New approaches towards North East industrial development

Dr Bishanjit Loitongbam *

The Industrial development of the North-eastern States (NES) of India is in an infant stage. The value added by the manufacturing sector in the net state domestic product (NSDP) for
Arunachal Pradesh is 7% in 2013 as against 11% in 2009,
Assam 13.4% in 2013 as against 20% in 2009,
Manipur 10% in 2013 as against 11% in 2009,
Meghalaya 13.2% in 2013 as against 18.3% in 2009,
Mizoram 3.7% in 2013 as against 3.8% in 2009,
Nagaland 4.3% in 2013 as 6% in 2009,
Sikkim 61% in 2013 as 59% in 2009,
Tripura 7.4% in 2013 as 7.4% in 2009.

It indicates that except for Sikkim and Tripura, the contribution to NSDP is not only small but also declining. Some of the main reasons contributing to prolonged underdevelopment are low demand, high trade costs, poor infrastructure, law and order, and lackadaisical nature of the government. Lack of business professionals such as marketing, engineering, accountant, etc., also hinders the growth of local entrepreneurs.

In the true spirit of the 'Make in India' policy, the North-east needs new approaches for industrial development, based on new markets, new products and new skills. It entails substantial specialization in production and exchange by local firms. Such kind of economic transformation can be made possible through participation in global value chains (GVCs).

Simply put, GVC is the system in which the production processes are divided into different segment and disperse tasks and activities at different location leading to the emergence of borderless production systems. It involves sequential chains or complex networks which may be global, regional or span only two countries.

The region's market size is small; and any small market can hardly provide a chain market to commercial farmers for trading in their produce. It entails exploring new markets. How can the region find new markets? In addition to the mainland markets, our neighboring countries' markets are the other platform that has not been explored till date. These markets are estimate-wise worth $400 million.

The economic integration of these economies could be the third largest economic union in the world, next to North America and the European Union. However, there is apprehension about possible trading with these countries as both the NE States and most of these countries are agro-based economies. In spite of this, trading can take place so long as goods are heterogeneous and produced with economies of scale.

It can provide a greater variety of products and can lead to gains from trade. The NER's location and the gradual building of land links – the Asian Highway Project and Trans-Asian Railway as parts of the Asian Land Trans port InfrastructureDevelopment (ALTID) – will provide a large and dynamic customer base.

Since the manufacturing se ctorcan provide a large number of employment opportunities for both skilled and unskilled workers, improving this sector will create more employment opportunities than that of other sectors. Rapid industrial development has the potential to eradicate poverty. For example, the development of China's processing trade regime has helped lifting thou- sands of rural poor out of poverty, by creating labor intensive manufacturing jobs for unskilled workers.

The development of horticulture, poultry, and dairy and animal husbandry sectors will raise the farmers' income and will help in poverty reduction. Horticulture exports should be promoted according to the principle of comparative advantage.

However, given the sheer size of the grain sector and little financially viable options, it is believed that farmers could prosper through growing land-intensive grains. Thus, without a dramatic transformation of the NE agricultural trade policy, labor-intensive horticultural exports would not have a chance to grow.

India's recent export of labor-intensive products and semi-skilled intensive products is either relatively small or more or less constant, and some products are even declining, such as footwear, tea, spices, tobacco, beverages, etc. It can be considered as an ample opportunity for this region to specialize on these industries and try to increase farm productivity in producing these products.

This move has two important advantages. First, as these industries are already major and important industries for the region, it is easier to specialize and improve products in terms of volume, designs and qualities. Second, this will improve Indian export performance for these products.

For the North-eastern States to keep making progress and to trans- form into a new economic power- house, improvement in labor productivity is required. It means that labor should be trained through various skill development programmes and collaboration with foreign MNCs. It also needs to improve the utilization of scarce resources, improvements in technologies and the exploitation of scale economies.

A finer production fragmentation will make it possible to better explore the comparative advantage within the diverse NE region. The local governments should try to lower the cost of cross-border merchandise movement. Besides, during bilateral trade negotiations with ASEAN countries, local governments should urge the Centre to take initiatives to include local products in tradable items list, specifically with Myanmar and Thailand.

They should lobby the Centre to ask the neighboring countries to levy lower tariff rate on those products, in case these are traded, preferably zero tariff rates. Until and unless the local products are included in the Indian export basket and normal trade is done with the neighboring countries, industrial development in the NE States will be very tough.

In order to succeed, in addition to improvement of infrastructure and law and order, a collective effort and mutual understanding among the NE State governments is mandatory.

(Courtesy: The Assam Tribune)