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Development Intervention In The Northeast: A Critique

Development policies in the Northeast, instead of generating economic competitions, have been politicized to accommodate several non-economic considerations. Unless appropriate policies are undertaken to foster economic competitions, the regional economy cannot be expected to fare well.

The approach of the Government of India (GOI) to the development needs of the Northeastern region (NER) has been well-summarized by the High Level Commission, popularly known as the Shukla Commission thus:

The Northeast tends to be seen as a distant post, some kind of land’s end. Yet it was until recently a crossroad and a bridge to Southeast and East Asia, with its great rivers ending in ocean terminals ‘¦ the Northeast must be enabled to grow at its own pace and in accordance with its own genius. It cannot be treated merely as a resource region, market dump and transit yard. There is a strong resentment over … an earlier phase of ‘˜colonial exploitation’ in which wealth was extracted for others’ enrichment. Such a path of development is not advocated. (1)

The lack of development the NER, particularly Manipur, has reached would be evident from the other papers in this issue. My concern in this paper would be to appreciate the basic impacts the policies purportedly meant for development have had on other aspects instead of fostering development. (2) My fundamental argument in this paper is to show how the various policies have rather led to nurturing and fostering political competition rather than economic competition.


Before we come to the micro-foundations and the approaches adopted specifically for the region, it would be in place how the regional development policy has evolved in India during the period before 1991. (3) Though there are several known writings on the aspect of regional balance (Myrdal, Hirschman and Williamson), (4) my concern here, however, is with the policy approaches as reflected in the plan and policy documents of the GOI.

The First Five Year Plan of India was on a rush order basis. Its main aim was to stabilize and rehabilitate the economy from the devastating effects of the Second World War and the partition of the country. (5) The basic thrust behind the Plan was that ‘˜without a substantial increase in the production of food and raw materials needed for industry it would be impossible to sustain a higher tempo of industrial development.’ (6) The Plan recognized that the ‘˜excessive concentration of industries brings in its wake certain economic and social disadvantages and a wider diffusion of industry is desirable from this larger point of view. Further, if industrial development in the country is to proceed rapidly and in a balanced manner, increasingly greater attention will have to be paid to the development of those states and regions which have so far remained backward.’ (7) This understanding, however, could not be translated into action as the Plan remained essentially a rehabilitation plan and the share of industry in the total outlay was low. The development of industries in India was, till 1991, mainly regulated by the Industries (Development and Regulation) Act, 1951. The First Schedule of this Act gives a detailed list of the industries which are to be under the control of the Central government. (8) In 1954, the Indian Parliament passed a resolution that the basic aim of economic policy should be a socialistic pattern of society. Two years later, the GOI came out with the Industrial Policy Resolution (1956) which had continued to be the guiding principle of India’s industrialization policy.

This Policy Resolution notes:

In order that industrialization may benefit the economy of the country as a whole, it is important that disparities in levels of development between different regions should be progressively reduced’¦. Only by securing a balanced and coordinated development of the industrial and the agricultural economy in each region, can the entire country attain higher standards of living.

It was in this background that the Second Five Year Plan was formulated. Though it talked of progressive reduction of regional disparities, it essentially remained a plan for the promotion of basic industries and labor intensive consumer industries. It emphasized rapid industrialization and diversification of the economy as the core of development. But ‘˜if industrialization is to be rapid enough the country must aim at developing basic industries and industries which make the machines needed for further development.’ (9) It continues: ‘˜Investment in basic industries creates demands for consumer goods, but it does not enlarge the supply of consumer goods in the short run; nor does it directly absorb any large quantities of labor. A balanced pattern of industrialization, therefore, requires a well organized effort to utilize labor for increasing the much needed consumer goods in a manner which economizes the use of capital.’ (10) But we all are aware of what happened to the Second Plan which was abandoned mid way.

From the angle of regional development policy as well as from the basic thrust of this paper, what are of utmost relevance are the developments during the Third and Fourth Five Year Plans. For the first time, the Third Five Year Plan approached the problem of industrialization from the wider perspective of balanced regional development, and devoted an entire chapter on it. It pointed out:

There are many examples both of countries and of regions within a country in which, with limited development in industry, an appreciable rise in living standards has been achieved through the fuller utilization of local natural and human resources. There are also instances of areas around massive projects where no great impact on the levels of living of the people is to be observed.

Apart from the basic and capital goods industries and other large industries, there are other industries whose possibilities need to be fully explored such as labor intensive industries of the traditional type, small scale industries of modern type, agricultural processing industries, forest industries, assembly operations, and recreational industries. Each region should endeavor to identify, plan for and promote industries which are specially suited to its conditions and for which it can provide relatively greater facilities. (11)

This Plan proposed the setting up of ‘˜industrial development areas’ in backward regions where ‘˜basic facilities like power, water and communications are to be provided, and factory sites developed and offered for sale or on long lease to prospective entrepreneurs.’ (12)

It also put forward the concept of large projects as regional growth nuclei. It recognized that balanced regional development involved the preferential treatment of backward regions in the location of training facilities for engineers, craftsmen, etc., training programs to facilitate labor mobility and engender the growth of small and medium entrepreneurs. It also gave importance to dispersal of small scale industries. But most of the various comprehensive statements made by the Third Plan on balanced regional development ‘˜remained a mere charter of intentions.’ (13)

By the end of the Third Five Year Plan, it was admitted that ‘˜in terms of regional development, there has been a natural tendency for new enterprises and investments to gravitate towards the already overcrowded metropolitan areas because they are better endowed with economic and social infrastructure. Not enough has been done to restrain this process. While a certain measure of dispersal has been achieved, a much larger effort is necessary to bring about greater dispersal of industrial activity.’ (14) The necessity of specific policy instruments designed exclusively to promote industrial development in backward areas was recognized during this period. The committee of the National Development Council (NDC) decided in its meeting on 13 September, 1968 to set up two working groups, one dealing with the identification of backward areas and another with the incentives for starting new industries in backward areas. (15) The first one dealing with the identification of backward areas is commonly known as the Pande Working Group and the second dealing with the incentives as the Wanchoo Working Group. These two working groups were set up by the Planning Commission in pursuance of the NDC resolution. The Pande Working Group submitted its report on ‘˜Identification of Backward Areas’ in February 1969 and the Wanchoo Working Group on ‘˜Fiscal and Financial Incentives for Starting Industries in Backward Areas’ in April 1969. Whereas the criteria suggested by these two working groups for identification of backwardness and provision of financial and fiscal incentives might be of little relevance here, I must hasten to add that both the groups put emphasis on identification of backwardness at the state or union territory levels. This orientation of the two groups proved to be absolutely consequential for the issue whether it was political competition or economic competition at the countrywide level to be fostered. The basic thrust of the two groups to identify backwardness at the state or union territory levels and to devise incentives accordingly did not meet the political desires of the larger and economically already more powerful states. These larger and powerful states started their own political mobilizations before the recommendations of the two reports were converted into policy. The politically as well as economically weaker states like Manipur were in no position to match the weight of their larger and stronger counterparts in other parts of the country. The two reports were finally put for consideration in the meeting of the NDC in September 1969. The two main decisions taken in this meeting are quite significant.

1. Concessions to be offered by credit and financial institutions for financing industries in backward areas should be available to all the backward areas in all the states and union territories. When time comes for decisions, the larger states, both economically and politically, could easily prevail their options over the economically and politically smaller states; and

2. The criteria to be adopted for identification of industrially backward districts may be settled by the Planning Commission in consultation with the state governments and the financial institutions in the background of the recommendations of the two working groups. When it comes to investments, the economically and politically larger states would definitely satisfy the requirements of the financial institutions better than the economically and politically smaller states. This static perspective, however, completely ignores the dynamic requirements of building a pluralistic nation almost the size of a sub-continent.

The turnaround was now complete. And it has yet remained there only. The messages emerging from the entire process were as follows:

(a) The backwardness of states like Manipur was to be treated on par with the backwardness of some districts in Maharashtra, Gujarat, etc. This, as mentioned above, would satisfy the immediate static principles of economic optimization, but not the long term dynamic needs of fostering a nation-wide economic strength and competition; and

(b) Whatever the longer-term economic compulsions, the ultimate decision would be based on political weights and political aims driven by short run static arguments. The needs of economically and politically smaller states like Manipur could naturally not fulfill the static principles of optimization better than the larger states.

Such a message for political competition (16) rather than equipping for economic competition on equal footing has had its deleterious impact on the psyches of the larger population of backward states like Manipur, states weak both economically and politically in terms of the national decision making structure. This has completely disoriented the perspective of the political class in the region as well. For the last quarter century or so, the one basis on which the political leaders in the NER have been requesting funds is the need to fight insurgency. This serves the twin purpose of catering to the political orientation of national decision making and stunting the economic articulation of the population in the region. This overall macro perspective of the GOI was accompanied by other national approaches towards the region and region’s own weaknesses, which together have played havoc with the development process of the region. Let us now turn to these.


The initial conditions in 1951, when the planning process was started in the country, were absolutely non-convergent between the NER and the country in general. (17) The British left the country in general with a rich endowment of able administrators, while just the opposite was the case for the region. (18) It was in such a context that the regional administration was left in the hands of lower caliber bureaucrats serving time in the distant post. These definitely lacked acquaintance of the regional realities and commitment to the region.

Secondly, the British introduced and exposed the mainland India to quite a few modernizing elements like the industrial culture and respect for rules. This synchronized with the pioneering efforts of Indian industrialists of Jamshedji Tata’s genre.

Besides, the importance of planning for economic development was fairly well understood to a few to begin with and spread horizontally to the educated elite in the case of mainland India. (19) But this definitely was not the case in the region as the movement for mass education is fundamentally a post-1950 phenomenon in the region.

Given these initial conditions, it would be easily evident that the NER in the 1950s just could not articulate its own development future. (20) It was during this period that the GOI evolved and adopted an approach towards the region which has fundamentally remained the same till today.21 The GOI adopted an approach founded on two edifices. The first edifice was one of non-interference into the traditional socio-economic structure of the region. The second was national security perspective. Since the NER could not articulate itself its own development future and given the low level of understanding and appreciation of the region among the policy makers in Delhi, the surest shortcut to policy was one based on security. So security emerged as the guiding principle for all policy interventions, development or otherwise, in the region. The security principle, or rather the insecurity of the GOI, drove it to adopt the Armed Forces Special Powers Act (Assam and Manipur) way back in 1958 when there was hardly any insurgency in the region. The GOI could never get rid of its insecurity and abandon the security principle even when it belatedly realized that the NER needed a development agency for transformation. As a result, when the North Eastern Council (which should have been there in 1958 instead of the Armed Forces Special Powers Act) was established in the early 1970s, it was placed under the Home Ministry. But the Home Ministry could never evolve a development strategy for the region as it is neither competent nor oriented for such a task. This politicization of economic issues has reached its height recently with the requirement of certificates from the Home Ministry for the provincial government to get funds sanctioned from the Ministry of Finance.


The concatenation of the above three crucial factors’”basing national policy for regional development on political weights, region’s inability to articulate its own development agenda, and the GOI’s approach of basing policies towards the region on security principle’”has stunted the evolution of a spontaneous economic awareness in the region, has kept the people of the region occupied in tackling the transitory political issues, and has thus kept them away from articulating any kind of economic agenda for mutual cooperation and competition. This has further had the unfortunate impact on two counts:

1. Since no common economic agenda has emerged, it was not costly for any group to articulate its own political agenda as it would involve no economic cost to the group. This is how fractionalization has intensified in the region with definitely deleterious implications for both region and nation. (22) Since no common economic framework has emerged, the dichotomy between the hill economy and the economy of the plains has intensified. Examining the road infrastructure situation of Manipur, an international team of experts, which included the present author, observed in 1999: ‘˜One can easily deduce from the district-wise road-density figures the kind of transport bottlenecks being faced in the hilly areas. Superimpose this on the difficult terrain of the hills and the problem is really enormous. This makes the hill economy a much more costlier one as compared to the valley economy, and, in turn, serves as a double constraint on development. Firstly, because of the low level of economic activity in the hills, real wages are low there, and secondly, due to higher transport costs, prices are higher in the hills.’ (23) What is most unfortunate for all of us is that such problems do not get highlighted or articulated by any group. This scenario is to be appreciated from various angles. First, there is the divergence of ethnic groups in the region, and this internally homogeneous and heterogeneous (24) population is settled in more or less spatially contiguous and homogeneous areas. Secondly, not only is there non-emergence of a common economic frame and interdependent growth, but also there is the issue of growth slowdown in the region during the 1970s and 1980s; and

2. As a result all the social organizations in the region are now involved in political competition and political one-upmanship rather than articulating the developmental needs of the general population. This has had the even more unfortunate effect of politicizing the all-important event of decennial census. The trend now is each ethnic group (majority of the many groups) trying to over enumerate its own population in the census as a means to get more out of any intervention. This is seen more among smaller ethnic groups in their efforts to establish a politically significant role vis-a -vis larger ethnic groups. Such a trend has emerged because a feature of deciding on economic matters on the basis of political weightage rather than economic compulsions has been made inherent in most of our significant development interventions. This has had second round impact of each group articulating, as no economic cost is involved, to have a separate and autonomous administrative unit as that is seen as the only means for any advancement whatsoever. In other words, the dominant articulations in the region are now particular community-centric or specific area-centric. The casualties naturally have been the articulation of an economic agenda, and the building up of a region-wide and across-the-communities articulation for development.


The challenge now before the regional governments and the GOI is to work in tandem and vigorously for generating an atmosphere of economic competition25 in the region. If we fail to do so within a decade, the region’s future as well as the nation’s future in the region is at stake. This is more so with numerous hurdles to be crossed before the region faces the opening up to East and Southeast Asia head-on. Besides the home truths as mentioned by Atul Sarma, 26 there are many scientific and technological truths to be addressed without any loss of time. Unless something definite is done for fostering economic competition through appropriate investment intervention in right earnest, even the censuses in the coming decades would be even more unreliable. The regional economy is now marked by (a) diversification of consumption without strengthening any production and productivity base; and (b) absolute lack of a common economic characteristic with each spatial (hills, valley and what not) economy remaining as local economies27 rather than as components of a larger regional or provincial economy fit for emergence into an atmosphere of economic competition to replace the articulations for fractionalization.


1. Government of India, Transforming the Northeast: Tackling Backlog in Basic Minimum Services and Infrastructural Needs, Planning Commission, 1997, pp. 2’“3.

2. Whereas Manipur’s merger with India in 1949 was expected to establish and strengthen the foundations for development in the province, it has not even been able to sustain the bases created by the British, and capitalize on the massive social capital mobilized during 1950s and mid-1960s. See D.S. Acemoglu, S. Johnson and J.A. Robinson, ‘˜The Colonial Origins of Comparative Development: An Empirical Investigation’, American Economic Review, Vol. 91, 2001, pp. 1369’“1402.

3. This dividing line of 1991 is used for practically the very issue of regional balance has been taken out of the agenda with the adoption of structural adjustment programs in this year whereby planning has been put to the backburner, and privatization and liberalization are now the guiding principles of any economic policy.

4. Gunnar Myrdal, Economic Theory and Underdeveloped Regions, Chapter 3, (Bombay: Vora), 1973; Albert O. Hirschman, The Strategy of Economic Development, Chapter 10, (New Haven/London: Yale University Press), 1958; Jeffrey G. Williamson, ‘˜Regional Inequality and the Process of National Development: A Description of the Patterns’, Economic Development and Cultural Change, Vol. 13, 1965, pp. 3’“45.

5. This attempt to address the adverse partition effects was confined to those felt in the north-western and eastern parts of the country, but the absolutely deleterious economic impact on the NER went unnoticed.

6. Government of India, First Five Year Plan, Planning Commission, 1952, p. 44.

7. Ibid., p. 442.

8. This list is so detailed as to cover the entire gamut of industries. Nonetheless, Section 25 of the Act provides for the delegation of power to the state government or other bodies by a notified order of the Central government.

9. Government of India, Second Five Year Plan, Planning Commission, 1956, p. 25.

10. Ibid.
11. Government of India, Third Five Year Plan, Planning Commission, 1961, p. 143.

12. Ibid., p.149.

13. K.V. Sundaram, ‘˜Some Recent Trends in Regional Development Planning in India’, in R.P. Misra and D.V. Urs (eds.), Regional Planning and National Development, (New Delhi: Vikas), 1978, p. 78.

14. Government of India, Fourth Five Year Plan, Planning Commission, 1970, p. 11.

15. This is the most significant occasion in India’s balanced regional development planning attempts for the fallouts of the reports of these two groups shaped the politicking for funds in the subsequent periods.

16. The political competition I have in mind is not the one of competition through the electoral process which can be good both for democracy and development. What I have in mind is the articulation of every issue on political lines for political reasons and without in any case reflecting the economic situation of the places and people. See Timothy Besley, Torsten Persson and Daniel Sturm, ‘˜Political Competition and Economic Performance: Theory and Evidence from the United States’, Working Paper 11484, 2005, NBER.

17. It would be rewarding to see the various differences in initial conditions between the countries of South Asia and the Western countries on the eve of their industrial revolution given by Gunnar Myrdal, Asian Drama, 3 Vols., (New York: Pantheon), 1968.

18. W. Arthur Lewis writes: ‘˜In the first place, planning requires a strong, competent and incorrupt administration.’ Principles of Economic Planning, (London: Allen and Unwin), 1969, p. 121. Such a requirement is all the more for a region where the people are not yet attuned to modern attitudes of risk-taking and profit-making through investment in activities that add to the aggregate product.

19. Myrdal, op. cit., Vol. II, p. 712.

20. Amar Yumnam, ‘˜Regional Cooperation and Development: Strategy for Development in a Conflict Zone’, Paper read at the National Seminar on Towards a New Asia: Transnationalism and Northeast India, organized by the Centre for Northeast India, South and Southeast Asia Studies, OKD Institute of Social Change and Development, Guwahahti, 10’“11 September, 2004. See also Atul Sarma, ‘˜Why the Northeastern states continue to decelerate?’ Man and Society, Spring, 2005a, pp. 1’“20; Atul Sarma, ‘˜Northeast as Gateway to Southeast Asia: Big Dream and Home Truths’, Presidential Address, Seventh Annual Conference of North Eastern Economic Association, Itanagar, 21 October, 2005b.

21. Amar Yumnam, ‘˜Regional Cooperation and Development: Strategy for Development in a Conflict Zone’, op. cit.

22. The literature on fractionalization is by now fairly rich. See, for instance, Robert H. Bates, ‘˜Ethnicity, Capital Formation and Conflict’, CID Working Paper 27, (Harvard University), 1999; and Tan Chin Ming, No One True Path: Uncovering the Interplay between Geography, (Mimeo, Tufts University: Institutions and Fractionalization in Economic Development), 2005.

23. Government of Manipur, Public Works Department, Strategic Options Study, Project Coordinating Consultancy Services (World Bank Study), 1999, p. 3’“27.

24. Nicolas Pons-Vignon and Henri-Bernard Solignac Lecomte, ‘˜Land, Violent Conflict and Development’, Working Paper No. 233, (OECD Development Centre), 2004.

25. As compared to the political competition I have mentioned, which has a zero-sum nature inherent in it, the economic competition I have in mind is the one usually employed by economists. This kind of economic competition would be based on value-addition activities and in the first best case would be a win-win one. Even in the second-best cases, there would always be options for corrective mechanisms and the areas for state intervention would be spelt out on the basis of economic arguments, and not on the basis of ethnic-centric or specific area centric political articulations.

26. Atul Sarma, ‘˜Northeast as Gateway to Southeast Asia: Big Dream and Home Truths’, op. cit.

27. The level of interaction of local economies, despite the potential and real free mobility of labor and other factors, is such that the overall interdependence within the region/sub-region spaces and population do not decide the overall economic fate of the internally homogeneous and externally heterogeneous population groups and spaces.

*The paper is written by Amar Yumnam.

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* The article has been published with due permission from the Manipur Research Forum.

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