Turning towards the EastLeast developed countries like Bhutan, and Nepal should undertake and market integration with India
The North East region (NER) of India has once again come to development focus mainly because this geography is now key to promoting India’s Act East policy to engage with the South East Asian countries. Besides the substantive presence of China and its connectivity tentacles around this sensitive ecology, this region is also the fulcrum of sub-regionalism initiative like BBIN. The NER literally remained inaccessible for almost six decades after 1947. This was due to a protracted and large scale insurgency, incursion of the Japanese forces during the Second World War and deep intrusion by the Chinese army in the 1962 Sino-India conflict. Dismal level of physical infrastructures, poor governance, security centered development policy and an absence of growth triggering institutions further kept this region isolated. Even the neighbouring countries, including Bangladesh, Bhutan, China, Myanmar and Nepal, were blatantly ignored thereby keeping the region absolutely isolated from any meaningful cross border economic and cultural intercourses.
During the last two decades the government of India has made substantive policy interventions exclusively for this region including setting up an exclusive Ministry for the Development of North East region. Several investment-triggering and production-base-enhancing policies primarily aimed at promoting industrialisation and generating employment for local people have been floated by both the central and state governments. A modified version of North East Industrial Policy (NEIP) 1997 was introduced as the North East Industrial and Investment Promotion Policy (NEIIPP) 2007 against the backdrop of relatively successful interventions of similar nature in other Special Category States like Jammu and Kashmir, Uttarakhand and Himachal Pradesh.
Under the NEIIPP, the government of India made far reaching policy interventions by extending huge tax exemptions and subsidies to all new and existing industrial units located anywhere in the eight states of the NER. It covered crucial industries like bio-technology and power-generation. In the services sector, these provisions covered hotels, medical and health services and vocational training institutes. This package of fiscal incentives and other concessions included 100 percent excise duty exemption, 100 percent income tax exemption, capital investment subsidy of 30 percent, interest subsidy at 3 percent on a working capital loan, a comprehensive insurance plan and a transport subsidy. These are applicable to units in the private sector, joint sector, cooperative sector and public sector.
A Parliamentary Committee Report of 2017 mentioned that NEIIPP which was terminated in 2014, attracted 27,644 industrial and service sector units with a total investment of Rs 11,466.22 crore and generated employment for roughly 2.28 lakh people.
There are interesting revelations. For instance, Meghalaya with 9 percent and Sikkim with 0.4 percent had much lower numbers of established units whereas the investment with 37 percent and 22 percent respectively is the highest in these two states. This is attributed to the capital intensive nature of investments. Assam constituted over 48 percent of the number of established units with hardly 19 percent of the total investment. However, it generated over 46 percent of the total employment in the whole of the NER. An overwhelming majority of these industries are in the micro, small and medium enterprises (MSME) sector. Among the reasons attributed to much lower investment participation in other state like Arunachal Pradesh, Manipur and Nagaland, security concerns, lack of connectivity—road/rail/air—limited access to raw materials, fuel and demand centres, land acquisition concerns, difficulty in obtaining forest and environmental clearance and lack of banking infrastructure were noticeable.
During 2000-2017, a total of Rs3919.54 crore was disbursed as subsidies in which transport subsidies alone constituted 68 percent followed capital investment subsidy of 25 percent. In the total transport subsidy also, Assam with a 48 percent (9375 units) of the total established units in the NER alone constituted 45 percent of the total subsidy followed by a relatively small state like Meghalaya with not even one percent (59 units) of the total industrial units taking 38 percent. Hardly 17 percent was left to share among the remaining six states. In the capital investment subsidy too Assam and Meghalaya usurped almost 88 percent of the total subsidy.
In Sikkim, the share of pharmaceutical industries stands at 40 percent of total industrial production while the breweries stand at 16 percent and the service units at 17 percent. However, most of the skilled employees have come from outside the state and the local employment has been mostly in non-skilled domains.
The policy makers have been treading a very cautious path since they don’t want to fall into the same trap of “sudden withdrawal” syndrome that was witnessed in Sikkim in the early 1980s. When Sikkim became a constituent state of India in 1975 many of the central governments acts like Central Excise Act and Industries (Development and Regulation) Act were not extended to Sikkim. As a result, a large number of industrial units promoted by “bonanza companies” were set up. This was mainly in the manufacture of items like cigarettes, cosmetics and pharmaceuticals which otherwise attracted a very high rate of excise duty (200 to 300 percent in tobacco and cosmetic products) mushroomed in the State. It was all actually produced outside and given the packaging label in Sikkim under some industrial sheds. Many of these “fly by night industrialists” and “pariah entrepreneurs” who jumped into gold rush had only a trading and merchant background. These industries vanished as soon as the Central Excise Act was made applicable to Sikkim in January, 1983. There are strong evidences to show that these units fleeced the State government on many counts including the usurping of loans from the State level institutions and excise duty avoidance of Rs 150- 300 crore.
Turning to the East
The announcement of the new North East Industrial Development Scheme (NEIDS) by the Government of India in April 2018 for the period 2017-2022 is a new boon for the entrepreneurs and investors in India and the immediate neighbouring countries like in Association of Southeast Asian Nations (ASEAN), Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) and Bangladesh, Bhutan, India, and Nepal (BBIN). The NEIDS is a further improved version of NEIIPP 2007 with more focussed incentives and subsidies.
What is required now is to really let the entrepreneurs from South and South East Asia participate as more diverse investors in a variety of production processes that would also link the products and services with the larger market access. This could be consciously carried out under the Act East Policy framework. These participations could be both traditional (bamboo, dairy, food processing, traditional medicinal system, tea, agriculture, tourism) and non-traditional (renewable energy sources up to 10 MW, education, health, finance, capital market, engineering, IT and climate change resistance products, slow food, car pools, herbal products, etc).
Least developed countries like Bhutan, Nepal, Cambodia, Laos, Myanmar and Vietnam could undertake production and market integration with India and the NEIDS provisions would provide them a first ladder of opportunity. Could the products that come out of the factories promoted by a Vietnamese investor with an Assamese/Naga entrepreneur under the NEIDS 2018, get green channel access to the ASEAN market under the India-ASEAN free trade agreement? This could transform the industrial and development map of the NER.
Could Nepal, Bhutan and Bangladesh be included as partners in India’s Act East policy so that a Nepali trader could use the India-Myanmar and Thailand trilateral highway for exports and imports of goods and Bhutan for electricity exports? This is where the protracted ‘official’ deliberations in the India-ASEAN Summit, BIMSTEC and BBIN and also forum like Delhi Dialogue in the past could be transformed into real ground breaking actions. The protocols and frameworks already exist.
Lama, a senior professor in Jawaharlal Nehru University, New Delhi has served various national committees of India for the development of the North East region.