. 262120.09 million in 2018–2019 showing a 27 times increase in exports. As per the report of the Ministry of Commerce, the share of ASEAN nations in India’s total exports has increased from 6.08 per cent in 1999–2000 to 11.27 per cent in 2018–2019. This shows that ASEAN has become an important export destination for India. Foreign direct investment (FDI) inflows into India from ASEAN countries from April 2000 to December 2016 were US $ 54.97 billion which represents 16.81 per cent of the cumulative inflows received by India. Moreover, the cumulative FDI outflows from India to ASEAN countries from April 2007 to March 2015 were about US $ 38.67 billion. These figures clearly show the growing economic integration between India and ASEAN member states. The intensity and magnitude of India’s trade with Southeast Asian countries increased manifold during three decades of LEP. The trend of export and import has been given in figure 6 which depicts an upward rising level of India’s trade with ASEAN countries. The graph shows the total trade of India with ASEAN countries from 1996–1997 to 2021–2022. India’s import was higher than export during this period which means that India experienced a negative trade balance.
The country-wise share of India’s exports to ASEAN shows that five countries comprise almost 92 per cent share in 2018–2019. The five countries are Indonesia, Malaysia, Singapore, Thailand and Vietnam. The share of Brunei, Cambodia and Laos is negligible. The share of Myanmar and the Philippines was 3.23 per cent and 4.65 per cent, respectively, in 2018–2019. But Singapore is playing a dominant role in this regard with a 30.88 per cent share in 2018–2019.
In so far as India’s import from ASEAN countries is concerned 97 per cent import is from these five countries namely Indonesia, Malaysia, Singapore, Thailand and Vietnam in 2018–2019. The share of Brunei, Cambodia, Myanmar and the Philippines is negligible. India imported almost nothing from Laos in 2018–2019. The share of Singapore in India’s imports was the highest in 2018–2019 (27.45 per cent) followed by Indonesia (26.78 per cent), Thailand (12.52 per cent) and Vietnam (12.11 per cent). This shows that the deepening of economic integration with ASEAN countries implies mainly with five nations, that is, Indonesia, Malaysia, Singapore, Thailand and Vietnam.
With the outward-looking strategy, India’s foreign trade increased from US $23876.8 million in 1981–1982 to US $787133.7 million in 2019–2020. The share of Asia in India’s total trade also increased manifold in recent times. The share of SAARC stood at 3.70 per cent in 2020–2021 and the share of China shot up to 12.59 per cent in 2020–2021. Moreover, the share of Malaysia, Singapore, Thailand and Indonesia increased to 2.10 per cent, 3.20 per cent, 1.44 per cent and 2.54 per cent, respectively in 2020–2021. But the most striking fact is that while the share of Northeast neighbours in India’s total trade increased at a considerable rate trade figures from Northeast India remained at a very low level despite having potential for that. Northeast India mainly exports primary products, for example, boulder stone, limestone, tea, coal and so forth. Moreover, trade through the Manipur–Myanmar route has remained small and insignificant. Presently, there are 33 Land Customs Stations (LCSs) along with the NER–Bangladesh border, among them fifteen are non-functional. During 1999–2000 to 2010–2011, the average trade between NER and Bangladesh was Rs. 260.41 million, average exports consisted of Rs. 233.30 million and imports Rs. 27.05 million (Chakraborty, 2017). This only suggests that the bulk of the increase in trade has occurred through traditional maritime routes. India’s LEP has almost bypassed India’s Northeast. Northeast India also could not contribute much to booming India’s trade scenario during three decades of economic reforms and LEP.
The same picture is validated if we look at Tables 2 and 3 which show India’s expansion of trade with eastern neighbours and export figures from Northeast India. Table 2 shows that India’s trade with eastern neighbours like Nepal, Bhutan, Bangladesh, Cambodia, Lao PDR, Myanmar, Thailand and Vietnam has increased since 2010. India’s total trade with these countries increased from Rs. 81,385 million in 2010 to Rs. 184,687 million with a CAGR of 23 per cent. But trade from Northeast India marginally increased from Rs. 1628 million to Rs. 2615 million with the CAGR of 13 per cent. The share of Northeast India in total trade as seen from Table 2 has been hovering in the range 1 per cent to 2 per cent. The export figures from Northeast India for four financial years from 2014–2015 to 2017–2018 have also been given in Table 3. Table 3 shows a dismal picture of exports from Northeast India. The exports from Northeast India are negligible in amount. The export share of Northeastern states in India shows poor figures as shown in Table 3. As per the recent reports published by the Ministry of Commerce and Industry, Government of India, the export shares of Northeastern states of India in total trade did not improve at all. The export shares of NE states in percentage terms in 2020–2021 and 2021–2022 are nil except for Assam which accounts for 0.14 per cent and 0.11 per cent, respectively. So, both the tables show that Northeast India has failed to accelerate its exports to the desired level even after three decades of the LEP despite having potential for that.
India’s Trade with Eastern Neighbours (In Rs. Million).
* Implies percentage of NE trade to the Total Potential.
Exports from Northeastern states (in US $ Million).
Foreign Direct Investment (FDI) has been an important source of investment which brings not only capital but also knowledge, managerial skills and technology with it. Apartment from merchandise trade there have been investment flows between India and ASEAN countries since the inception of LEP. The FDI inflow in India from ASEAN countries has increased from US $ 144.36 million in 2000 to US $ 18,909.19 million in 2020. The share of FDI inflows in India from ASEAN countries has also increased since 2000. The share has increased from 6.15 per cent in 2000 to 29.23 per cent in 2020. In 2018, the share shot up to 38.03 per cent of the total FDI inflow and the cumulative share was 22.23 per cent during the period 2000 to 2020. This means that on average around one-fourth of the total FDI inflow in India is from ASEAN countries which needs to be underlined.
The country-wise analysis of the FDI inflows in India from ASEAN countries is given in Table 4. It is seen from the table that cumulative total FDI inflows from ASEAN countries during the period from 2000 to 2017 was to the tune of US $ 65920.62 million and the highest FDI inflow was from Singapore. The FDI inflows from Singapore during the period from 2000 to 2017 were US $ 63,804.41 which was 96.79 per cent. The FDI inflows from other ASEAN countries appear to be negligible. The cumulative FDI inflow from Indonesia from 2000 to 2017 was to the tune of US $ 628.47 million which is only 0.95 per cent. Similarly, FDI inflow from Malaysia during the same period was US $ 863.15 million (1.30 per cent), Philippines US $ 235.81 million (0.35 per cent), Thailand US $ 364.32 million (0.55 per cent). The cumulative FDI inflows during the same period from other ASEAN countries like Vietnam, Myanmar, Brunei and Cambodia were very much negligible. So, it is seen that India received FDI mainly from Singapore in the ASEAN region.
FDI Inflows to India from ASEAN Countries (Amount in US $ Million).
The top five Indian states that attracted the highest amount of FDI inflows from ASEAN countries during the period 2000–2017 include Delhi US $ 20,610.73 million (31.27 per cent), Maharashtra US $ 13,763.11 million (20.88 per cent), Karnataka US $ 7,984.91 million (12.11 per cent), Tamil Nadu US $ 4,775.72 million (7.24 per cent) and Andhra Pradesh US $ 2,414.17 million (3.66 per cent) (Table 5). These five states together attracted an amount of US $ 49,548.64 million (75.16 per cent) during 2000–2017.
Share of Top States attracting FDI inflows from ASEAN countries (From 2000 to 2017).
However, Northeast India received a negligible amount of FDI compared with other regions of India. It is seen from Table 6 that the cumulative FDI inflow in NER is Rs. 3484.21 million from 2000 to 2013 as compared to Rs. 2,944,521.87 million in Maharashtra, Rs. 1,691,162.56 million in Delhi, Rs. 495,937.81 million in Karnataka, Rs. 530,768.70 million in Tamil Nadu, Rs. 391,060.82 million in Gujarat and Rs. 369,302.09 million in Andhra Pradesh during the same period. Maharashtra alone attracted 30 per cent of the total FDI inflow in India in 2017–2018, as shown in Table 6 and Northeast India received Rs. 816.67 million which is only 0.03 per cent in 2017–2018. So, Northeast India could attract a negligible amount of FDI from Southeast Asian nations during three decades of LEP which clearly shows that the region was not a part of LEP.
State-wise FDI Inflows in India (From January 2000 to December 2017) In Rs. Million.
b Excluding RBI’s NRI Schemes.
c Excluding Sikkim; Figures in the parentheses indicate percentage share of FDI inflows.
Export-Led Growth Strategy: A Reality Check
The LEP aims to bring economic prosperity to Northeast India through the expansion of exports to the East and Southeast Asian countries because of the cultural and geographical proximity of the region with ASEAN countries. The expectation is also because of the fact that Northeast India is endowed with resources to generate exports, thus contributing to the economic growth of the region. Thus, LEP articulates an ‘export-led growth’ strategy for the region. But the reality is different as seen from the analysis and findings in previous sections. Northeast India has failed to generate exports to the desired level in the last three decades of the LEP and has remained an economically ‘backward’ region largely depending on central grants and aids.
The Northeastern region of India remains among the most under-developed areas in the country despite being blessed with a fairly wide resource base (FICCI-PWC, 2014). The study also mentioned that India’s trade with its neighbouring countries such as Nepal, Bhutan, Bangladesh, Cambodia, Lao PDR, Myanmar, Thailand and Vietnam has grown from Rs. 81,385 million in 2009–2010 to Rs. 184,687 million in 2013–2014 at a CAGR of 23 per cent. But despite the region’s geographical proximity to these countries, the share of Northeast India in this trade has been constantly hovering in the range of 1–2 per cent while contributing only 5 per cent of the total exports to Bangladesh, Myanmar and Bhutan. This shows that most of the trade between India and its eastern neighbours is happening from industries in regions other than the northeast. According to the study, the reason for the poor performance of India’s northeast is the lack of the region’s infrastructure and investment.
It is a true fact that Northeast India is rich in mineral and natural resources like limestone, oil, coal, natural gas, tea, coffee, agriculture, sericulture, bamboo and so on. The Shukla Commission (1997) remarked: ‘The region is bountifully endowed with bio-diversity, hydro-potential, oil and gas, coal, limestone and forest wealth. It is ideally suited to produce and process a whole range of plantation crops, spices, fruit and vegetables, flowers and herbs, much of which could be processed and exported to the rest of the country and worldwide’. However, the mere availability of resources is not sufficient for the growth of exports. There must be proper utilization of resources with modern technology and know-how and expertise. Here comes the role of FDI which not only meets capital deficiency but also brings with it technology, skills and know-how. However, as seen from previous analysis Northeast India could attract a negligible amount of FDI even after three decades of liberalization. It is to be noted that states like Andhra Pradesh, Tamil Nadu, Karnataka, Maharashtra, Gujarat and Delhi which could augment exports are also the highest recipients of FDI. So, the poor amount of FDI inflows in Northeast India also acts as a constraint in the ‘export-led growth’ doctrine in the region despite being blessed with resources.
The generation of exports in Northeast India would require the establishment of Export Processing Zones (EPZs) and rapid industrialization with world-class facilities. This would require huge investment and also the strong willingness of the government. An underdeveloped economic region with huge infrastructural bottlenecks and struggling with associated socio-political problems can just dream of propelling economic growth through exports. Recently, in 2014, FICCI-PWC in a report arrived at an estimated cost of Rs. 2.10, 672 million for the overall infrastructure development including roads, railways, inland waterways, airports, development nodes, power and border townships. This is undoubtedly a huge amount of investment.
The argument for ‘export-led growth’ strategy is based on the rationality of economic integration. If Northeast India is connected with Southeast countries then the possibility of trade will increase. That is why under AEP much thrust is on the ‘connectivity projects’ with Southeast countries where Northeast India posits well. The important connectivity projects where Northeast India gets priority are India Myanmar Thailand Trilateral (IMT) highway, Kaladan Multi-Modal Transit Transport Project (KMMTTP), Trans Asian Railway (TAR), Bangladesh, China, India and Myanmar (BCIM) Economic Corridor. Better connectivity is necessary but not sufficient for the expansion of trade. Good connectivity ensures speedy delivery of goods and services but it does not create demand for the goods and services (Srikanth, 2016). Moreover, it must also be seen how much Northeast India can export to other states in India given the improved road, rail and air connectivity.
The mere expansion of trade may not contribute to economic growth in Northeast India. There exists sufficient empirical literature which shows that trade may or may not contribute to economic growth. In this regard, the composition of trade matters a lot. It is important to enquire what type of products and materials are being traded. Northeast India mainly exports raw materials, primary products and natural resources which do not contribute to economic growth due to secular deterioration of terms of trade. During the Colonial Period also India exported raw materials and the result was low economic welfare. The products which Northeast India could export to ASEAN markets include tea, coal, limestone, boulder stones and also forest-based products like fruits. But this also requires an increase in the scale of production to have cost competitiveness for attaining comparative advantage. So, trade itself will not serve the purpose, rather the composition of trade matters for economic progress.
The ‘export-led growth’ strategy in Northeast India under LEP sounds like mere slogans without focusing on pre-conditions for the expansion of trade. Northeast India must try to remove all binding constraints on its economy like infrastructure lag, insurgency problem, factor market and product market imperfections and indifferent governance. The presence of these constraints results in high transaction costs and huge inefficiency. So, the ‘export-led growth’ strategy could become a reality if huge investments take place with sufficient pre-conditions for exports. Northeast India could benefit from its possible integration with the growing and competitive East and Southeast Asian markets only if enabling conditions are created.
Conclusion
The paper discussed the achievements of Northeast India in terms of expansion of trade and investments during three decades of LEP. The claim that Northeast India would benefit from the possible integration of the region with East and Southeast Asian countries lost its empirical base because LEP could not make a significant contribution to Northeast India. The economic engagements deepened between India and Southeast Asian countries during three decades of LEP but it almost bypassed Northeast India. Recently, the AEP put much stress on accommodating Northeast India through connectivity improvements with East and Southeast Asian countries. But serious doubts remain regarding desirable impacts on Northeast India because mere ‘connectivity’ improvements will not be sufficient in this region which suffers from both economic and non-economic bottlenecks.
Northeast India remained as an economically ‘backward’ region which still depends largely on central grants and aids even after three decades of economic reforms and LEP. The policy also failed to contribute to economic prosperity in the region although policymakers always claim possible payoffs. The study makes it clear that the strategic location of Northeast India is not sufficient for the expansion of trade to Southeast Asian countries, but it must be preceded by enabling conditions such as infrastructure development, investments, technological improvements and improved law and order situation. The present paper also made a reality check of the ‘export-led growth’ strategy in the region under the aegis of LEP and maintained that given the present status of exports in the region, it seems to be a highly ambitious project. Moreover, if Northeast India remains a trade route to the East and Southeast Asian countries, as has been since the last three decades of LEP, it can never contribute to the economic growth in the region. The AEP needs to incorporate some vital features suited for Northeast India to generate exports and thus contribute to the economic growth in the region; otherwise, the region would continue to remain as a ‘landlocked’ entity and the AEP would merely be another lip service like its older version.
The paper made a critical analysis of LEP in Northeast India considering the achievements, expectations and realities since the last three decades of the policy and in this context discussed the barriers to ‘export-led growth’ strategy for the region as enshrined in new development model. The paper did not rigorously discuss how to transform the region from the current status of the supplier of raw materials and primary products, although suggested some policy instruments which would help in this regard. This is beyond the scope of the paper which can be taken up in future research work. Future work in this area can concentrate on developing a complete model to transform the region from a supplier of raw materials and primary products to finished and manufactured products with much value addition. This can be considered as a research gap and future work in this area may be carried out on this line and added to the existing literature. Moreover, the paper did not engage in the debate on whether LEP would act as an instrument of exploitation of resources of Northeast India as many experts from within the region argue. This is not the objective of the paper although it is a vital aspect to be discussed in this area. Future work can be taken up focusing on this debate with more reason and intellect which would definitely make an addition to the available literature.
