EconomY Overview

enerously endowed with vast stretches of fertile land, rich expanse of forests and substantive mineral and hydrocarbon deposits, India’s Northeast is potentially one of the richest geographical units of the country. Forest cover in the region constitutes 52 per cent of its total geographical area. Reserves of petroleum and natural gas in the region constitute a fifth of the India’s total known potential. The region is served by the mighty Brahmaputra-Meghna river system and small rivulets, bringing along the possibility of generation of hydro-electricity and inland-water transportation systems. However, the region today lags behind many of the Indian states in vital development indicators.

Partition of the country in 1947 transformed the economic landscape of the region, which once was in the forefront of development. The region was connected through the sea-route, a network of inland waterways, and land transportation through road and railways. The railway network between Dibrugarh (in Assam) and Chittagong (now in Bangladesh) was one of the earliest projects implemented by the British in India. The rapid growth of the tea industry in Assam followed the first tea garden set up in the State in 1835, and the first consignment of tea export to London in 1838. The discovery of oil in Makum and establishment of a refinery in Digboi in 1890 gave an impetus to the industrialisation of the then undivided Assam. Creation of East Pakistan (subsequently Bangladesh) virtually disconnected the Northeast from the mainland. It blocked the natural sea route through the port city of Chittagong. Political fragmentation and a quest for ethnic and regional identity fomented a climate of insurgency in several parts of the region, which combined with several other factors to pull down the developmental parameters of the region.

While enduring insurgencies in some of the states has hampered the growth of tourism and has discouraged potential investors, lack of funds has not been a reason for the region’s underdevelopment. Each union ministry is duty bound to allocate ten per cent of its funds for the region. For example, the Government of India had spent Rupees 80,500 crore on the region during the Tenth Five Year Plan (2002-07). The public and private investment for the northeastern states (as on October 2001) was Rupees 1,32,047 crores. The total plan outlay for 2001-02 for the region has been Rupees 4,909.36 crores. The states have on the other hand faltered on spending these allocated funds. Union ministers are on record having said that only five to six percent of the total allocation gets spent in the region.

The economy of the region continues to be predominantly agrarian, even though the agriculture base remains weak. A large number of people inhabiting the hills continue to follow the traditional practice of jhum (shifting cultivation). Farmers grow only one crop in a year and farming is basically at a subsistence level. Agricultural surpluses remain meagre and are borne out by the near absence of local rice and paddy sold in the markets. Self-sufficiency in food grains, thus, remains an unattainable goal. Food grains and the basic products like powdered milk, fish, fruits, vegetable, pulses etc. and several industrial goods are imported in large quantities. The region (except Sikkim) imported 2.4 million tonne of food grains in 2005 through the Food Corporation of India. This results in the draining away of the region’s financial resources, overload the transportation network and results in leakage of most of the benefits of investment made in the region.

The growth of infrastructure, both social and physical, has not kept pace with the rest of the country leading to widening of disparities. The per capita income in the northeastern region on an average is Rupees 12,918 (as per Net State Domestic Product), as compared with the national average of Rupees 17,823 (at current prices of 2001-02). Interestingly, at the time of independence, the per capita income in the undivided state of Assam was higher than the national average by four per cent.

The region lags behind the rest of the country in several other development indicators. The region generates less than eight per cent of its 63257 MW of hydroelectric power generation potential and the per capita power consumption in the region at 97 Kwh is less than a third of the all-India average (355 Kwh). Although the literacy rate in the region (68.77) is above the national average (65.38), the employability is low resulting in high rate of unemployment and underemployment. The region, according to the Ministry of the Development of the Northeast Region (DONER), has a net unemployment rate of 12 per cent. The incidence of poverty in the region is also high. Assam has 36 per cent of its population below the poverty line compared to the national rate of 26 per cent. Mizoram, in fact, is the only state in the region, which has less percentage of people below the poverty line (19 per cent) compared to the national rate. Tele-density (number of telephone connections per 100 persons) of 1.69 (in 2000) in the northeastern region, lags far behind states like Delhi (15.27), Kerala (5.55) and Maharashtra (5.33). However, it is better compared to Jammu & Kashmir (1.31) and Uttar Pradesh (1.33).

Although infrastructure has developed over the years, the region has a long way to go before it catches up with the national standards. The total rail length in the Northeast is 2578 kilometres, which is only four per cent of the total rail length in the country. Similarly, the 1.74 lakh kilometre road length in the region is seven per cent of the total roads in the country. Compared to the all-India road density (road length per 1000 square kilometre area) of 749, Manipur has a poor density of 490 and Meghalaya 379. Assam has a healthy density of 872 and Tripura 1405. The longevity of the majority of roads, the region’s main communication link, however, remains affected by recurring floods, landslides and erosion. Serious erosion occurs in about 15 per cent of the total geographical area of the region and moderate erosion in about 47 per cent area.

The industrial sector in the region has mainly grown around tea, petroleum, natural gas in Assam, and mining, saw mills and steel fabrication units in other parts. However, manufacturing capacities in all the states except Assam to some extent are virtually non-existent. Industrial production is only 2.16 per cent of the Gross Domestic Product (GDP) in the Northeast, compared to the all-India figure of 27 per cent. This creates endemic problems for finding remunerative prices for basic commodities and agricultural produce. One of the end results has been the proliferation of activities in the unorganised sector and dependence of the people on government schemes and for employment avenues. This in turn has inhibited growth of entrepreneurship on the part of the population while impacting on the credit deposit ratio (CDR) of the region. The CDR has varied between 16.8 and 38.3 compared to the national ratio of 58.7. The primary and secondary sectors of the regions economy continue to be overwhelmed by the tertiary sector.

Overall India Economic Profile