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Northeast needs to boost its economy. Even Assam has failed to participate in India’s growth

An analysis of GSDP and progress of seven Northeast states relative to the rest of India and six states relative to Assam reveals shortcomings.

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The recent tragic incident in Nagaland has brought back the focus of mainstream public discourse in Northeast India. The long and chequered political history of the Northeast since India’s Independence has been debated and discussed across various platforms. Though solutions to any political and/or ethnic conflict can only be found in a political space, it is important to understand the economic reality of the region. Northeast not only holds an important position in India’s geo-strategy but also is the torchbearer for India’s ‘Look East’ Policy through trade and commerce with South East Asia.

A parochial but mistaken perception treats the region as a homogeneous entity. However, Northeast India is a kaleidoscope of geographic, ethnic, and economic heterogeneity. Even though the seven Northeast states have observed economic growth in recent years, there is still a regional disparity between and within these states. Though there are historical accounts of economic growth and development in the Northeast, still many prejudices and fallacies remain. Policymakers have been consistently trying to understand and highlight some of the limitations and impediments of Northeast India.

The release of the recent NITI Aayog Report on Sustainable Development Goals (SDG) in the Northeast Region (NITI 2021a) is a testimony to that fact. Even though NE performs better than some of the major states in India (NITI 2021b) on the poverty front, it lags behind on the account of economic growth and contribution. In this piece, we try to highlight some macro patterns of disparity in the region. We account for the economic growth and progress of seven Northeast states relative to that of all India and also assess the standing of six Northeast states relative to that of Assam. Among the seven Northeast states, Assam had a relatively better geographic and infrastructural advantage than the rest. Hence, a comparison of the six Northeast states with Assam is valuable to understand the region better.

Though nature has been generous in providing a rich natural resource reserve with rivers, forests, coal, minerals, etc. Yet, the Northeast has a long way to go in terms of economic growth. The share of the seven Northeast states in India’s population is about 3.7 per cent per cent (Population Census, 2011). In terms of area, this share stands at 7.8 per cent. But being landlocked impedes Northeast’s economic potential. Most states have hilly terrain and this makes road transport difficult. Railways connectivity exists but is limited. An overall assessment of Northeast’s contribution towards India’s economy can be made from Northeast states’ total Gross State Domestic Product (GSDP) share in India’s GSDP. The seven Northeast states contributed only 2.8 per cent in 2019-2020. Assam contributes the lion’s share, with roughly about two-thirds in the region, while the other six states, accounting for the remaining one-third share (based on average for the latest decade).

Also Read: Nagaland emerges as worst-performing state in Northeast SDG Index, experts blame insurgency

Data sources

Before proceeding any further, a word on data and empirical methodology is in order here. We rely on the population census (2011) for the data on area and population. We use GSDP data for four decades, from 1980-81 to 2019-20. This data comes in five different series (1980-81, 1993-94, 1999-00, 2004-05, and 2011-12). We arrive at a constant price series (at 2011-12 prices) using the standard splicing technique. To arrive at per capita income, we divide this measure of aggregate economic activity by the state’s population. We note here that the relevant GSDP data for Nagaland is only available since 1993-94 and that for Mizoram only since 1999-00. As a result, our computations do not include data for these states in these years. These two states’ share, being very small, does not change the slope of the trend lines significantly. Additionally, we also make use of the aggregate expenditure of all the state governments. We use this data to compute how much is this as a percentage of the aggregate state’s economy i.e. GSDP. It is important to note here that we need to use the GSDP data at nominal (or current) prices to compute the percentages here. We have accessed all these data from various modules of the Economic and Political Weekly Research Foundation’s India Time Series (EPWRF-ITS).

Also Read: Northeast not sustaining its forests well, needs to catch up on infra too, Niti report shows

Northeast’s GSDP share

We observe that there has been a steady decline in the share of Northeast’s GSDP towards India’s total GSDP (Figure-1). In 1993-94, NE (excluding Mizoram) contributed 3.7 per cent towards India’s economy, this share fell to just 2.8 per cent (including Mizoram) in 2019-20. There was some indication of an increase in this share from 1998-99, however, it soon began to decline and seems to have plateaued since 2007-08. It may even be stated that the decline in Northeast share in India’s total GSDP is due to Assam’s falling share, as the almost parallel difference between the two lines over the years suggests. One may conclude that though there was a boom in India’s economy post-2003-04, the Northeast missed participating in it.

Illustration by Manisha Yadav

It is, however, pertinent to observe that the percentage share of the rest of the six Northeastern states’ GSDP to that of Assam’s has been rising (Figure 2). In 1993-94, the six Northeast states together comprised just over a third (35 per cent) of Assam’s economy. This has steadily climbed to become more than two-thirds (67 per cent) in recent years. The sudden dip in the 2015-16 period is due to an increase in the GSDP of Assam, and not due to slumps in the other six states. Looking at sector-wise data, we find that it has been due to growth in the industrial sector whose share suddenly increased from 29 per cent (2014-15) to 35.7 per cent (2015-16). A large part of this may have been due to the manufacturing sector, whose share increased from 10.9 per cent to 13.2 per cent. A further investigation is needed to understand the sudden changes in this one-year period.

Illustration by Manisha Yadav
Illustration by Manisha Yadav

The discussion above provides an understanding of Northeast’s economic contribution vis-à-vis India and also between the Northeast states vis-à-vis that of Assam. What about per capita income? We divide the GSDP by the respective state’s population to arrive at the per capita income. We then plot this for a four-decade-long period as a percentage of that of all India (Figure 3). During the 1980s, six of the seven states (except Tripura) enjoyed a per capita income higher than the all India average. In recent years, there has been a steady decline for Assam, Nagaland, Manipur, and Meghalaya, with their per capita income falling below the all India average. Assam’s case is one of the starkest and most important given its relatively dominant size. It is encouraging to note that during the same period, per capita income of two states (Tripura and Mizoram) has been rising steadily vis-à-vis all India. Both of these states are Northeast’s doorway for trade and road transport with Bangladesh under India’s Look East Policy.

Illustration by Manisha Yadav
Illustration by Manisha Yadav

Within the Northeast states, we take Assam as a benchmark (similar to the GSDP exercise above) to get a better regional perspective (Figure-4). During the early 1980s, the smaller states had lower per capita income compared to Assam. In subsequent years, per capita income has increased substantially. The performance of two of the states (Tripura and Mizoram) is noteworthy. Tripura had a per capita income of less than half (48.7 per cent) of that of Assam in 1980-81. Over the four-decade period, it has jumped to about one and a half times (145 per cent).

Illustration by Manisha Yadav
Illustration by Manisha Yadav

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Value of government expenditure

In terms of sectoral contribution towards the Northeast economy, agriculture follows an overall national trend of declining share. This is in consonance with the usual economic theory of structural transformation. Manufacturing sector shares have remained significantly below the national average in all seven Northeastern states. However, it’s significant to note that government expenditure forms a major component of Northeast states’ economy, especially the six smaller states. For this purpose, we compute the aggregate state expenditure in GSDP for these states (Figure 5). The share of the Assam government in the state’s economy has been only slightly higher than the average of all Indian states combined. The average share of government for six other states is significantly higher. During the whole of the 1990s, although declining, it was higher than 50 per cent. This share remained almost constant (in 48-51 per cent range) after the early 2000s. There was a steep decline in the early 2010s, after which it again stagnated (in the 44-45 per cent range). The same figure for all state’s average has hovered around 15-20 per cent. The uptick in Assam’s aggregate state expenditure from 23 per cent (2018-19) to 35 per cent (2019-20) could be due to the fact that the states off-late have been providing social sector support like cash transfer, etc., and has given a push for infrastructure development. This was perhaps keeping in mind the scheduled assembly elections in Assam for 2021.

Illustration by Manisha Yadav
Illustration by Manisha Yadav

Where do these states stand in terms of aggregate expenditure as a percentage of state’s economy in more recent years? We show this for the year 2018-19 (Figure 6). All India average aggregate state expenditure was only 17.6 per cent of GSDP in 2018-19. This was very low for the prosperous states, with Gujarat (11.9 per cent) and Maharashtra (12.7 per cent) being among the lowest. As expected, Assam had the lowest percentage among the Northeast states (23.2 per cent). The other six states are among the top eight Indian states, with Jammu and Kashmir and Bihar being the other two Indian states. This value for Arunachal Pradesh is a whopping 74 per cent, the highest in India. Nagaland’s government expenditure accounted for about half (49.6 per cent) of its economy. For other states, this number stands at: Mizoram (44.1 per cent), Manipur (42.8 per cent), and Meghalaya (37.8 per cent). This implies that government expenditure still plays an important role in driving these economies.

Illustration by Manisha Yadav
Illustration by Manisha Yadav

Though state expenditure is crucial for economic support and social development, the economic growth of a state is reflected with a falling share of state expenditure in GSDP – which is not the case for Northeast states. However, Tripura (27.8 per cent) has grown fast enough to close its gap with Assam.

Also Read: Northeast has potential to become India’s growth engine, says PM Modi

Pace of growth is a concern

There has been some economic growth in the Northeast region, but it has not kept pace with the rest of India. This could be a cause for concern, for the road to lasting political stability in the region has to pass through economic prosperity. This is especially true for Assam, the most dominant state in the region, whose aggregate economy and per capita income seem to have failed to participate in the Indian growth story.

It is heartening to note that the other six smaller states have tried to reduce their gap with Assam. However, this silver lining needs to be seen in the light of the fact that the government still plays a very big role in the economy of these six states. There is a need for deliberate effort to bring this closer at least to that of Assam, which can be done only through focusing on higher economic growth, as the consistent performance of Tripura has shown.

Vikash Vaibhav is Assistant Professor, Dr. B.R. Ambedkar School of Economics, Bangalore. Varun Kumar Das is Assistant Professor, Delhi School of Economics. Views are personal.

(Edited by Srinjoy Dey)

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