A state of opportunity, not challenge
Dhiraj Nayyar | 25 Jan, 2017
IT IS THE least talked about election in the national media, even though it is going to take place in the most fraught circumstances. Manipur is set to go to the polls with Uttar Pradesh, Punjab, Uttarakhand and Goa in February and March amidst an economic blockade that has paralysed parts of the state, including Imphal. It is a situation stereotypical of the Northeast—an unstable, unrest-prone region that’s distant, isolated and presided over by opportunist politicians looking for more and more aid from New Delhi, and of only limited relevance to mainstream India. In Manipur, history seems to repeat itself as tragedy only too frequently. However, for the Northeast, and this doesn’t exclude Manipur, the time is particularly fortuitous to break away from the stereotype. The rising economic trajectory of Asia, positive political changes in India’s neighbourhood and a Union Government that it is determined to ‘Act East’, mean that now’s the moment to begin rewriting the old narrative.
There are, of course, good reasons for the real backwardness of the Northeast as well as for the perceived need for special, almost hand-holding, treatment. History dealt the Northeastern states a harsh hand in 1947 when the Partition of India and the separation of East Pakistan left these states with only a tiny corridor (the chicken’s neck in northern West Bengal) linking them with the rest of India. At one stroke, from being an integral part of what was at the time the most connected region in the world (apart from the region which is today India, Pakistan and Bangladesh, Burma too was a part of the British Empire), India’s Northeast was caught in a tricky geography; in addition to difficult hilly terrain in most of the region, it was set to become isolated from the rest of India and from relatively easy access to the coast (via East Pakistan). After Independence, the hostility of China, the insularity of Burma and the tension with Pakistan ensured that the region had little opportunity to connect, at least in economic terms, with the world outside. An accident of history and the curse of geography destined the region to an embrace with backwardness. And it provided fertile ground for the numerous insurgencies and violence which plunged the region into even deeper isolation.
Almost 70 years have passed since Independence and the attitudes in Delhi and in the Northeast remain remarkably static— mired in a backwardness, isolationist and ‘special treatment’ paradigm. For Delhi’s security establishment, border regions have been viewed, with justifiable reason, as zones of ‘threat’ and ‘terror’ and not of opportunity and prosperity. A difficult neighbourhood has meant that the word most commonly suffixed to cross-border is ‘terror’, not trade. Unsurprisingly, the states of the Northeast are hubs for the military and not manufacturing. Visiting some of these states still requires Inner Line Permits, even for Indian nationals. Delhi’s economic policy establishment is guiltier than the security establishment. Instead of promoting trade and connectivity in border regions, India’s economic policy mandarins have long viewed trade with suspicion. Even after the liberalisation of 1991, India’s economic bureaucracy is yet to fully accept that freer trade is an engine of growth and prosperity. A glance at the number of restrictions on the products that can be traded across the border over land is a constant reminder of the persistence of the old mindset.
That said, the region’s political leadership must also share the blame for an unchanging narrative. The fracas led by the chief ministers and assorted political parties in 2015 over the recommendations of the 14th Finance Commission which seemed to do away with ‘Special Category’ status for the Northeast, and which only turned out to be a change in nomenclature, was indicative. These states continue to receive financial assistance on more generous ‘special’ terms than other Indian states (barring the hill states).
The narrative needs to change from security, sops and special status to one of investment, opportunity and growth. Now is the perfect time because history and geography have changed sides presenting India’s Northeast with a unique opportunity for an economic take off.
HISTORY ISN’T ALWAYS made at one stroke, like in 1947. The history of the world, particularly Asia, has evolved slowly but considerably over the last few decades. The big trends favour India, particularly the Northeast. In the last seven decades, the most remarkable economic take-off stories of all times have been scripted east of India: first in Japan, then in North-East Asia and the Asian Tigers (South Korea, Taiwan, Hong Kong, Singapore), then in South-East Asia (what we now know as the ASEAN), and finally in China. Many of these countries, most famously Korea, were viewed as basket cases in 1953 before they emerged as world beaters in just three decades. Significantly, each of the East Asian latecomers used openness and connectivity (cross-border trade and investment) as the key tools to achieve rapid prosperity. The integration has been within the region as much as with the rest of the world. Until India began its own rise to rapid growth in the early 2000s, East Asia was the fastest growing region in the world. In 2016, India is the planet’s fastest growing major economy, but China and ASEAN are next on that count (and at much higher income levels). At the same time, growth rates in the US, Europe and Japan have either been falling or stagnant or only marginally positive in the last decade and more. The world’s prosperity engine is South and East Asia. The North-East of India sits at the centre, or at the crossroads, of the rest of India and East Asia. It has to exploit its new geography at the centre of the world’s pole of growth to achieve its own take off.
Politics in Delhi is more favourable to the Northeast than at any time in the recent past. Modi has laid special emphasis on the development of India’s laggard Eastern and North-Eastern regions. He has shifted a gear on India’s East Asia policy from ‘Look East’ to ‘Act East’
RECENT TRENDS IN India’s neighbourhood have also increased opportunities for the Northeast. The gradual opening up of Myanmar over the last decade and the installation of a democratic pro-India government (which is viewed as an important counterweight to China’s overbearing presence) is a huge boon. The development of major routes of connectivity over land from India’s Northeast through Myanmar to Thailand and other ASEAN countries (the Asian trilateral highway is one such project) could boost trade and economic activity in the Northeast significantly. If Myanmar provides the opening to markets in South-East Asia, then Bangladesh, which also has a pro-India government in office, is ready to provide a corridor back into the rest of India as well as into an economy which is growing impressively. States like Tripura and Meghalaya, which have only indirect and long routed access to the rest of India have much better access to Bangladesh and to the rest of India through that country. To take an example, it is just a three-hour drive from Agartala to Dhaka or a four-and-a- half hour run from Agartala to the Bangladesh port of Chittagong, whereas it would take an entire day to drive from Agartala to Guwahati, the closest commercial hub in India. Manipur is next door to Myanmar. The distance from Imphal to Guwahati is just under 500 km and the distance from Imphal to Mandalay, Myanmar’s second biggest city, is just over 550 km. Next door Myanmar is an easy gateway to the lucrative ASEAN market.
Politics in New Delhi is also more favourable to the Northeast than at any time in the recent past. Prime Minister Narendra Modi has laid special emphasis on the development of India’s laggard Eastern and North-Eastern regions. He has also shifted a gear on India’s East Asia policy from ‘Look East’ to ‘Act East’. South Asian regional integration, a perennial non-starter because of India- Pakistan tensions, may finally be getting a boost through sub- regional arrangements. The Bangladesh, Bhutan, India, Nepal (BBIN) initiative is important. Its members signed a motor vehicle agreement in 2015 that would allow vehicles of each country to ply in the other, a prerequisite for efficient trade over land. A re- emphasis of the BIMSTEC initiative, which links sub-regional South Asia with sub-regional South-East Asia, is a significant opportunity for India’s Northeast (and for India as a whole).
All of these developments—in the economies of East Asia and India, in the governments of key neighbouring countries, and in the Government of India—have created a unique moment in history. The Northeast can occupy the centre-stage. But how?
There is little doubt that the states of the Northeast are relatively backward and constitute a minor part of India’s economy. The seven states of the region plus Sikkim have a GDP that’s only a 2.6 per cent sliver of India’s economy. The states account for 3 per cent of the country’s population. There are three facts to be noted that underlie the overall numbers. First, Assam alone accounts for 1.6 per cent of India’s GDP; the size of the GSDPs of the other states is much less. Second, in per capita income terms, only Sikkim and Arunachal Pradesh are above the Indian average. Third, taken as a whole the region is indeed a viable economic unit: Myanmar’s GDP is the equivalent of 3.2 per cent of India’s, only somewhat larger than the Northeast states taken together.
The most obvious constraint to economic growth in the Northeast is the fact that the region is landlocked. It is usually the case that coastal belts achieve prosperity more easily than such regions largely because they have better access to trade. That said, there are examples of landlocked countries which are either prosperous or reasonably so and have very high trade-to-GDP ratios: Switzerland, Austria, the Czech Republic, Botswana and Paraguay. The key to the high trade ratio and economic growth in these countries is close economic integration with neighbouring countries. That alone can make up for the disadvantages of lacking direct access to sea lanes. For the Northeast of India, this would mean closer economic integration with Myanmar and Bangladesh. The fact is that a large proportion of global trade takes place through value chains where value is added to a product across regions and countries. Fortunately for India and its Northeast, East Asia and China are major hubs for such global value chains and there is great scope for integration.
Closer commercial ties call not only for lower tariffs and fewer restrictions on what can be traded across land borders, but also the requisite infrastructure to facilitate trade. What is singularly critical is road connectivity within the region and with neighbouring countries. Rail links have their limitations, given the poor network at present. It takes a long time to lay railway tracks in such difficult terrain, as seen in large parts of the region. Hearteningly, however, several big-ticket highway projects are in the pipeline, and these need to be expedited. But quality roads, while necessary, may not be sufficient. Take the case of agricultural products, both raw and processed, for which the region would have a natural comparative advantage. Apart from transport links, trade requires essential infrastructure like cold chains, laboratories to test for requisite standards, and land customs stations at several border points (a handful exist at present), for it to flourish. The Northeast also has a comparative advantage in minerals and minerals-based industry. For now, coal and limestone are among the commodities that the region exports—mostly to neighbouring countries. Like the rest of India, the Northeast states need to focus on improving the ease of doing business so that greater value addition takes place right there.
The Government’s strategy of engaging with the CMLV group—Cambodia, Myanmar, Laos and Vietnam—of the most backward countries of ASEAN through two way cross-border investments, for which it is considering setting up Special Purpose Vehicles, is a logical extension of forging such relationships with the immediate neighbourhood. There are likely to be greater complementarities and less fears of competition from these set of countries than the larger ASEAN region.
For commerce and investment to thrive in any region, the presence of cities or urban agglomerations with their accompanying infrastructure is a necessary condition. The Ministry of Urban Development runs more than one scheme for urban development/rejuvenation, including the flagship Smart Cities project. Instead of targeting existing cities (particularly in the Northeast), there is every reason to fund the creation of new, smart cities on the borders. The obvious candidates for such investment are Dawki (Meghalaya-Bangladesh), Zemithang (Arunachal Pradesh-China/Bhutan), Sutarkandi (Assam-Bangladesh), Moreh (Manipur-Myanmar) Zokhawthar (Mizoram-Myanmar) and Khowaighat (Tripura-Bangladesh). For now, these are villages or small towns with populations ranging from a few hundred in Dawki and Zemithang to a few thousand in Zokhawthar, Moreh, Khowai and Sutarkandi. These could be transformed into new urban centres that would be India’s gateways to the neighbouring countries. The Central and state governments would have to lead this project, but it would make eminent sense to invite participation and investment from the neighbouring countries and East Asia to build world-class townships. Given that these townships will also serve as entry points for neighbours and other East Asian countries to access Indian markets, there is bound to be interest.
The key to their urbanisation is connectivity. They must be linked by highways (at least four-lanes) to the respective state capitals and with highways to one another. Railheads could be a long-term plan, but for now airports could be fast-tracked. The development of six new cities could provide a catalyst for other connectivity projects. But this requires large sums of investment, not simply more generous sponsorship of old schemes by the Government.
IT IS REASONABLE to ask that given the long history of law- and-order problems in the Northeast, what are the prospects of real change? Many of the insurgencies that plagued the region right up to the 1980s and 1990s have either ended or significantly ebbed, particularly in Mizoram, Assam and Tripura. These states are ready to capitalise on the new circumstances. Election-bound Manipur remains the most volatile state in the region. Ultimately, the only sustainable solution to this state’s problems is connectivity and economic development. There is an urgent need to create constituencies of peace and prosperity (which will come through greater trade and economic integration) to counter those of violence and unrest. Law-and-order versus economic development is often a chicken-and-egg problem: it is difficult to tell which comes first. But given the relative peace of most of the region, nothwithstanding the poll-related trouble in Manipur, now is the best chance to create large constituencies of people who would benefit from economic advance while resisting destructionist forces. It is a matter of viewing the region as an opportunity rather than a challenge, both in New Delhi and in state capitals. For the Northeast, prosperity will lead to peace.