Cbapter 7: AIIIOIIOIIQ', Co!lsfifllfirmal Patnotism a11d Asymmetnc Federalism- II: Tbe Em11onuc a11d Ftilallcial Ro11tes 265

Chapter 7

Autonomy, Constitutional Patriotism and Asymmetric Federalism- II: .

The Economic and Financial Routes

A cursory glance at the various asymmetric economic and financial arrangements in

India's North-East is eye-catching. The eight states of India's North-East along with three

other states of Himachal Pradesh, Jammu and Kashmir and Uttarakhand enjoy a

preferential funding regime under 'Special Category States' (hereafter SCS) status. The

North Eastern Council (NEC) is the only statutory regional planning body specifically

established by an Act of the Indian Parliament in 1971 with a specific mandate for

development. The region also has a separate Ministry, the only one of its kind to cater to

the developmental needs of a region in India. It also enjoys asymmetric and preferential

treatment under the Income Tax Act, 1961 and the grants-in-aid regime under Article 275.

These and other asymmetric constitutional provisions are often considered necessary, but

not sufficient conditions to engender autonomy, trust and loyalty to pan-Indian

constitutional architecture.

A critical analysis of the working of these asymmetric economic and financial

arrangements shows that they engender what may be called ~rainbow autonomy'- if we

may coin a term. This is to suggest that viewed· from a distance, the asymmetric regime

looks fascinatingly autonomous. On close scrutiny, however, this autonomy gradually

disappears in mist like a rainbow, immersed as it were within the centralist jacket. This is

to say that the economic and financial well being of India's Northeastern states continues

to be unmistakably tied up with a centralised federal planning regime whereby centralised

agencies like the Planning Commission and the Finance Commission play pivotal and

patronizing roles. Seen from this perspective, NEC and the Ministry of Development of

North Eastern Region (MDONER) simply pales into insignificance as they are unduly

dependent on the guidelines and policy decisions made by the National Development

Council and the Planning Commission from time to time. On another plane, the NEC and

MDONER simply draw up plans in consultation with the central and state agencies and

hardly control the implementation of the projects/schemes which are carried out by the

Chapter 7: AlltOIIOII!J, Coustitlltiouaf Patnotism and A!J!IItnetric Federalism- II: The Ecol/onui· a11d Fillallda/ Routes 266

states. They can at most monitor and evaluate their projects/schemes, the rules of which

again are often flouted by the implementing agencies.

What is remarkable about this regime is its deep entrenchment into the

'development' and 'security' paradigms. Under this rubric, massive top-down funding is

considered a panacea for underdevelopment and the attendant problems of 'law and

order', militancy and 'insurgency' in India's North-East. Overtime, however, this

engenders what a commentator calls 'look West policy' 1 syndrome, of total dependence

of these peripheral states on New Delhi for their development and growth. More

interestingly, the emerging 'development paradigm' is inextricably intertwined with the

'security paradigm' which considers the geostrategic location of the region as too

sensitive a matter to be handled by weak provincial governments; hence it requires an

'integrated' and 'coordinated' approach from a strong centralised system. While this may

ingeniously fit the strong centre perspective, the Northeastern states continue to be

perpetually subservient to the Centre as they do not have the capacity to raise and develop

their internal revenue resources. As a corollary their economy remains underdeveloped,

and continues to be backward despite their enormous resources endowment and growth

potentialities. The unexpected casualty is the agency in India's Northeastern states,

continued to be chained as they are in traditional trade and labour laws which

circumscribe the flow of trade, services and goods. Also at stake under the extant

economic regime are some of the fundamental tenets of fiscal federalism, viz., the

subsidiarity principle (meaning the 'locals know best'),2 effective political participation of

1 Hazarika used the term 'look West policy' vis-a-vis India's seven Northeastern states to refer to their tendency to seek funds from New Delhi instead of turning to their Eastern neighbours. See Sanjoy Hazarika, "Sorrow of the Seven Sisters," Indian Express, New Delhi, 2 January 200 I. 2 'Subsidiarity principle' has gained currency with the addition of a new article 3b to the Maastricht Treaty which established the European Economic Community. The principle enjoins upon the European Community and their institutions to 'refrain from acting, even when constitutionally permitted to do so, if their objectives could effectively be served by action taken at or below the Member State level.' As a corollary it envisages the Community to act in areas of concurrent competence 'only if and insofar as the objectives of the proposed action cannot be sufficiently achieved by the Member States.' For a detailed analysis see George A. Bermann, "Taking Subsidiarity Seriously: Federalism in the European Community and the United States," Columbia Law Review, Vo1.94, no.2, March 1994, pp.331-456. We are however employing this principle here in a loose sense simply to imply 'the locals know best'.

Chapter 7: AlltOIIOII(J• Collstitutiollal Patriotism a11d Asymmetric Federalism- II: The Eco11omic a11d Fi11a11cia! Routes 267

the local stakeholders in the decision making process,3 efficiency, transparency, trust and

accountability.

In a recent intervention to the debate on India's 'Look East Policy' Jairam Ramesh,

a senior member of the Indian Cabinet, suggested that the existing 'development

paradigm' has failed.4 Ramesh showed how in a regime interspersed by innumerable

'corrupt' contractors, the per capita public expenditure of Rs.lO,OOO/- (or a gross public

expenditure of Rs.30,000/- crore per year) on the region never reached the intended

intermediaries. While this requires systemic redress, his prognosis is short but clear:

'political integration with India and economic integration with Southeast Asia'.5 Indeed,

the idea that almost four decades6 of planned development has failed to bring about the

desired economic development in India's North-East has been forcefully brought out by

the Shukla Commission Report, 1997 and most recently by the North Eastern Vision 2020

jointly prepared by MDONER and NEC in 2008. Both these documents, among others,

explicitly showed how the North-East continues to be afflicted by five types of deficits,

namely: basic needs deficit, infrastructure deficit, resource deficit, a two-way deficit of

understanding with the rest of the country, and governance deficit. 7

How do we explain this? One way of explaining this could be to understand the

historical and geostrategic factors which undergird the North-East economy. North-East

India shares just 2 percent of its borders with mainland India; and 98 percent of its

borders is shared with four countries: Bangladesh, Bhutan, China, and Myanmar. As

already pointed out in chapter l, the region has strong cultural, ethnic, and historical ties

3 In an influential essay, Inman and Rubenfield consider that there are three imponderables of the contemporary debates on federalism: (i) whether it encourages an efficient allocation of national resources, (ii) whether it fosters political participation and sense of the democratic community; and (iii) whether it helps to protect basic liberties and freedoms. See Robert P. Inman and Daniel L. Rubenfield, "Rethinking Federalism," The Journal of Economic Perspectives, Vol.11, no.4, Autumn 1977, pp.43-64. 4 See Jairam Ramesh, "Northeast India in a New Asia," Seminar, no.550, June 2005 [Online version available at http://www.india-seminar.com][Accessed on 22 September 2008]. 5 lbid. 6 North-East India is a late comer to the five year plans as it joined only since the 1970s. 1The North Eastern Region Vision 2020 added the fifth one, i.e. governance deficit to the four other deficits which the Shukla Commission Report had already underlined in 1997. See Government of India, Ministry of Development of North Eastern Region and North Eastern Council, The North Eastern Region Vision 2020, Vol.l (New Delhi: MDONER and NEC, 2008)[0nline version available at http://www.mDoNER.gov.in][Accessed on 21 September 2008], pp.l8-19.

Chapter 1: AlltOIIOII(Y, CoNstitutioNal Patriotism a11d A{yiJIIJICtric Federalism- II: The Emllomic a11d Filial/cia! Rn11tes 268

with South-East Asia. For instance, the Tai-Ahoms8 of Assam and the Khasis and Jaintias

of Meghalaya, among others, have their ethnocultural boundaries extended respectively to

Thailand and Indonesia.

The region also had historical trade and commercial ties with· its neighbours in the

early century A.D. The process of opening up Assam to China was recorded way back in

the ?'h and gth century A.D by two Chinese travelers, Hieun Tsang and Jia Dan. Hieun

Tsang visited a place called 'Ka-ma-Iu-po' and 'learnt from the people of Kamarupa that

the south-west borders of Sichuan were distant about two months journey, but the

mountains and rivers were hard to pass, there were pestilentrial vapours and poisonous

snakes and herbs.' 9 The route, known as "Tsang-k' o route" did not develop into an

important 'commercial axis' because of these natural difficulties, yet it established

important link between Kamrupa in Northeastern Assam with Shu in Szechuan (also

Sichuan) Province, China. This route was put to good use in the 191h century when

maritime trade was established between Calcutta and China by Assamese traders who

went to 'Yunnan in China by the line of trade through Sadiya, Bisa and across the Patkoi

range of mountains, and through the Hukong valley to the town of Munkong from where

they ascended by the Irrawady to a place called Catmow.' 10 In the meantime the

discovery of tea and oil in Assam in the second quarter of the 191h century firmly put

Assam in the map of international trade and commerce. We do not intend to go into the

historical details here, as this is clearly beyond the scope of our current study.

However, the partition of India in 1947 severed traditional land and sea routes not

only with its neighbours but also with South/South-East Asia. This not only emasculated

its economic potentials but also throws the region back to almost a quarter of century.

Partition also reinforced its landlocked status, which in turn erects innumerable obstacles

to its future trajectory of development and progress. 11 Moreover, the colonial system of

8 On this see Yasmin Saikia, Assam and India: Fragmented Memories, Cultural Identity, and the Tai-Ahom Struggle (Delhi: Permanent Black, 2005). 9 See Francoise Pommaret, "Ancient Trade Partners: Bhutan, Cooch Behar and Assam (I 7th -19th Centuries)," Journal Asiatique, 1999, Vol.287, 1999, p.8 [We used the English translation version which is available online at: http://www.bhutanstudies.org.bt/journal/vol2no llv2n l.ancienttrade.pdt]. 10 Liebenthal quoted in Pommaret, "Ancient Trade Partners". Cf. William Liebenthal, "The Ancient Burma Road- A Legend?" Journal of the Greater India Society, Vol.16, no. I, 1965, pp.l-17. 11 Baruah has painstakingly historicized these problems in detail. See Sanjib Baruah, Durable Disorder: Understanding the Politics of Northeast India (New Delhi: Oxford University Press, 2005), pp.211-36.

Chapter 1: Allfo!IOII!J, Co!lstitutio11a! Patriotism a11d Arymmetric Federalism- II: The Eco!lomic a11d FziJallcia/ Ro11tes 269

drawing a distinction between the valleys and the 'backward' tribal hill areas via the Inner

Line Regulation (imposed since 1873) also restrict the flow of capital, trade, goods and

services to India's North-East in a big way. The continuing restrictions imposed on

mainland Indians and foreigners respectively through the Inner Line Permit and the

Restricted Areas Permit's regime also erect artificial walls of separation, which reinforced

the isolation and backwardness of the North-East economy. It is increasingly realized that

while one need not necessarily be a 'prisoner of geography', 12 geography of the North­

East can constructively be used as an opportunity to transform the region, to restore its

transnational linkages, facilitate trade and commerce, usher in economic prosperity and

well-being to the people of India's North-East and to bring them back to the 'centre' of

national imaginary.

The alternative way of explaining underdevelopment and its attendant problems of

'insurgency' and militancy in India's North-East is to revisit the policy framework which

continues to be fixated on 'development' and 'security' concerns. Sachdeva convincingly

argued that the backwardness of India's North-East is not because of the pervasive

assumption of 'economic neglect' but rather stems from 'inappropriate economic policy

framework which has created an unbalanced and unsustainable economy.' 13 He traced the

genesis of this problem to the creation of Northeastern states which was mainly done to

'to fulfil the ethnic, political and cultural aspirations of the people.' 14 This idea is also

emphasized by Baruah. In a perceptive essay, he perspicaciously shows how the creation

of 'mini-states' in India's North-East was informed by the 'national security driven

process' .15 While this formally engendered autonomous units of India's federal polity, it

also simultaneously gave birth to a de facto 'cosmetic federal regional order.' 16 The

consequence of this is not slight. Such a process ignores the accepted principle of states'

reorganization in the 1950s and 60s that the territory in question must also have the

12 The term 'prisoner of geography' is from Hausmann. For an insightful analysis on the interrelationship between geography and economic backwardness/development, see Ricardo Haussman, "Prisoners of Geography," Foreign Policy, no.l22, January-February 2001, pp.44-53. 13 See Gulshan Sachdeva, "India's Northeast: Rejuvenating a Conflict-Riven Economy," Faultlines, Vol.6, 2000, pp.79-80. Also see his, &anomy of the North-East: Policy, Present Conditions and Future Possibilities (New Delhi: Konark, 2000). 14 Sachdeva, "lndia'sNortheast," p.89. 15 Sanjib Baruah, "Nationalizing Space: Cosmetic Federalism and the Politics of Development in Northeast India," Development and Change, Vol.34, no.5, 2003, p.917. 16 Ibid., p.925.

Chapter 7: Auto/lOll()', Co11stitutiollaf Patnotism a11d Arymmefric Federalism- II: The Ecouomic aud Fiuaucial Routes 270

revenue resources to meet its administrative and non-developmental expenditure. 17 As a

result it gave birth to 'mini-states, [which are] completely dependent on New Delhi for

their finances and thus vulnerable to New Delhi's direct involvement in their affairs on a

daily basis.' 18

To be sure, the 'Financial Memorandum' attached to the Constitution (Thirteenth

Amendment) Bill, 196219 explicitly showed how the 'revenue receipts' of 'about Rs.30

lakh' from 'Naga Hills-Tuensang Area' was awfully inadequate to bear the cost of

'administration' and 'development' which was calculated to be 'about Rs. 5,00 lakh' _2° In

the light of this, the Memorandum underlined the responsibility of the Government of

India (hereafter Gol) to 'fill the gap between the revenue receipts of the new State and its

expenditure for a number of years. ' 21 The reorganization of Northeastern states in 1971

and thereafter the creation of Mizoram and Arunachal Pradesh in 1987 put in place a

preferential and special economic and financial regime vis-a-vis India's North-East.

Indeed, the regime was consolidated in 1969 whereby clause IA was added to Article 275

to provide favourable grants-in·aid regime to the newly created 'autonomous state' of

Meghalaya. This regime invariably constitutes one of the bedrocks of future peace

accords that the Indian state subsequently signed with 'rebels' like the Mizos (in 1986)

and the 'Bodos' (in 1993, and again in 2003) to transform them as important

'stakeholders' in India's federal polity. The Bodo Accord (20 February 1993), for

example, mandated a 'separate budget head'22 within the state of Assam's budget for

Bodoland [and thereafter for the Bodoland Territorial Areas District (BTAD) in February

2003]. Moreover, the Union Government of India undertook to provide a sum of Rs.l 00

crore each year consecutively for a period of five years.23

17 L.P. Singh, "National Policy for the North-East Region," in Upendra Baxi, Alice Jacob and Tarlok Singh (eds.), Reconstructing the Republic (New Delhi: Har Anand, 1999), p.400. 18 Baruah, "Nationalizing Space," p.925. 19 The Bill was subsequently passed to create the state ofNagaland in 1962. 20 See Government of India, "Financial Memorandum" in The Gazette of India Extraordinary, Part II, Section 2, no.30, New Delhi, 21 August 1962, p.682. 21 Ibid. 22 See "The Bodo Accord" in Chandana Bhattacharjee, Ethnicity and Autonomy Movement: Case of Bodo­Kacharis of Assam (New Delhi: Vikas, 1996). 23 The earmarked amount of Rs.1 00 crore per year was specifically meant for socio-economic infrastructural development of BT AD which began in 2004-05. See Government of India, Ministry of Home Affairs, Annual Report 2007-08 (New Delhi: Ministry of Home Affairs, 2008), p.l7.

Chapter 7: AlllofiOII!J'• Coflslillllioflal Patnotism a11d Asymmelni: Federalism- II: Tbe Eco11omzi: a11d Fiflafldal Ro11tes 271

Remarkably this regime leverages a centralised, top-down development model. The

model is sustained by multiple centralised agencies like the Planning Commission, the

Finance Commission, NEC and DONER which play pivotal role in the development

process of the Northeastern states. Familiar caveats of this model include, inter alia, 'the

paternalism of central-level bureaucrats, coercive planning, a little support or feedback

from the locals. ' 24 Set within the framework of a 'rainbow autonomy', they overtime

engender a widening gap between policy expectation and outcomes, distrust of the

intended schemes and projects by the local stakeholders, lack of accountability and

transparency, and absence of effective participatory and inclusive planning process. Of

late, however, various reports of state-sponsored and independent research projects affirm

the necessity of building participatory institutions and inclusive policy planning in the

region to obviate these problems.

Taking the lead from these emerging insights and received wisdom from historical

institutionalism,25 this chapter examines the extent to which extant institutions effect

change within themselves and how they creatively respond to the changing demands of

the local stakeholders to build trust, responsiveness and efficiency. The chapter is divided

into three broad sections. The first section examines the special status that India's North­

East enjoys under different constitutional dispensations. Attempts will be made to

understand the extent to which this status impacts upon the political economy of the

region. The second section examines the change within the North Eastern Council. Our

chief concern here would be to examine the contexts under which NEC got transformed

from being an 'advisory' to a 'regional' planning body. The last section examines

MDONER and evaluates its attempts to fill the 'development deficit' in India's North­

East. It also maps out India's 'Look East Policy' and evaluates the transnational linkages

and future possibilities it might entail for emerging regional federal order, citizenship,

trust and loyalty to the pan-Indian constitutional architecture.

24 Sanjib Baruah, "Introduction" in Sanjib Baruah (ed.), Beyond Counter-Insurgency: Breaking the Impasse in Northeast India (New Delhi: Oxford University Press, 2009), p.4. 25 See Aseema Sinha, "The Changing Political Economy of Federalism in India: A Historical Institutionalist Approach," India Review, Vol.3, no.l, January 2004, pp.25-63. Sinha examines how the ancien regime influences the path and process of evolving political economy of Indian federalism. Historical institutionalism in her scheme of thing would therefore look at how change within the institutions rather than change of the institutions provides incentive for change of 'preference' and 'strategies' of the actors (p.27).

Chapter 7: AIIIOIIOII(J, Collsfiflltiollal Patriotisi!J a11d Asyl!/lllefric Federalism- II: Tbe Ecol/omic a11d Filial/cia! Routes 272

I. Special Status under 'Special Category States' and Income Tax Regime

!(a). Special Status and Fiscal Federalism in India

Before we examine the nature and significance of the special and asymmetric status that

North-East India enjoys in the economic and financial domain, a brief overview of the

broad contours of fiscal federalism in India is in order. Like most federations, Indian

federalism is characterized by two types of imbalances, viz., vertical and horizontal

imbalances. A close examination of the Seventh Schedule of India's Constitution shows

that the distribution of financial powers between the Union and the states in India posits

the Union in an advantageous position?6 As the Union is invested with most of the

income generating subjects like railways, insurance, banking, income and corporation tax,

excise duty, customs, etc., the constitutionally assigned revenue capacities and

expenditure responsibilities of the Union government eclipse that of the states in

enormous proportions. To add to this vertical imbalance the Union government has

unlimited power under Article 292 to borrow from the market or from other external

sources; this power is circumscribed by Article 293 for the constituent units/states.

Notwithstanding the fact that the states are now allowed to directly negotiate loans and

direct investments from multilateral external agencies like Asian Development Bank,

IMF, World Bank, etc, the funding has to be still routed through the Centre.27 While the

liberalization of the Indian economy has certainly generated 'inter-jurisdictional

competition' between high income states like Andhra Pradesh, Gujarat and Maharashtra

in favour of creating and sustaining congenial investment and growth conditions in these

states,28 the low income states like Bihar, Uttar Pradesh, and SCS like the North-East,

among others, remain largely impervious to this development.

26 For helpful discussion on fiscal federalism see M. Govinda Rao and Nirvikar Singh, The Political Economy of Federalism in India (New Delhi: Oxford University Press, 2005). 27 For a perceptive analysis see Sunita Parikh and Barry R. Weingast, "A Comparative Theory of Federalism: India," Virginia Law Review, Vol.83, no.7, October 1997, pp.I593-615; and Jonathan Rodden and Susan Rose-Ackerman, "Does Federalism Preserve Market?" Virginia Law Review, Vol.83, no.7, October 1997, pp.l521-72. 28 On how political and economic reforms that India undertook since the 1990s generate 'inter-jurisdictional competition' between states, see Lawrence Saez, Federalism without a Centre: The Impact of Political and Economic Reform on India's Federal System (New Delhi: Sage, 2002), especially chapter 5.

Chapter 7: AlltOI/OI'!J', Colls!tlutio11al PatnofiSIII a11d A{ylll!!letni· Federalism- II: The Eco/JoiJiic a11d Fi11allda/ Routes 2 73

At another plane the Indian federal system is also characterized by wide horizontal

imbalances which emanate from uneven resources endowments and revenue capacities of

the constituent states. The varying sociodemographic profile, size, and geography, among

others, reinforce the horizontal asymmetry and imbalances across Indian states. As we

have pointed out in chapter 2, the largest state, Uttar Pradesh has a population which is

308 times the population of Sikkim, and the population density of West Bengal at 901 is

nearly 70 times the population density of Arunachal Pradesh with just 13 persons per

square km.29 According to 2000-01 price index, the wealthiest state calculated in terms of

Net State Domestic Product (NSDP), Goa with a NSDP of Rs. 44613/-, is 9 times more

than that of the poorest state, Bihar which has a per capita NSDP of Rs. 4813/-. Moreover,

in terms of the size of the economy, Maharashtra is the largest which has a NSDP 284

times that of Sikkim. 30

A further comparative study of the economic capacities of the Indian states

reinforces this asymmetry. Bagchi, for example, showed that whereas the high income

states like Goa, Gujarat, Haryana, Maharashtra and Punjab's own revenue receipts could

sponsor between 61.88 (Maharashtra) and 75.99 (Goa) percent of their revenue

expenditure, the low income states like Orissa and Bihar could hardly sponsor 28.62 and

33.46 percent of their respective revenue expenditure during 1999-2000.31 This is pitiably

low when it comes to some of the special category states like Mizoram, Manipur,

Nagaland, and Arunachal Pradesh whose own state's revenue receipts could respectively

match up barely 5.83, 6.09, 7.81, and 9.85 percent of their revenue expenditure during

this period.32 Interestingly, by 1999-2000 while states like Meghalaya and Nagaland have

been successful in improving their own tax revenue by more than 9 and 3 times

29 Computed from 200 I census data. 30 Data taken from M. Govinda Rao and Nirvikar Singh, "Asymmetric Federalism in India", Working Paper #04-8 (Santa Cruz: Santa Cruz Center for International Economics, University of California, Santa Cruz, 2004) [Website: http://sccie.ucsc.edu/workingpaper/2004/0408.pdf], p. I 0. 31 See Amaresh Bagchi, "Rethinking Federalism: Changing Power Relations between the Center and the States," Pub/ius: The Journal of Federalism, Vol.33, no.4, Fall 2003, pp.2I-42. Also seeM. Govinda Rao, "Incentivizing Fiscal Transfers in the Indian Federation," Pub/ius: The Journal of Federalism, Vol.33, no.4, Fall 2003, pp.43-62. 32 Bagchi, "Rethinking Federalism," p.30.

Chapter 1: AutOIIOII(J, Co11stitutio11al Patriotism a11d Asymmetric Federalism- II: The Ecollolllif a11d Filial/cia/ Routes 274

respectively from their position in 1970-71, states like Assam and Manipur have largely

maintained their stat(Js quo.33

Given that these imbalances tend to have a 'corrosive effect on cohesion within the

federation' 34 elaborate provisions are made to facilitate intergovernmental transfer of

resources from the Centre to the Indian states. These have taken three forms. One,

statutory transfer and devolution of taxes are made by the Finance Commission. This

quasi-judicial body has been given a specific mandate on a quinquennial basis to broadly:

(i) determine the volume of non-plan revenue resources which may be transferred from

the Centre to the states on the basis of budgetary needs; (ii) work out a formulae which

would govern the share of states in central tax revenues and distribute the shareable

proceeds accordingly, (iii) forecast the states' current revenues and non-plan current • expenditures, and (iii) determine means and ways of filling the gap between post-

devolution non-plan revenue receipts and non-plan revenue expenditure. The Finance

Commission has given twelve reports so far.35 Second, intergovernmental transfers are

also made by the Planning Commission. The Commission is basically concerned with

plan assistance which is given in the form of block grants and loans. Before the fourth

five year plan (1969-74), plan assistance was largely 'schematic' and 'conditional' as it

was tied with particular projects or schemes.36 The Gadgil Formula introduced during the

fourth plan started a new pattern of central assistance which considerably freed the system

from the 'string of attachments.' Third, funds are transferred through individual central

ministries in the form of centrally sponsored schemes. Various externally aided projects

also come within this ambit. These transfers are specifically made 'to enhance outlay on

specified services in the states as desired by them. ' 37 According to Rao and Singh there

are over 200 centrally sponsored schemes in the Indian states in 2000-0 I. 38

33 In 1970-71 the proportion of own tax revenue receipts of Meghalaya and Nagaland to their revenue expenditures respectively stood at 2.22 and 2.5 percent, which catch up in the 1980s and 90s. On the other hand states like Assam and Manipur have respectively maintained their status quo at around 27 and 7 p,ercent. Ibid.

4 See Ronald L. Watts, Comparing Federal Systems (Kingston: Queens University Press, 1999 second edition) p.51. 35 See various reports of the Finance Commission available online at <www.financecommission.nic.in>. 36 See Government of India, "Assam: Replies to Questionnaire" to the Report of the Commission on Centre­State Relations, Part II (Nasik: General Manager, Government of India Press, 1987), p. 76. 37 See Rao and Singh, "Asymmetric Federalism in India," p.l5. 38 Ibid.

Chapter 7: AutO/lOll()', Col/stiiNiioJJa! Patriotis!ll a11d .Arytnmetric Federa!is!ll -II: The Ecollo!llic a11d Filial/cia/ Ro11tes 275

l(b). The Nature and Implications of Special Status

Where do the eight states of India's North-East stand in this scheme of intergovernmental

fiscal transfer? There are three distinct levels at which the region enjoys asymmetric

economic and financial status. At the first level, the 'tribal areas' of Assam are statutorily

entitled to receive preferential and discretionary central subventions in the form of grants­

in-aid under Article 275(1)(a) & (b) to support their developmental projects and to 'raise

the level' of their administration.39 Under the composite state of Assam, the 'tribal areas'

received Rs.40 Iakh under this scheme, which however was reduced to Rs.l3 lakh

following the reorganization of the North-East in 1971.40 Since then it varies from year to

year depending upon the quantum of 'grants-in-aid' decided by the Planning Commission.

As this is beyond the scope of this work, we shall not examine this in detail. At the second

level, the North-East enjoys special treatment under section 1 0(26) and section 80IA

(substituted by the Finance Act, 1999) of the Income Tax Act, 1961. Section 1 0(26) of the

Act exempts member of a Scheduled Tribe (ST) in the states of Nagaland, Manipur and

Tripura or any ST defined in clause 25 of Article 366 of the Constitution41 any income

which accrues or arises to him: (i) from any source in the area, state or union territories

aforesaid, or (ii) by way of dividend or interest or securities.42 The special provision was

amplified with the incorporation of a new sub-section, i.e. subsection 4 of section 801 B

inserted by the Finance Act, 1999 and effectualized from the assessment year 2000-0 I.

This subsection stipulates that 'such industries in the North-eastern Region, as notified by

Central Government would be eligible for 100 percent deduction for a period of ten

assessment years.' 43 While notifying the eligible industry, Gol has to ensure that such

39 See text of Article 275(1) in P.M. Bakshi, The Constitution of India (Delhi: Universal Law, 2009 ninth edition), p.235. 40 See "Assam: Replies to Questionnaire," p.77. 41 Clause 25 of Article 366 states:" 'Scheduled Tribes' means such tribes or tribal communities or parts of or groups within such tribes or tribal communities as are deemed under Article 342 to be Scheduled Tribes for the purposes of this Constitution." It must be noted here that the President under Article 342(1) has been empowered, after consultation with the Governor of the state thereof, to specify certain groups as Scheduled Tribes by public notification. Article 342(2) empowers the Parliament to include or exclude such tribes from the list. 42 See Government of India, Income Tax Act, 1961, pp. 34-35 43 Rakesh Bhargava (ed.), Masters Guide to Income Tax Act (with Commentary on Finance Act, 1999) (New Delhi: Taxmann's, 1999), p.l.l60. Section 80 18 (14) (d) of the Act defines North Eastern Region as including the states of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Sikkim and Tripura.

Chapter 7: AIIIOIIOI'!J, Co11slitutiollal Patriotism a11d Arymmetric Federalism- II: Tbe Eco11omic a11d Filial/cia/ Routes 2 7 6

industry manufactures/produces articles or things specified in the Eleventh Schedule.44

The newly framed North East Industrial and Investment Promotion Policy, 2007 (NEIIP

2007) gives a liberal regime of investment to all industries by doing away with the

distinction between 'thrust' and 'non-thrust' industries made in the 1997 Policy. It also

provides 100 percent income tax exemption to industries established with effect from 1

April 2007 for a period of 1 0 years. 45 This exemption would not however be applicable to

certain industries which are bracketed within the 'negative lists' such as tobacco and

manufactured tobacco substitutes, pan masala, plastic carry bags of less than 20 microns,

and goods produced by petroleum oil or gas refineries.46

The preferential treatment under the Income Tax Act is not without its problem.

Antagonists of the provision consider that it compromises the fundamental right of

'equality before law' under Article 14 of the Indian Constitution. The matter came up

before the Supreme Court in 1975 in a case known as ITO vs. N. Takin Roy Rymbai case

[1976, 103 ITR 82 (SC)]. In this case the Supreme Court ruled that exemption of income

tax for the Scheduled Tribe(s) cannot be considered discriminatory and that it does not

offend Article 14 of the Constitution.47 Another aspect of section I 0(26) of the Income

Tax Act, 1961 which has been contested in the Court pertains to the extent of its

applicability and operation. The matter was neatly settled by the Delhi High Court in

JLalhmingliana vs. Union of India case [1989, 44 taxman 3271177 ITR 24 (Delhi)]

wherein it held that income tax 'exemption can not be extend[ed] to income, the source of

which lies outside the specified area.' 48 This implies that a 'tribal' would only avail ofthe

income tax exemption benefit only in state in which his/her 'tribe' is recognised.

Given the low level of internal resource mobilization and persistent fiscal deficits of

the Northeastern states, and given the fact that they continue to share the proceeds of

income tax collected from outside the North-East, there are increasing demand to impose

income tax to the North-East's tribals as well. Verghese is probably one of the first

notable policy analysts who suggested that the time has come to impose income tax in

44 Ibid., p.l.l65. For items included in the Eleventh Schedule see Appendix to the "Eleventh Schedule." 45 See Government of India, North East Industrial and Investment Promotion Policy, 2007, Office Memorandum, File no.l 0(3)/2007-DBA-IIINER, dated I '1 April 2007 (New Delhi: Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, 1 ' 1 April 2007), clause vi, p.2. 46 See clause x, ibid., p.3. 47 Bhargava (ed.), Masters Guide to Income Tax Act, p.488. 48 Ibid.

Chapter 7: Auto11onry, Collstitutiollal Patriotism a11d Asy111metric Federa/is111- II: The Eco/Jolllic a11d Fi11a1Jcial Routes 2 77

India's North-East.49 His suggestion is unique. He makes a case for setting up a North­

East Development Fund which would be derived from the proceeds of income tax

collected in the first decade. Needless to say, the Fund would exclusively cater to the

developmental needs of the region. Sachdeva has also suggested the imposition of income

tax on the North-East's tribals.50 Probably the time has come to go beyond asking whether

income tax should be imposed or not in India's North-East but to evolve a broader

consensus on the means and ways of harnessing the income tax so collected to augment

and sustain common property resources ofthe North-East.

At the third level, which is also the most visible level, the eight Northeastern states

are clubbed together along with the states of Himachal Pradesh, Jammu and Kashmir, and

Uttarakhand (earlier Uttaranchal) as 'special category states' (hereafter SCS) and they

enjoy special economic and financial regime as distinct from the seventeen other non­

special category states (hereafter NSCS). Under this rubric, SCS are entitled to a fixed

sum of normal central assistance for their respective state plans according to the criterion

laid down by the National Development Council from time to time.51 According to this

criterion, out of a given sum of central assistance available for state plans (both SCS and

NSCS) in any particular year, the amount required for funding external aided projects and

special programmes like Border Areas Development Programme (BDAP), Hill Areas

Development Programme, NEC, tribal sub-plans under Article 275, etc. is deducted. Out

of the remaining balance 30 percent is earmarked for SCS and the rest, i.e. 70 percent is

distributed among NSCS according to the Gadgil Formula. While there is no fixed rule

according to which this 30 percent earmarked fund for SCS has to be distributed inter se,

previous plan size, special needs and priorities of the states are normally the determining

factors. SCS are also given the discretionary power to divert 20 percent of their

earmarked allocation for non-plan expenditure. However, the inter se allocation of 70

percent of the funds for NSCS is determined by the Gadgil Formula. The Formula has

subsequently been modified, the latest being in December 1991 which stipulated the

formula as shown in Table 7.1 below.

49 See B.G. Verghese, India's Northeast Resurgent: Ethnicity, Insurgency, Governance, Development (New Delhi: Konark, 1996), p.365. 50 Sachdeva, Economy of the North-East, p.99. 51 See "Annexure I" to S.P. Shukla Commission Report on Transforming the Northeast: Tackling Backlogs in Basic Minimum Services and Jnfrastructural Needs (New Delhi: 7 March 1997), pp.l42-43.

Cbapter 7: AllfOIIOII!J, Collslilllliollal Patriotis111 a11d A.{yllllllelric Federalism- II: Tbe Ecol/otnic and Fillallcial Routes 278

Table 7.1

Modified Gadgil Formula for Plan Assistance

Share in Share of

Criteria Central Grants Distribution

Plan and Criteria Assistance Loans

A. Special Category States (SCS)( 11) 30 90:10 --B. Non-special Category States (NSCS)(l7) 70 30:70 --(a) Population (1971) 60.0 (b) Per capita income of which: 25.0

(i) According to the 'deviation' method covering only the states with per capita income below 20.0 the national average

(ii) According to the 'distance method' covering 5.0

all the 17 NCSC (c) Fiscal performance of which 7.5

(i) Tax effort 2.5 (ii) Fiscal management 2.5 (iii) National objectives 2.5

(d) Special problems 7.5 Total 100.0

Note: 1. Fiscal management is assessed as the difference between States' own total plan resources estimated at the time of finalizing annual plan and their actual performance, considering latest five years.

2. Under the criterion of the performance in respect of certain programs of national priorities the approved formula covers four objectives, viz. (i) population control, (ii) elimination of illiteracy, (iii) on-time completion of externally aided projects, and (iv) success in land reform.

Source: Rao and Singh, "Asymmetric Federalism in India," p.2l.

The implications of this asymmetric economic and fiscal regime under SCS status on the

political economy of India's North-East are immense. If the normal plan assistance

formula were applied, the Northeastern states would be awfully placed in a

disadvantageous position. To elucidate, the combined North-East population according to

the 1971 census52 was 197.92 lakh, which was even much lower when we compare with

the population of single states like Bihar (563.53 lakh), Madhya Pradesh (416.54 lakh),

Rajasthan (257.66 lakh), Uttar Pradesh (883.41 lakh), etc. 53 The Northeastern states fare

poorly in the fiscal management front as well. This is clearly reflected in the quantum of

52 Plan assistance is given to the states on the basis of 1971 Census. 53 See H. Kham Khan Suan, Special Status of the North-East in Indian Federalism (New Delhi: Unpublished M.Phil dissertation, Centre for Political Studies, School of Social Sciences, Jawaharlal Nehru University, 2002), chapter 4.

Chapter 7: AuloiiOil!J'• Collslitlltiollal Patriotism a11d A{ymmetric Federalism- II: The Eco11omic a11d Filial/cia/ Routes 279

central subventions that they continue to receive. Sachdeva showed that the region,

excluding Sikkim, received Rs.50,299 and Rs.42,809 crore respectively as gross and net

devolution from the Centre between 1990-91 and 1997-98.54

Table 7.2

Devolution' of Funds from the Centre to India's North-East (2000-0 I to 2007 -08)

(in crore rupees)

Proportion of Total

Share of Grants- Total

Devolution Central

in-aid (col.2+3) to Revenue

Taxes Receipts (in percent)

I 2 3 4 5 Arunachal Pradesh 1737.99 9860.68 11598.67 84.80 Assam 21823.55 26330.14 48153.69 62.43 Manipur 2350.51 11794.24 14144.75 91.30 Meghalaya 2360.00 7731.00 10091.00 78.12 Mizoram 1395.45 8873.97 10269.42 91.25 Nagaland 1548.03 13366.29 14914.32 92.29 Tripura 2992.98 14346.79 17339.77 85.90 North-East 34208.51 92303.11 126511.6 73.02 Sikkim 1203.94 4814.03 6017.97 40.76 North-East

35412.45 97117.14 132529.6 73.02 + Sikkim Total

Source: Various State Audit Reports of the Comptroller and Auditor General of India. Data available online at <www.cag.gov.in>

The present study of state finances data between 2000-01 and 2007-08, shows that the

total devolution from the Centre to the seven states of North-East India, excluding

Sikkim, increased to a whopping Rs.l,26,511.60 crore.55 Hence it registered an increase

of more than 151 percent over the earlier period (1990-91 to 1997-98). If this is

combined with that of Sikkim, the total devolution would come to Rs.1,32,529.60.56

Between 2000-01 and 2007-08, the proportion of total central devolution to the total

54 Gulshan Sachdeva, "Rejuvenating the North-Eastern Economy," NE Newsletter, Vol.I, no.2, December, 1998, p.2. 55 See the Comptroller and Auditor General's State Audit Reports of the eight Northeastern states from 2000-01 to 2007-08 which is available online at: <www.cag.gov.in> 56 Ibid.

Chapter 7: Alt!OIIOII!J, Collstitfllional Patriotism and Arymntetric Federalism- II: The Economic mtd Financial Rn11tes 280

revenue receipts of the state is exceptionally high for Nagaland (92.29 percent), Manipur

(91.30 percent) and Mizoram (91.25 percent). Arunachal Pradesh, Assam Meghalaya and

Tripura follow close suit respectively accounting for 84.80, 62.43, 78.72 and 85.90,

percent. Sikkim is an outlier as the total devolution accounted for 40.76 percent of its total

revenue receipts during the corresponding period (see Table 7.2 above).

Table 703 °

Vital Statistics on India's North-East

Non-plan Revenue Accounts

Non-plan after

Per Non-plan Pre/Post- Devolution Pop Capita 0 BPL

Devolution Surplus/Deficit Revenue

of Taxes& State (1999- Grants

(1971) CA 00)

2000-05 2000-05

Duties and 2002-07 (in lakh) Non-plan

(in lakh) Deficit Grants

2000-05 (in lakh)

Pre- Post-devolution devolution

1 2 3 4 5 6 7 8 Arunachal

4068 7181.73 33..47 -214623.00 -122802.00 122802.00 0.00 Pradesh Assam 146.25 950.60 36.09 -938643.00 297562.00 11068.00 308630.00 Manipur 10.73 3708.38 28.54 -312226.00 -174494.00 174494000 0.00 Meghalaya 10.12 2528.87 33.87 -285940.00 -157238.00 157238.00 0.00 Mizoram 3.32 6943.63 19.47 -242140.00 -167630.00 167630.00 0.00 Nagai and 5.16 3070.37 32.67 -436415.00 -353624.00 353624.00 0.00 Sikkim 2.10 7936.18 36.55 -153301 -84058.00 84058.00 0.00 Tripura ·. 15.56 2602.26 34.44 -424682 -241416.00 241416.00 0.00 North-East 197.92 1861.05 28.34 -- -- -- --scs -- 2084.89 -- -- -- -- --NSCS -- 513o71 -- -- -- -- --All India 5430.80 611.30 26.02 -- -- -- --

Note: l.The aggregate per capita Central Assistance (CA) for the period 2002-07 is in crore rupees. It is taken from "Annexure 7.2.2" to Planning Commission, Eleventh Five-Year Plan (New Delhi: Planning Commission, 2007).

2. BPL data taken from "Annexure 7.2.1" to Planning Commission, Eleventh Five-Year Plan (New Delhi: Planning Commission, 2007).

Source: Government of India, Report of the Eleventh Finance Commission (for 2000-2005)(New Delhi: Finance Commission, June 2000), for cols.S-8.

Chapter 7: Autoi/OII!J'• Co11stilutiollal Patriotism a11d ~lllllletric Federalism- II: The Ecol/omic a11d Filial/cia/ &JIItes 281

What is remarkable about this regime is that the average per capita central assistance that

North-East India got during the Tenth Plan period (2002-07~ at Rs.l861.05 is more than 3

times the all-India average of Rs.611.30. States like Sikkim (7936.18), Arunachal Pradesh

(7181. 73) and Mizoram (6943.63) have received per capita central assistance which are

respectively more than 12, 11 and 11 times the all-India average during this period. The

high quantum of central assistance apart, a massive non-plan revenue transfer of

Rs.l3, 12,330 lakh for the eight states of the North-East by the Eleventh Finance

Commission (2000-05) does not generate non-plan post-devolution surplus except for the

state of Assam (See Table 7.3 above). The question however is: does this help in

improving the financial situation of the North-East? The answer is: not quite.

Table 7.4

Key Economic Indicators of India's North-East (2000-01 to 2007-08)

Total Devolution (Share in Central Tax + Own State Tax Revenue

States Grants in Aid) Receipt as a Proportion as a Proportion to Revenue Expenditure to Revenue (in percent) Receipt (in percent)

Arunachal 84.8 3.08

Pradesh

Assam 62.43 25.62

Manipur 91.3 19.35

Meghalaya 78.72 12.97

Mizoram 91.25 2.94

Nagaland 92.29 4.17

Sikkim 40.76 6.47

Tripura 85.9 9.59 North-

78.43 10.52 East

Source: Various CAG State Audit Reports

Aggregate GSDP in Rupees Crore

2463.59

6320.72

4434.17

5719.12

2391.88

5367.91

1576.19

6686.6

4370.02

To be sure, the Northeastern states have not been able to improve their own tax revenues

despite the massive central assistance they continue to get. A careful analysis of their

public finance from 2000-01 to 2007-08 shows interesting picture. Except Assam (25.62

State 1

Arunachal Pradesh

Assam

Manipur

Meghalaya

Mizoram

Nagaland

Sikkim

Tripura

Chapter 7: Auto/lOll!], Co11stitutio11al Patriotis111 a11d Asymmetric Federalism- II: The Econo111ic and Fi11ancia/ Routes 282

percent), Manipur (19.35 percent) and Meghalaya (12.97 percent), whose own tax

revenue receipts as a proportion to their total revenue receipts are slightly visible, the

other five states of Arunachal Pradesh, Mizoram, Nagaland, Sikkim and Tripura had

respectively been able to generate 3.08, 2.94, 4.17, 6.47 and 9.59 percent oftheir own tax

revenue as a proportion of their total revenue receipts during the corresponding period.

Again during the same period, their own tax revenue receipts have been able to sponsor

their revenue expenditure from 2.96 percent (Mizoram) to 26.78 percent (Assam). The

figure for Arunachal Pradesh, Manipur, Meghalaya, Nagaland, Sikkim and Tripura

respectively stood at 3.58, 4.95, 13.65, 4.62, 7.52 and 11.12 percent (see Table 7.4

above).

2 3

No. of No. of Occasion days

taken

167 -- (20.88) 235 271

(29.38) (33.88) 262 -- . (32.75) 153 -- (19.13) 512 -- (64)

48 747 (6) (93.38)

-- --135 -- (16.88)

Table 7.5

Ways and Means Advances and Overdrafts of India's North-East (2000-01 to 2007-08)

Ways and Means 4 5 6 7

Taken Out- Interest Total during the

standing paid (4+5

period +6)

244.33 255.38 8.70 508.41

(30.54) (31.92) {1.09} 10652.60 1124.27 167.47

11944.34 (1331.58) (140.53) (20.93)

948.88 339.10 14.88 1302.86

(118.61) (42.39) (1.86) 380.22 0.55

380.77 (47.53) -- (0.07) 1495.65 362.40 5.21 1863.26

(186.96) (45.30) (0.65) 2230.03 5.41

2235.44 (278.75) -- (0.681

-- -- -- --657.78 76.29 50.11

784.18 (82.22) (9.54) (6.26)

(in crore rupees)

Overdrafts 8 9 10 11 12

No. of Taken

Out- Interest No. of during occasion days

the standing paid

taken _p_eriod

41 246.72 173.48 1.41 --(5.131 _(30.8~ _(21.69}_ (0.18)

523 1316 20825.16 2167.22 95.90 (65.38) (164.50) (2603.15) (270.90) (11.99)

760 10481.37 35473.39 46.34 -- (95) (1310.1ll_ (4434.17) (5.79) 2 9.31

0.36* -- (0.25) (1.16} --144 388.71 207.80 12.33 -- ( 18) (48 59) (25.98) ( 1.54)

28 665 1206.51 22.94 --(3.5) (83.13) (150.81) (2.87)

-- -- -- -- ---- -- -- -- --

Source: Various CAG State Audit Reports

Note: * in Jakh

Not surprisingly, all the states in India's North-East have chronic fiscal and revenue

deficits. In order to obviate these problems, they have frequently taken 'ways and means

advances' and 'overdrafts' from the Reserve Bank of India. As Table 7.5 shows, the state

of Assam made optimal use of these mechanisms among the eight states of India's North-

13

Total (10+11 +12)

421.61

23088.28

46001.10

9.31

608.84

1229.45

----

Chapter 7: AlltOIIOII!J, Coi!Sfitlltiollal Patriotism a11d A.rymmetric Federalism- II: The Eco11omic a11d Fi11a11cial Ro11tes 283

East. Between 2000-01 and 2007-08, it took about 11944.34 crore as 'ways and means

advances', that too in 235 occasions and spanning over a period of 271 days. Nagaland

followed suit taking Rs.2235.44 crore in as many as 48 occasions, that too spanning over

a period of 747 days, the maximum period for the entire North-East during the period.

States like Mizoram and Manipur are also not way behind, as they resorted to 'ways and

means advances' respectively for 512 and 262 days. On the 'overdraft' front, the state of

Assam again topped the North-East list. It took Rs.23088.28 crore as 'overdrafts' in as

many as 523 occasions which spanned over a period of 1316 days. Since 'overdrafts' are

usually taken from the Reserve Bank of India only when the state's revenue account is

below a prescribed minimum (worked out on a weekly basis), it means that Assam was in

this fragile state for 164 days, i.e. over 5 months every year on an aggregate (between

2000-01 and 2007-08). It is indeed a sad commentary on the state of Assam's economy.

During the corresponding period Manipur had also been in this fragile state as it had to

take an overdraft for an average of over 3 months (95 days). The case ofNagaland was no

better as it had to take it for average of over 2 months (83 days) during the corresponding

period (see Table 7.5 above).

Analysing the broad patterns of fiscal transfers across the Indian states, Rao

contended that the 'fiscal dentistry' performed by Gol through the central agency like the

Finance Commission has largely failed to obviate the problem of 'budgetary cavities'. He

attributed this to the following:

First, none of the Finance Commissions assessed the overall resource position and

requirements of the Center on any objective basis. Second, the transfers made by the

Finance Commissions were not designed specifically to offset fiscal disadvantages of

the states arising from lower revenue-raising capacity and the higher unit cost of public

services. While the tax devolution is determined on the basis of general economic

indicators, grants are made on the basis of projected post-devolution budgetary gaps.

The fiscally disadvantaged are enabled to provide a given level of public service at a

given tax-price. Finally, the design of the grants has serious disincentive effects on

fiscal management by the states. 57

57 See Rao, "Incentivizing Fiscal Transfers in the Indian Federation," pp.50-51.

Chapter 7: AlltOIIOt'!)i, Coustitutioua! Patriotism aud ~mmetric Federalis111- II: The Ecouo111ic aud Fiuaucia! Ro11tes 284

It remains to be seen whether the Medium Term Fiscal Restructuring Policy (MTFRP)

put in place across the states in the mid 2000s following the Eleventh Finance

Commission recommendation would 'incentivize' the states to maintain fiscal discipline

and improve their tax efforts/resource mobilization. As for the North-East, the debt trap • would continue for the foreseeable future. This implies that the 'mini-states' would

continue to be 'completely dependent on New Delhi for their finances' and would be

"vulnerable to New Delhi's direct involvement in their affairs on a daily basis."58 The

embedded mindset which perpetually seeks to 'look West' towards New Delhi as the

'engine of growth' certainly does not augur well for local autonomy and participatory

planning and decision-making processes. It is imperative that the North-East people

should rise to the occasion and creatively use their existing institutions like NEC and

MDONER to help mobilize the enormously rich natural resources they are endowed with

and unleash their potentialities. We shall now turn to NEC.

II. The North-Eastern Council: From an Advisory to a Regional Planning Body

The North-East is the only region in India to have an asymmetric regional planning body

with a specific mandate for development. The North-Eastern Council (NEC), as it is

officially known, was formally established by an Act of Parliament on l August 1971.59

Inaugurating it in Shillong on 2 November 1971 Indira Gandhi, the then Prime Minister

of India, unambiguously stated that: 'The primary purpose of this Council is the

development of this region for greater human welfare. The first principle of development

is coordinated activity.' 60 She envisioned that the Council would become an 'effective

coordinating agency for solving the regional problems in an atmosphere of goodwill,

responsibility and mutual respect' 61 and serve the larger purpose, viz., 'political,

58 Baruah, "Nationalizing Space," p.925. 59 See J.B. Ganguly, "Role of the North-Eastern Council in Economic Development of North-East India," in S.M. Dubey (ed.), North-East India: A Sociological Study (Delhi: Concept, 1978), pp.349-65; and B.N. Agrawal, "The North-Eastern Council: A Study," in Verinder Grover and Ranjana Arora (eds.), Encyclopaedia of India and Her States, Vol.9 (New Delhi: Deep and Deep, 1998, 2nd Edition), pp.81-92. 60 Indira Gandhi quoted by Arun Shourie while introducing the North-Eastern Council (Amendment) Bill, 2002 in the Lok Sabha on 11 November 2002. See full text of Lok Sabha Debates available online at: <http:/1164.1 00.47.132/LssNew/psearch/DebSubjectSearch-freetext.aspx>[Hereafter simply as "LS Debates on NEC Bill"]. 61 Ibid.

Chapter 1: AIIIOIIOI'!)', Co!lsfitllfiollal Patriotism a11d A.[ymmetric Federalism -II: The Eco!lomic a11d Filial/cia/ Ro11fes 285

economic and strategic. ' 62 Elaborating further she said, 'The object of the Council is to

ensure that the existence of a number of political units in the north-east of India does not

affect its economic development, that their rapid economic integration is facilitated and

that the problems of the region are dealt with as an integrated whole.' 63

To be sure, Ms.Gandhi made her case to simultaneously address the sense of

insecurity and problem of 'coordination' which might stem from the 'balkanisation of

North-East India'. In much the same way, it was also an attempt to allay suspicion and

doubt over the widespread perception about NEC as a 'supra-state' construct specifically

tailored to fit into what Chanda called a 'unified command echelon. ' 64 In fact, the original

idea of having a 'unified command echelon' under the Union Home Ministry was mooted

as early as 1968 by the Internal Affairs Committee of the Central Cabinet.65 Under this

scheme, the regional body would ensure the 'security ofthis sensitive border region' and

brought about a 'unified and coordinated' development whereby Goi would retain the

power 'to issue directions which the Governor was required to enforce. ' 66 To fructify this,

a bill was introduced in the Parliament in 1970 to invest NEC with an executive authority.

However it was staunchly resisted by states like Assam and Nagaland as they saw in it an

attempt to superimpose a centralised structure. As a result, the bill was withdrawn.67 Later

on a modified bill was introduced in the Parliament which was finally passed as the

North-Eastern Council Act, 1971.

NEC that finally emerged out of this Act was an 'advisory body' with four broad

objectives: (i) to discuss and make recommendation on 'any manner of common interest

in the field of social and economic planning', 'inter-State transport and communications,'

and 'power, or flood control projects'; (ii) to secure 'balanced development of the north­

eastern area' by formulating a 'united and co-ordinated regional plan (which will be in

addition to the State Plans), to set out priorities of projects and schemes which may be

implemented, and to propose the location of projects and schemes included in the regional

62 Ibid. 63 Ibid. 64 On this see Ashok Chanda, "North Eastern Council: An Essentially Sound Plan," The Statesman, Calcutta, 12 August 1971. Quoted in Ganguly, "Role ofthe North-Eastern Council," p.349. 65 Ibid. 66 See Ganguly, "Role of the North-Eastern Council," ibid. 67 Nagaland had maintained that it would not have anything to do with NEC. It however relented later and joined the Council on the sixth year of its establishment. See Agrawal, "The North-Eastern Council," p.84.

Chapter 1: AlltOIIOH!J, Co11stitutio11al Patriotism a11d Asymmetric Federalism- II: The Eco11omic a11d Fi11a11cia/ Routes 286

plans; (iii) to review the implementation of such projects and schemes and 'recommend'

measures for effecting co-ordination among the states in their implementation; and (iv) to

review 'the measures taken by the States represented in the Council for the maintenance

of security and public order therein and recommend to the Government of the States

concerned further measures necessary in this regard.68

The Council was composed ofthe Governors and Chief Ministers ofthe seven states

of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland and Tripura.69

The Chairman was nominated by the President of India among the members of the

Council [section 3(3)]. In practice it was made on a rotation basis among the Governors of

the seven states on an annual basis. The Council is serviced by a secretarial staff

consisting of a Secretary, a Planning Adviser and a Security Adviser and such officers

and employees as may be appointed by the 'Central Government.' While the Secretary

and the Planning Adviser are usually senior bureaucrats deputed by the Centre, the

Director-General of Assam Rifles has been the Security Adviser to NEC.

The Council evoked mixed reactions from the very outset. For some it was a

'promising innovation in regional planning'70, set up as it were outside the ambit of the

Zonal Councils envisaged for other parts of India. Singh, a senior bureaucrat and who was

actively involved in policy making vis-a-vis India's North-East considered that NEC was

unique as it brought about two 'policy innovations'. These are: (i) the concept of planning

authority with a separate plan outlay, and (ii) the Council was given the task of being a

source of ideas for the development of the region for human welfare as well as

maintenance of security and public order.71 For some others, it was a mere advisory body

shorn of any executive authority. Hence it could hardly be regarded 'as a satisfactory

68 See section 4 of the "The North-Eastern Council Act, 1971," in Manila! Bose (ed.), Historical and Constitutional Documents of North-Eastern India (1 824-1 973)(New Delhi: Concept, 1979), pp.347-5l. 69 In 1972 when it was inaugurated NEC was composed of the Governors and Chief Ministers of Assam, Manipur, Meghalaya and Tripura, and the Administrators of the Union Territories of Arunachal Pradesh and Mizoram. The Governor and Chief Minister ofNagaland were included as its members on the sixth year of its establishment after the state gave up its opposition to NEC. Since Arunachal Pradesh and Mizoram become full-fledged states in 1987, they are represented by their respective Governor and Chief Minister. Also see section 2 of"The North-Eastern Council Act," p.348. 70 Indira Gandhi quoted in B.P. Singh, "The Problems of Change- A Study of North East India," in North Eastern Council, Commemoration of 20 Years of NEC (1972-1992)(Shillong: Director of Information and Public Relations, 1992), p.25. 71 Ibid., p.l5.

Cbapter 1: AllfOIIOII!J, Collsfitutiolla! Patriotis111 a11d A.rymmetric Federalism- II: Tbe Eco11omic a11d Fi11a11cia/ Ro11tes 287

substitute for a unified command echelon.' 72 Still some others are suspicious of the

'intention' of the Centre. Prabhakar, a prominent critic, contended that NEC represents a

centralist ploy to ensure that "the 'border' regions would not be loosely drifting into

postures of defiance, or nursing ambitions of autonomy."73 He further underlined his

misgivings about it rather pungently:

But NEC seeks, not merely to usurp the limited powers of the states, but to totally

replace, as it were, the authority of the states by the Centre, especially by the most

actively repressive organs of the Centre. What is sought is not so much the whittling

down of the powers of the states of this region, but their reduction to a state of total

impotence.

Indeed, NEC remained a non-starter as it was seen to be nothing more than an additional

source of revenue to supplement the States' Plans. The nature of its role, which is largely

advisory and recommendatory in nature, could not give the much needed impetus. Not

surprisingly, the Shukla Commission in its Report on Transforming the Northeast (1997}

pointed out that in an a time where the states are directly dealing with the Planning

Commission, 'an element of dysfunctionality' has crept into NEC even as it 'continues its

role of gap-filling and the funding of certain inter-state roads and regional institutions.'74

In response to the demand to make NEC a 'policy making body' with an 'expanded

development mandate', the Commission recommended both structural and policy change

in NEC. Towards these ends, it recommended that NEC should be 're-designated [as] the

North East Development Council (NEDC)' and should include Sikkim.75 Interestingly, it

recommended that 'all security functions' should be 'delinked from the NEC' and should

be placed under the Planning Commission instead of the Home Ministry. It also

recommended that 'a public figure of high standing' should become Chairman of NEDC

who should be located in Delhi. The Commission also favoured the establishment of a

'central coordination committee' in Delhi under the Chairman NEDC' to facilitate better

72 See Ashok Chanda, "North Eastern Council: The Case for Planned Regional Development," The Statesman, Calcutta, I August 1972. Cf.Ganguly, "Role ofthe North-Eastern Council," p.349. 73 M.S. Prabhakar, "The North Eastern Council: Some Political Perspectives," Economic and Political Weekly, Vo1.8, no.40, 6 October 1973, p.l825. 74 S.P. Shukla Commission Report, Transforming the Northeast (New Delhi: High Level Commission Report to the Prime Minister, 7 March 1997), p.97. 75 Ibid., p.98.

Chapter 1: Autoi/Ofl!J, Co11stifllliollal Patriotism a11d Arymmetric Federalism- II: The Ecoi/Oiflic aud Fiuaucia/ Ro11tes 28 8

coordination between various Central Ministries/Departments/Agencies/Public

Undertakings concerned with the Northeast.' 76 At the policy level, it set the tone for an

'inclusive' policy making by recommending the establishment of a 'Regional Economic

Development Council' under NEDC which would in essence be a 'strategic policy

planning body' drawn from important local stakeholders including the representatives of

the District Councils.77

The Report generated serious debates on the future ofNEC. Joining the debate soon

after the Report was submitted, Sachdeva made a case for a restructured NEC which

would be prepared to meet the increasing requirements of what he calls 'technical

advisory services' 78 in a new economic environment. Subsequently, Verghese who

himself was a member of the Shukla Commission also participated in the debate and

raised three key points.79 Firstly, he pointed out that making the post of NEC Chairman

rotationary among Governors of the states engenders a 'weak organic unity among the

constituent units.' Secondly, by detaching the Security Advisor from the NEC and

vertically integrating with the Centre, Verghese considered that peace (security) and

development are made to embark upon a 'parallel tract' instead of letting it to 'go hand in

hand.' Thirdly, he attributed the NEC's inherent weakness to the narrow mandate given to

it. Moreover, Verghese showed how the whole planning process literally bypassed the

Council as the Planning Commission draws up the Five Year Plans and approves the

states' annual plans only after directly consulting each of the states. The aggregation of

these disparate plans, he contended, does not make for an integrated North-East plan

which is so essential for a region characterized by 'interdependent geo-political and

natural resources' .80 As a corollary, the extant arrangement leaves the NEC with no more

than a limited coordinating role with little additional funds to promote inter-state projects.

In short, it is neither staffed nor mandated to undertake regional planning.81

In response to the Shukla Commission Report and the subsequent debates on

'restructuring' NEC, Vajpayee, the then Prime Minister of India, held a high level

76 Ibid. 77 Ibid., p.99. 78 Gulshan Sachdeva, "Focus on the North-East," Hindustan Times, New Delhi, 3 July 1997. 79 B.G.Verghese, "End the Isolation," Hindustan Times, New Delhi, 2 May 2002. 80 Ibid. 81 Ibid.

Cbapter 7: Anfollo!Jry, Collsfiflffiolla! Patriotism a11d Arymmetric Federalism- II: The Eco11omic a11d Fillallcial Ro11tes 289

meeting with the Chief Ministers ofthe Northeastern states on 8 May 1998 in New Delhi.

Based on the consensus arrived at this meeting, the NEC (Amendment) Bill, 1998 was

introduced in the Rajya Sabha on 8 December 1998.82 The Bill was referred to the

Parliamentary Standing Committee in August 2001. Subsequently it was reintroduced and

passed as the NEC (Amendment) Bill in November/December 2002, and thereafter

became an Act on 23 December 2002.83

The Amendment Act transformed the character of NEC from being an 'advisory

body' to 'a regional planning body' [section 4(1)]. It enlarged the membership of the

Council by including the state of Sikkim [section 2(b)], and three members to be

nominated by the President [section 3(1)(iii)]. The Chairman of the Council need no

longer be nominated by the President only from amongst members of the Council. At the

policy level the broad features remain as NEC is invested with the power to formulate

'regional plans for the north-eastern area' giving priority to those projects/schemes which

would 'benefit two or more States'; the only exception being Sikkim would be allowed to

formulate and review its own specific projects and schemes [section 4(2)]. 84

What is remarkable about the NEC (Amendment) Act, 2002 is that it sustains the

development-security paradigm by continuing to make Governors of the states as

members of the Council. In fact, the 1998 Amendment Bill earlier proposed to exclude

the Governors as members from NEC, a point which was endorsed by the Parliamentary

Standing Committee when it submitted its report in December 2001. During the debate on

the NEC (Ame~dment) Bill, 2002 in the Lok Sabha members like K.A. Sangtam

(Nagaland) and P.H. Pandian (Tirunelveli) emphasised this point.85 Sangtam 'vehemently

opposed' the inclusion of Governors as members ofNEC, as he considered them 'hardly'

accountable and 'impossible' to approach.86 For him the presence of 'elected Chief

Ministers' in NEC makes it redundant for inclusion of the Governors as members because

the latter 'are only representatives of the Government of India.' Pandian's point was

82 See Gol, MDONER, Report of the Committee on Revitalisation of North Eastern Council (New Delhi: Ministry of Development of North Eastern Region, 2004)[Chairman: P.P. Shrivastav], p.21 [Hereafter Shrivastav Committee Report]. 83 See full text of the North-Eastern Council (Amendment) Act, 2002 [No. 68 of2002] in "Annexure-IV" to ibid., pp.l 04-06. 84 Ibid., p.l 05. 85 See LS Debates on the NEC (Amendment Bill), 2002. 86 See the speech ofK.A. Sangtam in ibid.

Cbapter 1: AlltO/IOII!J, Co11stit11tiollal Patriotism a11d Asymmetric Federalism- II: Tbe Ecollomic a11d Fi11a11cia/ Ro11tes 2 90

procedural and it pertained to the reason why the Act did not incorporate the

recommendation of the Parliamentary Standing Committee's Report to exclude

Governors from the Council's membership.87 In what is seen as a clear manifestation of

the entrenchment of the 'development-security' paradigm into the thinking ofNEC, Arun

Shourie, the Minister of DONER 88 defended the inclusion of the Governors on four

grounds which can be merged into three, viz., (i) the unique administrative structures of

the North-East wherein the Governors have 'special responsibilities' and their 'position'

are 'different'; (ii) given that the 'security situation of the North-East continues to be

'tense' the Centre finds it 'most helpful' to appoint Governors who have 'a special

background in regard to security affairs'; and (iii) the Governors are also expected to

'maintain continuity in administration' and effectively deal with the problem of

'development and security' in states where 'Governments ... and party labels change

frequently.' 89

Another pertinent point raised in the debates pertains to making the NEC more

inclusive. Members like Sansuma Khunggur Bwiswamuthiary (Kokrajhar, Assam) and

Santosh Mohan Dev (Silchar, Assam), among others, took serious note of the exclusion of

the Members -of Parliament from NEC. Bwiswamuthiary considered this as a 'serious

lacunae and shortcoming' of the 2002 Bill. He underlined the imperative to rectify this

and another lacuna of not giving representation to what he calls the 'most backward sub­

region like Bodoland territory, Karbi Anglong and North Cachar Hills Autonomous

Council area. '·90 Registering his misgivings about the non-inclusive character of NEC,

Santosh Mohan Dev alleged that 'The Minister ... has disinvested the Chief Ministers and

the MPs in this Bill. ' 91 The demand for inclusion of at least one MP from each state and

representatives of the Autonomous Councils was however considered to be untenable as it

would make the membership of the Council unwieldy.92 The debates also provide us a

glimpse of the ignorance shown by some MPs about the North-East. A member, for

87 P.H. Pandian also happened to be a member of the Parliamentary Standing Committee constituted to examine the NEC (Amendment) Bill, 1998. See his speech in ibid. 88 DONER stands for Department of Development ofNorth Eastern Region. 89 See the speech given by Arun Shourie in ibid. 90 See the speech made by Sansuma Khunggur Bwiswamuthiary in ibid. 91 See the speech of Santosh Mohan Dev in ibid. 92 See Arun Shourie's response in ibid.

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example, mentioned that there are 'nine states' in the North-East.93 In the ultimate

analysis, the debates reinforced the imperative to revitalize NEC and effectuate its new

role as a regional planning body with the requisite manpower and technical expertise and

skills.

The big question ts: where does NEC go from here? This would largely be

determined by four factors, viz., conceptual/policy framework, structure, funding, and

implementation of schemes/projects. The policy and conceptual underpinning of NEC

would fundamentally determine the contours of its transformation from being an

'advisory' to 'a regional planning body'. However, this would remain facile so long as

NEC continues to be chained by the 'development-security' paradigm which unduly

privileges the 'top-down' development model. It was precisely this paradigm which

informed the then National Democratic Alliance (NDA) Government's initial refusal in

I 998 to allow the Rome-based International Fund for Agricultural Development (IF AD)

to start Rs.l60 crore poverty alleviation projects in Assam, Manipur and Meghalaya. In

fact IFAD's offer was disinterestedly and in a biased manner turned down by the NDA

citing it as a 'non-priority issue' for the 'sensitive border region' .94 After prolonged delay

the projects was effectualised in two most backward districts each in the states of Assam

(Karbi-Anglong and North Cachar districts), Manipur (Senapati and Ukhrul districts) and

Meghalaya (West Khasi and West Garo hills districts).

There is an urgent imperative to understand that development and security need not

embark upon 'parallel tracks' but they can in fact be made mutually reinforcing by

envisioning a 'bottom-up' development and planning model. Such a model would not be

circumscribed by the narrow interpretation of development and security as the absence of

physical fear and want, but would engender broader and more inclusive development and

policy planning processes. This in turn would demand breaking the stranglehold of central

bureaucrats, and 'coercive planning' 95 that come along with the trapping of a 'top-down'

planning process. The six-pronged development strategies adopted by The North Eastern

93 The M.P. in question is Nikhilananda Sar from Burdwan, West Bengal. Although this factual error may come as an offhand remark, it bespeaks of the 'deficit' in understanding India's North-East. 94 The Statesman, "Thrice Blessed? Yet No Improvement in North-East Economy," Calcutta, 25 September 1998. 95 The term 'coercive planning' is used here to imply the system of planning which is imposed top-down. Under this scheme, the local stakeholders do not have a decisive and an effective role in the decision making process.

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Vision 2020 are pertinent to underline here. These are: (i) Empowerment of people by

maximizing self-governance and participatory development through grass-roots planning.

(ii) Creation of development opportunities for a majority of the people living in villages

through rural development initiatives. (iii) Developing sectors with comparative

advantage so as to utilize the resources of the region productively for the benefit and

welfare ofthe people. (iv) Capacity development of people and institutions. (v) Creating a

hospitable investment climate, and (vi) Public and private investment.96 There is an urgent

need to include representatives ofthe important local stakeholders like academics, NGOs,

and local self-governing institutions and give them decisive and effective say in the policy

planning and policy decision making processes. This is imperative to construct trust and

loyalty to the institutions of the state and to its federal polity.

The idea then is to engage traditional institutions of self-governance in delivering

the goods and services. This again would require policy changes in land, labour and

market. The North-East tribal lands remain impervious to the land reforms acts applicable

in the valley and plain areas. It is imperative to conduct cadastral survey of lands and

introduce reforms within the tribal communal land holding/ownership system. Given the

increasing complaints of land grabbing and alienation of land not only from tribals to

nontribals but also within the tribals themselves, patterns of land ownership and transfer

should be regulated by the tribal district councils. The exploitation of resources and the

terms of development in these areas should be determined not just simply to generate

revenue resources for the state but they must first of all cater to the needs of the local

people. In other words, as Jawaharlal Nehru reminded us in his famous Tribal

Panchsheel, the development process has to work through tribal self-governing

institutions and that 'we should judge results, not by statistics or amount of money spent

but the quality of human character that is evolved.' 97

The import of not only involving the tribal people but also giving them effective

voice in the planning and decision making process is increasingly being realized. To be

sure, the series of protests launched by the tribal people in India's North-East or

elsewhere against development projects like dams, resource exploration and excavation

96 See, Gol, MDONER and NEC, The North Eastern Vision 2020, pp.17-18. 97 See Jawaharlal Nehru's Tribal Panchsheel in his "Foreword' to Verrier Elwin, A Philosophy for NEFA (Shillong: Sachin Roy, 1959, second edition)[1957].

Chapter 7: Autoi/Oil(J, Collslitlltiolla! Patriotism a11d Asymmetric Federalism- II: The Ecol/olllic a11d Fi11a11cia/ Ru11tes 293

like oil and natural gas, uranium, coal, etc., among others stem not from their opposition

to development per se but rather stem from their exclusion from the decision-making and

implementation process. The case of uranium extraction in Khasi Hills and the vehement

opposition it entails is a glaring example. To briefly explain this case, uranium was

detected in Meghalaya in 1984.98 The exploration undertaken by the Uranium Corporation

of India Limited (UCIL) in 1992 confirmed the presence of uranium deposit near the

village of Domiasiat in the West Khasi Hills district which is estimated to be between

9500 and 10000 tonnes or around 16 percent of the uranium deposits in India.99 As the

UCIL's drive to exploit uranium in 1992 and the subsequent explorations by the Atomic

Energy Commission between 1992 and 1996 were done without the consent of the West

Khasi Hills district's Darbar, it was severely resisted by the people. McDuie-Ra who

conducted a field study on this case found that the Khasi Students Union, which led the·

popular protest movement against the exploration and excavation of uranium, opposed the

move on three grounds: health hazards, influx of outsiders, and alienation of land. 100 On

close scrutiny, however, he found that 'the opposition to development projects has little to

do with development itself, or with environmental concerns, and far more to do with

ethnic identity politics.' 101 McDuie-Ra's findings would hold true for all developmental

projects in India's North"-East or elsewhere. The key is crafting policy and institutions

which would give effective participation to local people both in the deliberation of

developmental policies and in their implementation process.

This brings us to the imperative of effecting structural change. That the extant

structural framework lacks synergistic relationships with the central agencies and other

line departments working in India's North-East was clearly brought out by the Report of

the eleven member Committee on Revitalisation of North Eastern Council headed by P .P.

Shrivastav (hereafter Shrivastav Committee Report) in 2004. 102 Two imponderable issues

98 See Duncan McDuie-Ra, "Anti-Development or Identity Crisis? Misreading Civil Society in Meghalaya, India," Asian Ethnicity, Vo1.8, no. I, February 2007, pp.43-59. 99 Ibid., p.50. 100 Ibid., p.51. 101 Ibid., p.44. For a broader analysis on South Asia, see David Gellner, Ethnic Activism and Civil Society in South Asia (London: Sage, 2009). 102 In fact one of the eight terms of reference of the Shrivastav Committee is to: 'bring about synergies with the Line Departments of the Govt. of India and NEC in order to enhance regional perspectives in their planning and functioning.' See Shrivastav Committee Report, p.8.

Chapter 7: AllfoJJOII!J, CoJJsftilltioJJa! Patnotism a11d A{yllllllefnc Federalism- II: The EcoJJotmc a11d FtitaJJdal Rli11tes 2 94

are involved here: chairmanship of NEC, and secretarial officers and staffs. The question

of who should be the ideal chairman of NEC remains unsettled, as the 2002 Act avoids

the specific issue. Section 3(3) which is incorporated in 2002 merely states that 'The

President shall nominate the Chairman of the Council.' According to one view, the Prime

Minister or the Deputy Chairman, Planning Commission should make the ideal Chairman

of the Council. 103 But owing to their busy schedule and given that the office of NEC is

located in Shillong, it is not considered to be feasible. The Shrivastav Committee felt that

the nomination of the Deputy Chairman, Planning Commission or the Minister DoNER as

Chairman 'may be in the best interest of NEC.' 104 Alternately it favoured the nomination

of Governors as Chairman, 'but by rotation and with 1-year tenure.' 105 Clearly the new

development mandate demands that the Governors should now remain in the background

of NEC. It needs to be underlined here that the Chairman should be nominated by the

President of India taking into account his/her tract record, efficiency and impartiality.

Another structural change mooted by the Shrivastav Committee deserves mention

here. According to it, NEC should now be serviced by four Sectoral Empowered

Committees (SECs), each headed by two Chief Ministers, on a rotation basis, and which

would include the three nominated members into their Committees. These four SECs

should respectively be assigned four broad subjects, viz., (i) agriculture and allied

services, environment and forests, and other related subjects; (ii) industry, power and

other related subjects; (iii) roads and communication; and (iv) human resource

development and other related subjects. 106 In fact this may be seen as an improvement

over the Shukla Commission's recommendation for 'Regional Economic Development

Council', that we have mentioned earlier. A further improvement over these two could be

to increase the number of nominated members to seven (3+4) by including four

academics as nominated officials with established credentials in social science and

information technology. A mechanism should then be evolved to have a wider platform of

plan formulation by involving and by giving effective decision making roles to the local

103 Ibid., pp.23-26. 104 Ibid., p.26. 105 Ibid. 106 Ibid., p.29.

Chapter 7: AlltOIIOR(JI, CollslitlltiOIJaf Patriotism a11d Asymmetric Federalism- II: The Ecol/olllic a11d Fillallcia! Ro;!les 29 5

self-governing institutions like Panchayati Raj, Autonomous District Councils, and

Village Development Boards.

To maintain continuity and efficiency to the system it is also imperative to have a

competent and a dedicated seniour bureaucrat for the post of Secretary to NEC. This is

more compelling as deputation to the North-East is not considered to be 'attractive'. To

surmount this problem the Shrivastav Committee recommended that Secretary NEC

should be deputed for a three year term and that he/she should be entitled to 'all the

powers, mutatis mutandis, which are available to the Secretary to the Government of

India' .107 In the meantime, the NEC secretariat should also put in place incentive structure

to attract a dedicated team of officers and staffs, with established credentials, who should

be able to carry out the tasks and responsibilities with efficiency and integrity. That this

incentive structure is presently amiss in the system is shown by Table 7.6 below. The

table clearly shows how NEC is awfully short of the required manpower and skills needed

to run it. According to the statistics provided by the Shrivastav Committee there is a

shortfall of 34.62 percent Group 'A' officers in NEC. Group 'C' with 18.35, Group 'B'

with 14.29 and Group 'D' with 6.52 percent manpower shortfall does not bode well for

the future ofNEC. This should be immediately filled.

The third area which would decide the future ofNEC is funding and implementation

pattern of projects/schemes. NEC had been receiving Gross Budgetary Support (GBS)

from the central plan since its inception which was determined by the Planning

Commission from time to time. However, this funding scheme was changed in 2001.

Since then it is receiving its funds from the Non-Lapsable Central Pool of Resources

(NLCPR) which is created out ofthe unspent balance of 10 percent of the GBS earmarked

by the central ministries for the Northeastern region. 108 This notwithstanding, it has been

largely successful in filling the gaps of infrastructure in the region. This can be

ascertained from the fact that NEC has invested a total amount of Rs.6151.62 crore from

its inception in November 1972 to 31 March 2004 alone. Out of this amount, the

107 Ibid., p.38; also see pp. pp.30-3 I. 108 The Shrivastav Committee was critical of this change and demanded that the status quo ante should not only be restored, but NEC should also be entitled to get funding on the pattern of tribal sub-plan. Under this sub-plan the unutilized amount of a financial year does not lapse, but gets carried over to the next financial year. This, it is contended, would go a long way in last-minute rush for extravagant spending. See Shrivastav Committee Report, ibid., p.48.

Chapter 7: AutoiiOII!J, Co11.rtitutiollal Patriotism a11d A[YIIImetrit Federalism- II: The EcoJI0111ic a11d Fiual/cial Routes 2 96

maximum investment was made for water and power development which attracted as

much as 45.62 percent. Transport and communication followed close suit attracting 40.92

percent of the investment. The remaining amount was shared by manpower development

(5.4 percent), social and community services (3.13 percent), agriculture and allied

programme (2.05 percent), general services (1.17 percent), industry and mining (1.14

percent), and externally aided projects (0.57 percent). 109 A 'concept paper' posted in the

MDONER website in 2008 showed that the outlay of funds for NEC from its inception

i.e. the fourth plan (1973-74) to the tenth plan (2002-03 to 2006-07) was Rs.8074.09

crore, out of which Rs.7558.78 crore had been released. 110

Table 7.6

Status of Posts in NEC Secretariat, Shillong

Post Initially Now* Filled up Vacant %Seats Vacant Group A 49 26 17 9 34.62 Group B 28 21 18 3 14.29 GrouQ_C 126 109 89 20 18.35 GroupD 46 46 43 3 6.52 Total 249 202 167 35 73.77

Note: * 2003 figure Source: Government of India, Ministry of Development of North Eastern Region, Report of the

Committee on Revitalisation of North Eastern Council, 2004 (New Delhi: MDONER, 2004), p.32.

Let us briefly examine the effects ofthese massive investments. In the power sector, NEC

has been able to contribute 673.50 MW (Mega Watt) out of the current total installed

capacity of 2051.28 MW of the Northeastern region. 111 It is expected to increase its

contribution further by 21 MW when the Rs.80 crore 21 MW Baramura Gas based project

in Tripura is completed in 2009-10. 112 Despite this, power generation in India's North­

East has not been able to meet the consumption demands. In fact, the shortfall of power

-supply increased from 101.2 GWH (Gigawatt Hour) in 1996-97 to 1856.7 GWH in 2003-

109 Ibid., p.19. 110 See Go!, MDONER, "Concept Paper for the Task Force for Recommending a Regional Plan for the Northeastern Region including Sikkim," p.13 [Full text is available online at: http://www.mDoNER.gov.in][Accessed on 20 September 2009]. 111 Gol, MDONER, Annual Report 2008-09, p.28. 112 Ibid.

Chapter 7: AlltOJJOII!J, CoJJstitlltioJJa/ Patriotism a11d A.rym111etric Federalism- II: The EcoJJo111ic a11d Fi11a11cia/ Ro11tes 297

04 in the region. 113 Not surprisingly, Assam alone has registered a shortfall of 62.5 and

1093.4 GWH respectively during this period; that is a phenomenal increase in the

shortfall by over 16 times! The level of underdevelopment of power potential can be

gauged from the fact that in 2001, according to the Central Electric Authority (CEA),

North-East India had a hyde! power generation potential of 31,140 MW, which is 37.05

percent of the all-India potential of 84,044 MW. 114 Despite the enormous growth

potential, the region continues to lag behind the rest of India because of infrastructural

bottlenecks and lack of investment and caP.itaL Taking this into account, the Shukla

Commission calculated in 1997 that India's North-East required at least Rs.28070.88

crore investment to provide basic minimum services in seven key infrastructures like

roads, rural housing, safe drinking water supply, primary health, elementary education,

nutrition and public distribution system. 115 The latest crude estimate by North Eastern

Region Vision 2020 is that the region would need an additional investment of

Rs.l ,329,891 crore to improve its infrastructure to 'catch up with the rest of the country'

by 2020. 116

In order to attract investment (read here as funding) the states have to approach

funding agencies like the Planning Commission or other central ministries/agencies. The

approval depends upon the detailed project reports (DPRs) which the states are not

particularly competent to deal with. It is common to see the North-East Chief Ministers

with their 'team of experts' camping themselves in New Delhi just before the beginning

of every financial year to get their state plans approved. Needless to say, these plans have

to be diligently tailored to adhere to and meet the bureaucratic norms, principles and

standards laid down by the Planning Commission or for that matter the Finance

Commission from time to time. Such uniform rules are not at all feasible to India's North-

113 Computed from 'Table 7.15A' in Gol, MDONER and NEC, North Eastern Region Vision 2020: Annexures, Vo/.3 (New Delhi: MDONER and NEC, 2008), p.I05. During 1996-97 the total power generated in Northeastern region was 217 GWH and the total consumption was 318.2 GWH, which respectively increased to 2014 and 3870.7 in 2003-04. Interestingly the all-India average showed a surplus power supply of 8224.45 GWH in 1996-97 as the power generation was 36,708.25 GWH and power consumption was 28,483.8 GWH. This surplus has increased to 164363.8 GWH in 2003-04. 114 The potential is estimated at 60 percent of the load factor. The data provided by Central Electric Authority is cited in World Bank, Strategy Report: Development and Growth in Northeast India (Washington: IBRD/World Bank, June 2007), p.58. 115 See Shukla Commission Report, p.11-A. 116 See Gol, MDONER and NEC, North Eastern Vision 2020, Vol.3, pp.9-10.

Chapter 7: AIIIOIIOI'!)', Collsfitutiollal Patriotism a11d A.rymmetric Federalism- II: The Eco11omi( a11d Fillallcial Ro11te.r 298

East where uneven geographical topography, distance from the mainland (isolation),

abundant rainfall (which cause severe soil erosion, landslide and silting), militancy, etc.,

escalate the price of goods and services. According to an estimate in 1997 the cost of

transporting a truck load of goods from Moreh · (Manipur) to Dimapur (Nagaland)

covering a distance of 316 km incurred an amount of at least Rs.49, 170/- which included

hire charge, payments made to the various undergrounds/militants and the umpteen

'checkposts' that dotted the way. 117 However, similar transportation from Guwahati to

Kolkata covering a distance of II 00 km was estimated to barely cost Rs.22,000/-. 118

Given this contextual bearing, it is imperative to imaginatively lay out plans and break the

rigidity of uniform rules which are imposed 'top-down'.

Many a times, the projects/schemes run by NEC lack proper planning and in-dept

study. Take for example the case of Bogibeel railway bridge project. The foundation of

the project was laid in 1997 by then Prime Minister, H.D. Deve Gowda with great fanfare,

which unfortunately was done even without soil testing or a survey report. 119 In fact, the

Comptroller and Auditor General (CAG) in its various state audits reports pointed out the

lapses in the planning and implementation of NEC funded projects. The case of NEC

funded roads projects in Meghalaya, among others, convincingly prove this point. The

NEC funded 800.84 km (9.81 per cent) out of the 8,164.34 km of Meghalaya's roads as of

March 2006. 120 During 2001-2006, for example, the State Finance Department was to release

Rs.81.81 crore (including the state's share) to the Public Works Department (PWD). For one

thing, only Rs.77.30 crore was released during the period resulting in short release of Rs.4.5l

crore. For another thing, the PWD could not utilize over II per cent (i.e. Rs.8.92 crore) of the

funds released. More revealingly, the CAG found that PWD diverted as much as Rs.41.63

lakh on works in two divisions, viz., Umsning and Ncingpoh not sponsored by the NEC. 121

Another glaring problem pertains to the extra and unnecessary expenditure incurred on NEC

117 See Sachdeva, Economy ofthe North-East, pp.155-57. 118 See Alokesh Barua and S.K. Das, "The Look East Policy and Northeast: New Challenges for Development," unpublished paper presented at a conference on India's Look East Policy: Challenges for Sub-Regional Cooperation, 7-9 October 2007, Guwahati (Organised jointly by Ministry of External Affairs, Gol, Indian Council for Research on International Economic Relations, Delhi; and Omeo Kumar Das Institute of Social Change and Development). [Available online at <http://www.i~rier.org/conference/2007/7oct07.html>][Accessed on 22 September 2009]. 119 See M.K. Dhar, "Initiatives in North-East", National Herald, New Delhi, I April 200 I. 12° CAG, State Audit Report: Meghalaya, 2005-06 (New Delhi: CAG, 2006), p.86. 121 Ibid., p.89.

Chapter 7: AlltOIIOII!J, Collslitlltiollal Patriotism and AsyiJimetric Federalism- II: The Economic and Financial Ro11tes 299

projects because of delay in completion of projects. To take an example agam, the

construction of 'RCC Bridge No. 59/1 on Mairang-Ranigodown Road' was approved by NEC

with an estimated cost of Rs.30.78 lakh (including Rs.22.68 lakh as the cost of bridge) in

March 1997. 122 The work was awarded to a contractor iri May 1997 itself at his tendered cost

of Rs.20.91 lakh to be completed by March 1998. The work was however delayed for three

years. To offset the cost escalation the NEC has to bear an extra expenditure of Rs.5.64 Iakh.

Under the terms of the contract, a delay of one day was to attract a penalty of one percent of

the tender amount which would be restricted to a maximum of 10 percent. 123 However,

instead of making the contractor pay his delayed penalty of Rs.2.09 lakh, he was penalized for

a token amount of Rs.500. These and other irregularities in the planning and implementation

procedures of NEC projects/schemes were used by the contractors to extract funds for their

selfish interests.

It is imperative to put in place an effective mechanism of evaluation and monitoring of

projects/schemes undertaken by NEC. The current practice of notes-keeping usually posted in

the NEC/MDONER website by the concerned officials is clearly not enough. In one of my

field trips to Manipur in December 2006, I came across the Rs.82 crore NEC funded Guite

road in dilapidated conditions almost all along. 124 After some token ground leveling, it was

left with abandon in a trail of dusts. My travel into the interior of Churachandpur district

where the road runs was more revealing. The road disappeared into narrow alley of dusts and

pebbles, which was intermittently cleared by a bulldozer. I was told that the various armed

groups operating in the state divided blocks of the road among themselves, the funds of which

was unevenly distributed in proportion to their relative power positions! Utilisation

certificates were prepared without consideration of the actual works done after getting

'satisfactory' clearance from the respective home departments of these groups. 125

122 Ibid., p.l 00. 123 Ibid. 124 The road is being constructed by the state PWD and there has been persistent demand to transfer the construct work from PWD to Border Roads Organisation (BRO). On related topic see Kanglaonline, "ZSF Said They Have Been Demanding Guite Road to be Handed Over to BRO," 28 August 2009. Text available online at <http://www.kanglaonline.com/index.php?template=print&newsid=48756&typeid=l&Idoc_Session=c7d57 cf6415bf25d713dd9309c48ddd8>[Accessed on 29 August 2009]. I also found to my surprise that construction of Tedim Road was left unattended for an extended period as the bitumen used for black topping was not in the hands of the state's PWD but was controlled by a particular valley-based armed group. 125 I got this information from my interview with some of the leaders of local 'militant' organisations like Kuki National Organisation, Hmar Peoples' Convention, and Zomi Re-unification Organisation in

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Taking this complexity into account, details ofNEC projects/schemes must not only be

posted online, they must also be published at least in two newspapers: one state and another

local newspaper. At the completion of the project, social audit must be conducted and

utilization certificate which fulfills these conditions must only be accepted. The time has

come to ensure that NEC projects/schemes do not remain merely as paper documents. They

must be translated into actionable plan, the impacts of which must be fully visible before the

public eyes. Existing civil societies and NGOs working in the area should be activated to

cultivate a sense of ownership and participation among the people at large.

We shall now examine MDONER, the Look East Policy and the prospect of inclusive

development in India's North-East.

III. MDONER and Look East Policy:

Towards Inclusive Development, Transcending Frontiers

As mentioned earlier India's North-East is the only region in India to have a Ministry

with a specific mandate for development. The Ministry of Development of North Eastern

Region (MDONER) was established as a full fledged Ministry on 27 May 2004. 126 It is

the logical culmination of the creation of a separate Department under the Ministry of

Home Affairs in September 2001 after effecting change in the Government of India's

Allocation of Business Rule. To ensure that MDONER fulfill its development mandate

following works are allocated to it, viz., matters related to planning, execution and

monitoring of developmental schemes and projects of Northeastern region including those

of power, irrigation, roads and communications; Hill Areas Development Programme

(HADP) and BADP in the Northeastern region; NLCPR for the Northeastern region;

NEC; North East Development Finance Corporation (NEDFi); North-Eastern Regional

Agricultural Marketing Corporation Limited (NERAMAC); the Sikkim Mining

Corporation Limited (SMC); North Eastern Handlooms and Handicrafts Development

Corporation (NEHHDC); road works financed in whole or in part by the Central

December 206. As the matter is case sensitive, I would not specify the particular portions of land apportioned between the various armed groups. 126 See Go!, MDONER, Annual Report 2004-2005, p.3.

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Government in the Northeastern region, and planning of road and inland waterways

transport in the region. 127

To be sure, the foundation of the Ministry, and for that matter DONER, can be

traced back to the series of initiatives launched by five consecutive Prime Ministers since

1995, viz., P.V. Narasimha Rao, H.D. Deve Gowda, I.K. Gujral, Atal Behari Vajpayee

and Manmohan Singh. We shall examine this in a while. It can also be seen as the indirect

outcome of India's 'Look East Policy' (hereafter LEP) initiated by Narasimha Rao's

Congress-led Government at the Centre in 1992. Although India's LEP is primarily

driven by the imperative to integrate India's economy with the rising South-East Asian

economy it soon became to be integrally linked up with strategic and political

considerations. The increasing presence of China in Myanmar, the persistent border

problems that India has with China over Arunachal Pradesh, 128 the problem of 'law and

order' created by the presence of North-East militant outfits, 129 inter alia, National

Socialist Council of Nagalim-IM (NSCN-IM), United Liberation Front of Assam

(ULF A), People Liberation Army (PLA), and National Democratic Front of Bodoland

(NDFB) with transborder linkages reinforced the imperative to reach out to India's South­

East Asian neighbours via the North-East. It is increasingly realized that peace,

democracy and development in India can be sustained not only by creating domestic

avenues of economic growth and opportunity and by establishing 'law and order'; these

efforts have to be complemented by cultivating friendly and cordial relations with

neighbours like Bangladesh, Bhutan, China, and Myanmar, which had given shelter/base

to North-East militants.

127 Ibid. 128 The border problem with Sikkim is settled as China accepts Sikkim as an integral part of India in 2003. On the question of Arunachal Pradesh, India has already fought a war with China in 1962. China continues to claim a large chunk of Arunachal Pradesh and has been consistently asking India to hand over Tawang, the birthplace of the sixth Dalai Lama, to it. The problem took a new tum in May 2007 when the 107 delegation of Indian Administrative Service officers' proposed study trip to Beijing and Shanghai had to be cancelled as China refused to grant a visa to Ganesh Koyu, a 52-year-old lAS officer who hailed from Arunachal Pradesh. See The Financial Express, "China Denies Visa to lAS Officer from Arunachal Pradesh," New Delhi, 25 May 2007. Online text available at: <http://www. financialexpress.com/news/China-deni es-visa-to-IAS-offi cer-from-Arunachal/200 132/> [Accessed on 21 September 2009]. 129 The latest annual report of the Ministry of Home Affairs lists 15 'major militant groups' operating in India's North-East, of which 11 are categorized as 'terrorists organisations' and 13 as 'unlawful associations' under the Unlawful Activities (Prevention) Act, 1967 (no.37 of 1967). See "Annexure-IV" to Gol, Ministry of Home Affairs, Annual Report 2008-2009 (New Delhi: Ministry of Home Affairs, 2009), p.170.

Chapter 7: AIIIOIIOII!J', Collslitutiollaf Palnotism a11d A.rymmetrk Federalism- II: The Et·oi/Oillic a11d Fri1011cial Ro11tes 302

As a corollary, the Indian state has come with a series of development initiatives and

institutional building vis-a-vis India' North-East and its immediate neighbours,

particularly Bangladesh, China, and Myanmar. These initiatives can not just simply be

seen as preparatory drives to economically integrate North-East's economy with that of

the South-East Asian economy, they have far reaching implications on the regional

federal order than is usually thought of. The creation of a separate Department in

September 200 I and the upgradation of this into a full fledged Ministry in 2004 was not a

simplistic token exercise, but calibrated in a well-thought out policy frame. The

seriousness of this initiative can be ascertained from the comprehensive three volumes

document that MDONER and NEC jointly brought out in 2008 after taking the views of

about 40,000 families 'on what progress entails for them' 130 in various parts of India's

North-East. The three volumes entitled North Eastern Region Vision 2020 was adopted by

the NEC in its Plenary held at Agartala on 12-13 May 2008 which was attended by the

Governors and Chief Ministers of the eight Northeastern states. It was released by

Manmohan Singh, the Prime Minister of India atNew Delhi on 2 July 2008. 131 While this

'policy innovation', represented by the Vision 2020 document and its earlier avatars of

special packages/initiatives, is considered to bring the much needed impetus to growth

and development to the underdeveloped North-East economy, it has also been subjected

to critical reviews. 132 Miri, a renown philosopher, is particularly critical of having a

'policy' for India's North-East when the region is considered to 'be a part of this

country' .133 Given that human beings do not have a policy towards their family members

or friends, he considers that it would be morally 'odd' to have one for the region. To have

one reinforces the typical mindset that 'the Northeast should be made the object of a

130 Gol, MDONER, Annual Report 2008-09, p.23. Mukhim was however critical of the 'inclusive' consultations made by the Vision 2020 document team as she contended that the team largely consult only government officials. This factor and the hurry in which 'public hearing' were held in selected towns/cities in North-East India infuriated some local activists and intellectuals so much so that they 'tore the document to pieces.' See Patricia Mukhim, "Of Visions and Delusions," The Statesman, New Delhi, 26 November 2007, p.S. 131 See Gol, MDONER, Annual Report 2008-09, ibid., p.24. 132 For a perceptive analysis see Prasenjit Biswas, "Post-Development, Democratic Discourse and Dissensus: A Critique of Vision 2020," Eastern Quarterly, Vol.4, no.3, October 2007-March 2008, pp.l78-88. 133 Miri quoted in Baruah, Durable Disorder, p.58. Cf Mrinal Miri, "Northeast: A Point of View" (A Public Lecture, 2002). [Available online at: http://www.manipuronline.com/Features/May2002/Northeastl4 _ 2.htm].

Chapter 7: AlltOIIOII(J, Collstitllliollal Patriotis111 a11d Ary111metric Federalism- II: Tbe Eco/IO!IIic a11d Fi11a11cial Routes 3 03

policy'. This is deeply problematic as making North-East an object of the centre's policy

implies that the region is not in a relationship of 'human concerns such as love,

friendship, understanding of the other', but in a relationship of 'the manager and the

managed.' 134

Does this policy and the series of development initiatives enable local state

governments in India's North-East to have control over their economy? Do these

initiatives extend the neoliberallogic of blaming the 'backwardness' of the North-East to

its extant institutions and remodel them so they can be easily absorbed into the global

march of capital, finance and trade? Do they envisage participatory and effective roles for

the people and states of India's North-East in the planning and decision making process?

Will the new development mantras of building infrastructures - roads, railways, airports,

communication, among others- bring in inclusive model of planning and developmental

process? What would be the impact of this process to the future pattern of citizenship,

trust and loyalty of the people of North-East India to pan-Indian constitutional

architecture? We shall examine these set of questions in the following. For want of better

terms we shall categorise them into 'the domestic political and economic linkages', and

'the security and transnational linkages'.

III(a). The Domestic Political and Economic Linkages

In a key contribution Parikh and Weingast argued that India does not fit as a 'market

preserving federalism'. In order to test run the case, they used the following five axioms:

(i) A hierarchy of governments with a delineated scope of authority exists so that each

government is autonomous within its own sphere of authority; (ii) the subnational

governments have primary authority over the economy within their jurisdiction; (iii) the

national government has the authority to police the common market (from encroachments

by the states) and to ensure the mobility of goods and factors across subgovernment

jurisdictions; (iv) revenue sharing among governments is limited and borrowing by

governments is constrained so that all governments face hard budget constraints; and (v)

the allocation of authority and responsibility has an institutionalized degree of durability

so that it cannot be altered by the national government either unilaterally or under the

134 Ibid.

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pressures from subnational governments. 135 Parikh and Weingast contended that while

India fulfills (i) and (iii), its centralised federal set up unduly privileges the role of the

centralised federal agencies like the Planning Commission and the Finance Commission

to exert control over the economy that 'prevent competition among states' and inhibits

'policy experimentation and innovation.' 136 They pointed out that India fails to meet (ii),

(iv), and (v) of the axioms above. Their conclusion is that although "India's federalism

retains the hierarchy of federalism" it however "eliminates the main mechanisms that

sustain strong markets."137 Parikh and Weingast's methodology may be helpful in

assessing the new development mantras and initiatives which underpin the setting up of

institutions like DONERIMDONER, and a policy like LEP.

An important characteristic of these new institutionalism and policy initiatives is the

centralist logic which leverages the Centre to play the role of a 'patron' or the role of a

'manager' to manage the 'backward' affairs of the 'managed', as it were. It is not

surprising that an editorial of Assam Tribune, one of the oldest and leading newspaper in

India's North-East, hailed Shourie, the then Minister-in-Charge of the newly established

DONER, as a 'patron of the Northeast'. The editorial underlined its expectation that he

would rectify 'the feeling of neglect nursed by the Northeasterners and the absence of

Northeast lobby in New Delhi.' 138

To be sure it makes good economic and political sense to appropriate 'the feeling of

neglect' in order to establish the quintessential role of the central government in the

development and mainstreamizing of its Northeastern peripheries. It was with this

objective in mind that the North Eastern Development Finance Corporation (NEDFi) was

established by the Centre in 1995. Inaugurated by Rao, the then PM of India, in August

1995, NEDFi strives to respond to the 'specific needs of industry in the North-East.' 139 It

is endowed with an authorized capital of Rs.500 crore and has an initial paid up capital of

Rs.l 00 crore. The initial capital was paid up by a funding collective constituted by GIC

and its subsidiaries (5 percent), IDBI (25 percent), IFCI (1 0 percent), ICICI (1 0 percent),

135 See Parikh and Weingast, "A Comparative Theory of Federalism," p:I599. 136 Ibid., p.I611. 137 Ibid. 138 Quoted in Baruah, "Nationalizing Space," pp.926-27. Cf. Assam Tribune, "Expectations Run High Ahead ofNortheast CMs' Meet," Guwahati, II October 2001. 139 Sachdeva, Economy of the North-East, p.38. NEDFi commenced its operation from February 1996.

Chapter 1: Autoi/OII!J, Collsfitutirillal Patriotism a11d A{ym!IJetric Federalism- II: The Ecol/omic a11d Fi11a11cial Ro11tes 305

LIC (15 percent), SBI (15 percent) and SIDBI (10 percent). Based in Guwahati, NEDFi is

expected to evolve as an 'economic think tank' for the region. 140 It has been instrumental

in creating a north-east data bank and continues to cater to the needs of consultancy and

merchant banking services, marketing and research facilities, granting financial assistance

as term loans or advances, etc.

It was however Deve Gowda who laid the foundation of what is now known as

MDONER. Soon after assuming the office of Prime Minister, Gowda made an extensive

tour of the North-East in the autumn of 1996. At the end of his tour on 27 October 1996,

he unveiled an economic package of Rs.6100 to sponsor his 'new initiatives' for the

region. 141 The initiatives also intended to cover full funding of all ongoing projects,

appointment of a high level commission under the chairmanship of S.P. Shukla to

determine gaps in infrastructure and basic minimum services, creation ofNorth-East sub­

plans in all Central Ministries which would earmark I 0 percent of their budget for

specific programs in the region, development of tourism, improvement of railways

services, and new Industrial Policy for the region by 31 March 1997.

The new initiatives launched by Gowda were carried forward by his successor, lnder

Kumar Gujral. Besides enlarging the financial package to Rs.7200 crore, 142 Gujral's

government launched an Industrial Policy for the North-East which came into force on 24

December 1997. The North East Industrial Policy, 1997 put in place industrial incentive

structures in the region by providing exemption of industries from income tax and excise

duty for ten years. In order to encourage industrial growth centres, the Policy envisaged

central assistance of Rs.l 0 crore for industrial infrastructural development (liD), the rest

of which would be raised by the states concerned. The funding pattern of liD was

changed from the existing pattern of 2:3 to 4:1 to be funded respectively by Go I and

SIDBI. 143 The Policy also provided for 15 percent capital investment subsidy, transport

140 Ibid., p.39. 141 These initiatives are available online at <http://mha.nic.in> 142 M.K.Dhar, "Initiatives in North-East," National Herald, New Delhi, I April 2001. 143 The fund provided by Gol was treated as grant. SIDBI is an acronym for Small Industries Development Bank of India. For details see, Go I, Ministry of Commerce and Industry, "New Industrial Policy and other Concessions in the North Eastern Region," Office Memorandum no.EA/112/96-/PO, Department of Industrial Policy and Promotion, Government of India, 24 December 1997. Text available online at <http://megindustry.nic.inlneindpol.htm>[Accessed on 20 September 2009].

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subsidy till 2007, 144 15 percent capital investment subsidy, 100 percent insurance

premium for ten years under the Comprehensive Insurance Scheme, and 3 percent interest

subsidy for ten years. 145 It was also during Gujral's tenure that the Border Area

Development Programme (BADP), which hitherto has been launched in the Western

Sector since the 7th Plan, was extended to the Northeastern states of Arunachal Pradesh,

Manipur, Mizoram and Nagaland. 146

The subsequent Prime Ministers Atal Behari Vajpayee and Manmohan Singh

translate into practical reality the initiatives launched by their predecessors. Under

Vajpayee, the Centre created a Non-Lapsable Central Pool of Resources (NLCPR) in

1998. Initially it was envisaged to have an annual core fund of at least Rs.l500 crore built

up from the unspent balance of I 0 percent of the Gross Budgetary Support (GBS)

allocated by various Central Ministries for the North-East. 147 Another important initiative

taken by Vajpayee led NDA Government was the 'Agenda for Socio-Economic

Development of the North Eastern States and Sikkim' .148 The Agenda was launched by

Vajpayee in Shillong on 22 January 2000 after having a conference with the Governors

and Chief Ministers of the seven Northeastern states and Sikkim. 149 It envisaged an

estimated Rs.l 0271.66 crore fund to bring about socio-economic development of the

region. Prominent schemes which were sought to be covered by the Agenda include,

among others, rural electrification of 500 tribal villages in the North-East at a cost of

around Rs.30 crore under Central Plan, program to establish· computer information centre

in all the 477 blocks in the seven Northeastern states and 40 blocks in Sikkim and

completion ofthe Project in the next 2 years at a minimum cost ofRs.IOO crore, provision

of at least Rs.l 00 crore for the development of 12 new National Highways/extension of

144 Transport subsidy was first introduced in July 1971. Under this scheme subsidy ranging from 50 percent to 90 percent is provided on admissible transport cost incurred on movement of raw materials and finished goods from the designated rail heads/ports up to the location of the industrial units or vice-versa. For the North-East the subsidy was fixed at 90 percent. See NE Newsletter, Vol.2, no.8, August 2001. 145 Sachdeva, Economy of the North-East, p.119. 146 NE Newsletter, Vol.2, no.2, February 2001, p.2. 147 In fact, Vajpayee's government simply implemented Gujral's Cabinet decision of 15 December 1997 to create a central pool of resources. A leading national newspaper welcomed the initiative as an 'improved and enlarged version'. See Times oflndia, "Wooing the North-East", New Delhi, 11 May 1998. 148 See National Herald, "Socio-Economic Development of NE States and Sikkim," New Delhi, 24 November 2000. 149 The Conference was held from 21 to 22 January 2000 and discussed wide ranging issues, of which economic development and security related issues hogged the limelight. See Ibid.

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existing highways covering a total length of 1,962 km, and provision of Rs.500 crore for

Rural Infrastructure Development Fund (RIDF) for the North-East and Sikkim being

funded by NABARD.

It was also under the BJP led-National Democratic Alliance government that a

separate department (DONER) was created for the North-East in September 2001.

Inaugurating it on 1 November 2001, the Minister-in-Charge, Shourie pleaded for a

'positive solution oriented approach' in place of 'memorandum culture.' 150 He suggested

that the old idea of looking toward the government as an 'Engine of Change' should now

be replaced by promoting active cooperation with NGOs and other institutions. 151

DONER was transformed into a full-fledged Ministry on 27 May 2004.

Since its inception, MDONER projects are funded by the Non-Lapsable Central

Pool of Resources (NLCPR). According to its latest annual report (2008-09) MDONER

has, with funding from NLCPR, taken up 982 projects for an approved cost of Rs. 7766.12

crore for implementation up to 31 March 2009. 152 Of these projects, roads and bridges

have attracted the largest fund (34. 77 percent), which is followed by power (21.95

percent), education (11.94 percent), water supply (11.94 percent), health (7 .1 0 percent),

irrigation and flood control (5.55 percent), agriculture and allied sectors (0.40 percent)

and miscellaneous 153 projects (7.92 percent).

Put together, the series of initiatives undertaken since 1995 are more or less the

same, one being seen as a cosmetic improvement over the other. Overall, they put in place

centralised institutions which are equipped with the essential paraphernalia to carry out

their assigned responsibilities. As already argued, these initiatives are imposed 'top­

down' and they are not driven by local initiatives. Two cases, viz., industrial policy and

funding under NLCPR projects would sufficiently show how such a 'top-down'

development model not only entrenches a large ensemble of patronage structure but also

complicates the problems of synergy between various line departments as centralised

projects have to be channelised through disparate intermediate institutions under

150 NE Newsletter, Vol.3, no.l2, December 2001, p.l. 151 Ibid. 152 Gol, MDONER. Annual Report 2008-09, p.J7. 153 The miscellaneous projects include sports, market buildings, construction of airport, auditorium, etc. For details see "Annexure I" to Gol, MDONER, Annual Report 2008-09, p.52.

Chapter 1: Auto/IOIIIJ, Collsti!NtioJJaf Patriotism aJJd.A{ylllll!efric Federalism- II: The Ecollolllic a11d Filial/cia! RoNtes 308

MDONER. Overtime this centralised system can inhibit 'policy experimentation and

innovation.' 154

An illustrative case which establishes the centralised patronage structure in India's

North-East is the Industrial Policy which was laid down by the Centre in 1997 for the first

time. The North-East Industrial Policy 1997 (NEIP 1997) is replaced recently by the

North East Industrial and Investment Promotion Policy 2007 (NEIIP 2007) which has

become effective from I April 2007. Both the Policy tries to create a Centre sponsored

investment climate in the North-East which is rell}iniscent of the earlier generations of

initiatives taken by the state governments outside the ~orth-East between 1960 and

1990.155 However, the Centre's initiative could not generate concurrent initiatives from

the local states. States like Nagaland, Arunachal Pradesh, Manipur and Assam, for

example, framed Industrial Policy of their own to attenuate existing policies to that of

NEIP 1997 respectively in 2000,2001,2002, and 2003 only. 156 Moreover, the landlocked

condition of the North-East and the fact that most of these states are internally locked

because of their topography, and institutional policies like the Inner Line and Restricted

Area Permit, inhibit the growth of industry, trade and commerce in a big way. 157 We have

mentioned earlier how the prevalence of indeterminate 'extractors' in this difficult

topography could further complicate the setting which is explained by the far too

expensive charge incurred on transporting a truck load of goods from Moreh to Dimapur.

Interestingly, transporting a truck load of goods from Moreh to Dimapur costed more than

twice the cost needed to transport goods between Guwahati and Calcutta (now Kolkata)

which is located more than three times over.

Not surprisingly, NEIP 1997 had not been able to attract industrial business houses

to invest in the region. For one thing, similar concessions extended to the two hill states of

Himachal Pradesh and Uttaranchal (now Uttarakhand) shortly after NEIP 1997 was

154 Parikh and Weingast, "A Comparative Theory of Federalism," p.1611. 155 Sinha catalogues prominent initiatives and infrastructural development programmes taken by the states during this period (1960-90) like: (i) land, power, and water at a concessional rate; (ii) sales tax refund schemes/sales tax loans, subsidization of feasibility studies; (iv) supply of scarce resources; (v) price preferences; (vi) supply of finance on concessional terms, etc. See Sinha, "The Changing Political Economy of Federalism in India," p.38. 156 See "Annexure 5.2" to Gol, MDONER and NEC, North Eastern Region Vision 2020, Vo1.3, pp.76-80. 157 For a perceptive discussion on the landlocked condition in North-East India, see M.S. Prabhakara, "Is North-East India Landlocked?" Economic and Political Weekly, Vol.39, no.42, 16-22 October 2004, pp.4606-08.

Chapter 7: AIIIOIIOII!J, Collstitlltiollaf Patriotism a11d Arymmetric Federalism- II: The Eco11omic a11d Filial/cia! Routes 309

extended to the North-East diverted prospective industrial houses to invest in these two

states as they have better infrastructures (like roads, markets, banks, etc.) and they are

also considered to be more proximate to the national capital and the booming industrial

centres in NO IDA (Uttar Pradesh) and Gurgaon (Haryana). For another thing, the sense of

insecurity that stems from persistent 'law and order' problem in North-East India, the

difficult geography and the poor conditions of infrastructure dissuade prospective

investors to come to the region. 158 S.K. Jain, the director of Federation of Industry and

Commerce ofNorth Eastern Region (FINER) aptly put it thus: 'The feelers that I have got

from speaking to big investors and MNCs are that they are more bothered about MAT,

FBT and service tax. They are more interested in trying to figure out how they can sustain

their projects in the long run and less about the incentive package.' 159 As a result, the

Northeastern states are neither able to attract sizeable investment nor are they able to

generate horizontal competition among themselves like the ones that happen between

states like Andhra Pradesh, Gujarat, Maharashtra, Tamil Nadu and West Bengal in the

early 1990s. 160

In a revealing written reply to the Rajya Sabha on 21 March 2007 on the effect of

NEIP 1997 in the North-East, Ashwani Kumar, the Union Minister of State for Industry

pointed out that between 1999 and September 2004, the seven states of the North-East

(excluding Sikkim) has been able to attract a total investment of Rs.l067.28 crore to

establish a total of 681 industrial units.161 As expected, Assam got the maximum

investment of Rs.528.19 crore which is 49.49 percent of the total investment. It has also

been able set up 520 industrial units which again is 76.36 percent of the total industries

set up in the region. Meghalaya with 441.01 crore (41.32 percent) and 61 units (8.96

percent) followed at a relatively close distance. On the extreme are states like Mizoram

158 For a related discussion see Supratim Dey, "New North-East Industrial Policy May Not be All that Inviting: FINER," Business Standard, New Delhi, 7 April 2007 [Available online at http://www.business­standard.com/india/news/new-north-east-industrial-policy-may-not-be-all-that-inviting­finer/280321/][Accessed on 22 September 2009]. MAT is an acronym for Minimum Alternative Tax, and FBT stands for Fringe Benefit Tax. 159 S.K. Jain quoted in ibid. 16° For a perceptive account on this see Sinha, "The Changing Political Economy of Federalism in India," especially pp.I9-20. 161 See Gol, Ministry of Commerce and Industry, "Press Release: Industrial Policy for North East," (New Delhi: Department of Commerce, 21 March 2007). Available online at <http://commerce.nic.in/PressRelease/pressrelease _ detail.asp?id=2162>

Chapter 1: AtttoJJOil!J', CoJJstitlltioJJal Patriotism a11d Arymmetric Federalism- II: The Ecollomic a11d FiJJa11cial Ro11tes 31 0

with 4 crore (0.37 percent) and 4 units (0.59 percent) and Manipur with 3 crore (0.28

percent) and 5 units (0.73 percent). The middle rung states like Arunachal Pradesh with

39.86 crore (3.73 percent) and II unit (1.62 percent), Tripura with 31.58 (2.96 percent)

and 34 units (4.99 percent), and Nagaland wi~h I9.64 crore (1.84 percent) and 46 (6.75

percent) also stand way behind Assam.

Table 7. 7

Land Custom Stations in North-East India

No. of

State Land

Location of Land Custom Station Bordering

Custom Country Station

Assam 2 Karimganj Steamer Ghat, and

Bangladesh Sutarkhandi

Meghalaya 3 Borsorah, Dawki, and Ghasuapara Bangladesh

Mizoram 2 Demagiri Bangladesh

Zokhawthar Myanmar Manipur I Moreh Myanmar

Tripura 3 Old Raghana Bazar, Srimantapur

Myanmar and Agartala Total 11

Source: Gol, Ministry of Commerce and Industry, Annual Report 2004-05 (New Delhi, 2005),

p.l53.

Creating congenial climate for investment demands creating good infrastructures like

roads, communication, power, and markets. The centre has taken a series of initiatives to

improve road linkages in the North-East by integrating the region with the East-West

Corridor Project. It has also taken up various projects like National Highway

Development Projects in the region. The Ministry of Railways had taken up Nine

National Projects to construct railways linking all the North-East capitals. 162 This would

complement the 10 airports improvement projects undertaken during the I 01h Plan period

(2002-07) in Guwahati, Lilabari, Jorhat, Dibrugarh, Dimapur, Silchar, Tezpur, Imphal,

162 Another railway project, Sevoke-Rangpo project has also been approved by the Cabinet on 6 November 2008 as the Tenth National Project to establish links with Sikkim. See Gol, MDONER, Annual Report 2008-09, pp.I3-14.

Chapter 7: AIIIOI/OII!J, CoJistitutioHal Patriotism al/d Arymmetric Federalism- II: Tbe Ecol/omir aNd FiNaNcial Routes 3 1 1

Agartala, and Umroi (Meghalaya). 163 The Department of Commerce has also identified 11

land custom stations for infrastructural development in North-East India. 164 These land

custom stations fall on the borders of Bangladesh, and Myanmar as shown in the Table

7.7 above.

More central initiatives imply more intrusive intervention by centralised agencies.

As these agencies draw up plans and implement their projects through nodal agencies,

they create a huge ensemble of patronage structures which complicate fixing of

responsibility and accountability. The funding pattern and implementation of NLCPR

projects bear this out.

Initially the NLCPR funds were fully sponsored by the Centre. This funding pattern

has been slightly modified from the financial year 2005-06 whereby the Centre's

contribution has been reduced to 90 percent ofthe project funds, 10 percent of which is to

be generated by the states concerned. Given the quantum of funding doled out to various

centralised projects, this has increased. the liability of the already resource crunched

Northeastern states. The decision for funding is taken by a centralised system which

comprised of a seven member 'NLCPR Committee' headed by the Secretary, MDONER.

However, the larger problems pertain to inordinate delays of the states in the submission

of detailed project reports (DPRs) to get appropriate funding, non-release of funds in

time, diversions, and bad monitoring of projects.

The case of NLCPR funding and implementation pattern in Arunachal Pradesh

forcefully brings out these points. MDONER has approved 95 projects worth Rs.856.38

crore in Arunachal Pradesh since the inception of NLCPR in 1998. 165 This must be read

against the high mortality rates of project proposals that the NLCPR's nodal agency, i.e.

the Planning Department of the state, forwarded to MDONER. The CAG's Annual Report

of 2007-08, for example, shows that between 2003 and 31 March 2008 the state

forwarded 384 projects through its Planning Department. In so doing the Planning

Department delayed 2 to 11 months in finally submitting the priority list of these projects.

Out of the 384 projects submitted, 61 projects worth Rs.737.17 crore were retained by

163 Ibid.,p.29. 164 See Gol, Ministry of Commerce and Industry, Annual Report 2004-05. (New Delhi: Department of Commerce, 2005), p.153. 165 See Go I, CAG, State Audit Report: Arunachal Pradesh 2007-08 (New Delhi: CAG, 2008), p.73.

Chapter 1: AlltOIIOII!J, Collstitlltiollal Patriolisn1 mtd Asymmetric Federalism- II: The Eco11omic a11d Fi11a11cial Routes 3 12

MDONER for techno-economic studies. Finally out of the 61 projects that it retained,

MDONER has finally approved 35 projects worth Rs.348.91 crore pending its decision to

approve the remaining 26 projects during this period (2003-2008). 166 On close scrutiny

the CAG found that the delayed approval and rejection of projects was caused by 'non­

submission of DPRs by the State within the time-limit prescribed.' 167

Another lacuna which came out glaringly is the irresponsible manner in which the

state refused to release their fund share which has been made mandatory since 2005-06.

In 12 of the projects examined by the CAG in which the states were to share 10 percent of

the project cost, the state of Arunachal Pradesh released just Rs.2. 72 crore (37 percent)

out of its share of Rs.7.35 crore, that too only for 4 of the 12 projects. 168 More starkly, the

state did not release any amount for the remaining 8 projects. This is remarkable if we

read it against the fact that the Centre released its 90 percent share of Rs.73.50 crore

during the period. 169 Again, on close scrutiny of 8 projects worth Rs.65.22 crore, the CAG

found that the executing agencies diverted Rs.7.43 crore which is II percent of the

sanctioned amount. 170 It also found other irregularities like parking of funds by way of

non-release of funds, and non-submission of utilization certificates (UCs) which greatly

hampered the effective implementation of projects. It is pertinent to underline here that

according to the NLCPR guidelines, UCs have to be submitted on a quarterly basis which

would decide further release of funds. However, the state has not been able to submit

these in time, as it could only incurred an expenditure of Rs.447.32 crore till March 2008;

hence UCs for Rs.l66.99 crore were outstanding when the CAG furnished its 2007-08 audit

report. 171

III(b). The Security and Transnational Linkages:

Emerging Federal Order and Citizenship in North-East India

The series of centralised initiatives and institutional buildings vis-a-vis India's North-East

also have wider strategic and transnational linkages. As pointed out in chapter 2, the

166 Ibid., p.75. 167 Ibid. 168 Ibid., p.76. 169 Ibid., p.77. 170 Ibid., p.78. 171 Ibid., p.79.

Chapter 7: AIIIOJJOII(J, CoJJslillllioJJal Patriolisi!J mid Arytlli!Jelric Federalism- II: Tbe EcoJJolllit' a11d Fi11a11cia/ Ro11/es 3 13

Indian federal polity is driven by the security imperatives of maintaining 'interlocking

balance' not only between proximate ethnic/tribal groups in various parts of India's

North-East, but also with its immediate neighbours like Bangladesh, China and

Myanmar. 172 This balance is maintained by integrating the 'separatist' ethnic/tribal groups

of North-East India into India's federal polity by creating separate 'mini-states' for them,

and envisioning asymmetric autonomous institutional structures through the Sixth

Schedule. This considerably preempts the tribal groups to ·secede from India. The process

of integration also gradually transforms the various North-East 'rebels' into important

'stakeholders' of the pan-Indian constitutional architecture. The vulnerabilities of these

border tribes however persist as some of the tribal groups like the Nagas led by NSCN-IM

and the Bodos led by NDFB, among others, continue to demand their own independent

homelands. Given that North-East India shares around 4500 km or 98 percent of

international borders with Bangladesh, Bhutan, China, and Myanmar it is more

compelling to have good neighbourly relations with these countries who could help India

in establishing internal law and order and also in ushering progress and development. 173

Not surprisingly the emerging regional federal order continues to be steeped into the

development-security paradigms. It is against this background that we have to understand

India's LEP and the emerging transnational linkages.

It is a given that despite LEP or other institutions of economic cooperation, India

had had considerable trade with its neighbours like Bangladesh, China, and Myanmar.

According to a survey report of the Indian Institute of Foreign Trade in 1995 the value of

India's informal trade with Myanmar in the border town of Moreh (Manipur) alone was

estimated to be around Rs.2000 crore annually. 174 The corresponding quantum of

informal border trade at Champhai in Mizoram and Lungwa in Nagaland was respectively

estimated at Rs.500 crore and Rs.l 00 crore annually. 175 The 'discovery' of lucrative

opportunities of business, trade and commerce potential of India's Northeastern

172 See Maya Chadda, "Integration through Internal Reorganization: Containing Ethic Conflict in India," The Global Review of Ethnopolitics, Vol.2, no.l, September 2002, pp.44-61. 173 We have in mind here the dismantling of North-East militants' bases in these countries which would hasten the process of their accommodation into the mainstream politics. 174 The survey was commissioned by the Ministry of Commerce and Industry. See Jayanta Kumar Gogoi, "Border Trade in North East India," Assam Tribune, Guwahati, 24 October 2003. Text available online at <http://www .assamtribune.com/oct2403/edit l.html>[ Accessed on 20 September 2009]. 175 Ibid.

Chapter 7: AlltOIIOII!JI, CollstitHtiollal Patriotistn a11d A!Jmmetric Federalism- II: The Ecollomic a11d Fi11amia/ Routes 314

borderlands with South, and South-East Asia further gives impetus to India's LEP and

strategic thinking in the mid 1990s.

Towards this venture, India entered into a bilateral trade agreement with Myanmar

m 1994 wherein 22 items were opened up for trade. 176 It also started the Bay of Bengal

Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) with Bangladesh,

Myanmar, Sri Lanka, and Thailand in the mid 1990s. BIMSTEC was expanded later to

include Bhutan and Nepal as its members. 177

Initially India's LEP is seen more as an attempt to build regional cooperation as a

strategic ploy to contain the increasing spread of Chinese influence in Myanmar and

South-East Asia. The continuing reluctance to redevelop the now dilapidated Stilwell

Road linking Ledo in Assam with Myitkyina in Myanmar and Kunming in the Yunnan

Province of China is often cited as an example. 178 Instead of rebuilding the 'Stilwell

Road', writes Baruah, 'there is significantly more interest in building the road to Thailand

taking a more southern route away from the emerging Yunnan-Northern Myanmar­

Southeast Asia corridor.' 179 The extra keenness shown by India to develop friendship and

·to extend economic assistance to Myanmar especially post 1993 is also considered to

have been driven by its 'security anxieties -getting Myanmar to act against Northeast

insurgent groups that take shelter in Myanmar.' 180

The prioritization of 11 land custom stations in five of the Northeastern border states

mentioned earlier which is specifically targeted to boost border trade with Bangladesh and

Myanmar may be seen as an attempt to sustain the 'interlocking balance' and 'control' the

emerging regional federal order in the North-East. As a matter of fact, BDAP was also

extended in 1997 to the four Northeastern states of Arunachal Pradesh, Manipur,

176 The 22 items opened up for trade are: mustard/rape seed, pulses and beans, fresh vegetables, fruit, garlic, onions, chillies, spices, bamboo, minor forest products (excluding teak), betel nuts and leaves, food items for local consumption, tobacco, tomato, reed broom, sesame, resin, coriander seed, soya bean, roasted sunflower seed, katha, ginger. See, "Annexure 13.2," to Gol, MDONER and NEC, North Eastern Vision 2020, Vol.3, pp.I92-93. 177 After Bhutan and Nepal joined the forum, the words, 'Bay of Bengal' was removed from its name, which is now simply known by its acronym BIMSTEC. 178 The Stilwell Road was built by the Japanese during the Second World War (1942-45). The Road is considered to be an important bridgehead to link mainland India and its Northeastern borderlands with South-East Asia which would run from Kunming in Yunnan Province (China) down to Ledo in Assam and meanders South-East from Myitkyina to the borders of Laos, Thailand, Malaysia and Singapore. See Gogoi, "Border Trade in North East India." 179 Baruah, Durable Disorder, p.227. 180 Ibid., p.228.

Chapter 7: A11touonry, Coustitutioual Patriotis!JI a11d Arymmetric Federalism- II: The Ecouomic aud Filial/cia/ Ro11tes 3 ]5

Mizoram and Nagaland to meet the security demands of this 'sensitive border region' .181

It has since been extended to Assam, Tripura and Sikkim. A fully funded central project,

BDAP funding is made on three criteria, viz., (i) length of the international border, (ii)

population of the border block, and (iii) area of the border block. 182 In 2004-05, a total

amount of Rs.88.07 crore was released to the eight Northeastern states under this

programme. 183 Out of this amount Tripura got the largest share with 23.95 percent,

followed by Mizoram (17.67 percent), Arunachal Pradesh (15.34 percent), Assam (11.33

percent), Sikkim (10.47 percent), Meghalaya (10.22 percent), Manipur (6.30 percent), and

Nagaland (4.72 percent). 184

In the meantime, there has been a perceptible change in the mid 1990s to

constructively engage China. As a corollary, India got keenly involved in the Kunming

Initiative launched in 1999 under the auspice of China to bring about Mekong Ganga

Cooperation which would establish greater economic integration across the region

spanning from Yunnan Province in China, and running through India's North-East down

to Thailand, Cambodia, Vietnam and Laos. 185 In the meantime, India gifted Burma with a

newly constructed 160 km Tamu-Kalewa-Kamlemyo Road. The Rs.90 crore road,

constructed by India's Border Roads Organisation and inaugurated in 2001, is considered

to have opened up 'the natural outlet' of the North-East and reinforced the fact that the

'natural movement of goods, people, and services for the Northeast is not through

Calcutta.' 186 To carry forward India's relations with China, A tal Behari Vajpayee visited

China in the summer of2003. It resulted in the signing of border trade agreement between

India and China on 23 June 2003 which is important for two major reasons: firstly, the

two countries agreed to reopen Nathu La Pass after it had been shelved for 44 long years;

and secondly, China recognised Sikkim as a constituent state of India. 187 The Nathu La

Pass was jointly inaugurated by Pawan Chamling, the Chief Minister of Sikkim, and

181 NE Newsletter, Vol.2, no.2, February 2001, p.2. 182 Ibid. 183 See, Go I, MDONER, Annual Report 2004-2005, p.39. 184 Computed from 2004-05 data. Ibid. 185 Ibid., p.224. 186 Jaswant Singh cited in Baruah, Durable Disorder, p.224. Cf. Assam Tribune, "NE Access to SE Asia a Must: Jaswant," Guwahati, 15 February 2001. 187 N.D. Chingapa, "Re-Opening ofNathu La," Yojana, December 2007, p.56.

Chapter 1: Autoi/OIJ!)', Co11stitutio11al Patliotism a11d Asymmetric Federalism- II: The Eco11omic and Financial Routes 3 16

Champa Phuntsok, Chairman of the Tibet Autonomous Region (TAR) in the presence of

dignitaries from both the countries on 6 July 2006. 188

There are now possibilities and keen interest to make the North-East a bridgehead to

the entire South, and South-East Asian economy and also to provide a strategic link with

the trans-Asian Highway which would begin from Istanbul (Afghanistan) and run through

South and South-East Asia. Indeed, intermodalism - that is linking the landlocked

North-East with mainland India and the outside world through roads, railways, airways

and waterways/sea routes - has now become the buzzword. India has signed a Protocol

for Inland Water Transit and Trade with Bangladesh on 26-27 May 2008 with a view to

declare Ashuganj in Bangladesh a 'Port of Call' .189 It has proposed to Bangladesh a

direct bus service from Kolkata to Agartala via Dhaka. Attempts are also being made to

get access to the Chittagong port. India has also entered into a Framework Agreement for

implementing the Kaladan Multi-Modal Transport and Transit Project with Myanmar in

April 2008. 190 The transit route would link India's Northeastern state of Mizoram with

Sittwe Port in Myanmar which would provide the much needed alternative transit route

through Bangladesh.

That a new investment climate has set in India's North-East can be seen from the

increasing presence of multilateral agencies like the Asian Development Bank (ADB),

World Bank/Internation'!l Fund for Agricultural Development (IF AD), etc. in North-East

India. Since 2004, ADB has been assisting the $428 million North East State Roads

Project to upgrade about 1300 km of existing roads in the region to facilitate 'regional

integration and trade flows'. It has given technical assistance to PWDs of the

Northeastern states to help develop their capacity for 'effective and efficient management

of road projects.' 191 A training workshop to this effect was organised with the help of

ADB from 30 October to 3 November 2006 at Shillong which was attended by 32 PWD

officials from the eight states. The officials were imparted training in two broad areas: (i)

188 Ibid. 189 See Goi, MDONER, Annual Report 2008-09, p.47. 190 Ibid. 191 See Gol, MDONER, "North East State Roads Project (NESRP)". Available online at <http://mdoner.gov.in/index3.asp?ssid=l93>[Accessed on 21 September 2009].

Chapter 1: Au!OIJOII!J, Collstiflltiollaf Patriotism a11d Arymmetric Federalism- II: The EcoJJotnic aJJd FiJJaJJcial Ro11tes 3 1 7

computer-based road asset management tools, and (ii) state-of-the art project

management techniques. 192

ADB has also been assisting five Northeastern states of Meghalaya, Mizoram,

Nagaland, Sikkim and Tripura under the North Eastern Urban Development Project

(NEUDP) to 'upgrade the urban infrastructure and services and improve urban

management'. 193 To be more specific, let us briefly examine the North Eastern Capital

Cities Development Investment Programme (NECCDIP) being assisted by ADB under

this project. Under NECCDIP, ADS would fund US $246 million (i.e. about 70 percent)

of the US $350 million required by this. In so doing, it would follow a unique funding

pattern known as the Multi-Tranche Finance Facility (MTFF) wherein multiple loans

would be extended to finance subprojects subject to submission of a related· periodic

financing request (PFR) and execution of loan and project agreements. 194 The remaining

balance 30 percent would be funded by Goi through MDONER, its national

implementing agency. A unique feature of this Programme is that it would actively

involve the existing urban local bodies in the five states.

On the completion of this programme in 2017, it is expected to deliver regular

treated water supply from 12 to 24 hours a day to 1.15 million, or 70 percent of the total

population in the five cities of Agartala, Aizawl, Gangtok, Itanagar, and Kohima. 195 Other

expected outcomes of the Programme include, among others: improvement of slum areas

in all the eight cities, provision of solid waste collection and sanitary disposal for 53

percent (0.87 million), and 19 percent (0.22 million) of the population in the central zone

of these eight cities would get better sanitation with sewer connections. 196 In order to

realize these, the Programme would require acquisition of about I 02 hectares (ha) of land,

of which 38 ha is currently under private land. This implies that the state governments

192 See Gol, MDONER, "Development of Road Agencies". Text available online at <http://mdoner.gov.in>[Accessed on 21 September 2009]. 193 Gol, MDONER, "North Eastern Urban Development Project Phase I". Text available online at http://mdoner.gov.in/index3.asp?ssid=209] [Accessed on 21 September 2009]. 194 Gulfer Cezayhirli, "North Eastern Region Capital Cities Development Investment Programme," p.26 (A presentation)(ADB, September 2006)[Full text available online at: http://mdoner.gov.in/writereaddata/sublink2images/NER6232273350.pdt], p.26. MTFF requires that the minimum size ofloan request would be US $35 million or more. However, the first PFR (periodic financing request) could be $35 million or more. 195 Ibid., p.l7. 196 1bid.

Chapter 7: AlltOIIOII!J, Collstitlltiollal Patriotism 01td Asy1111JJetric Federalism- II: The Eco11omic a11d Fi11a11cial Routes 3 J 8

have to negotiate not only with the tribal communities but also separately with the

individuals to facilitate land transfers.

Another project which attracts a sizeable investment in the North-East is the

Rs.l59.36 crore North Eastern Region Community Resource Management Project

(NERCRMP) started jointly by the International Fund for Agricultural Development

(IF AD) and NEC since 1998 in two districts each in Assam (Karbi Anglong and North

Cachar Hills), Manipur (Senapati and Ukhrul) and Meghalaya (West Garo Hills and West

Khasi hills). The project aims at improving livelihoods of the people through capacity

building and introduction of new technology and techniques for sustainable growth.

NERCRMP is run by 2443 Self Help Groups (SHGs) and 990 Natural Resources

Management Groups. It caters to 2.53 lakh persons covering 39203 families in 862

villages of the six selected districts. 197 Since October 2003 IF AD has, in collaboration

with the Government of Meghalaya, run a US $36.4 million project under the

'Livelihoods Improvement Project in the Himalayas' 198 as an extended part of 'North

Eastern Region Livelihoods Project,' in another five districts of Meghalaya, viz., East

Garo Hills, South Garo Hills, Jaintia Hills, East Khasi Hills and Ribhoi. Interestingly this

Project is a collaborative grassroots development project which is being funded 48

percent by IF AD, 11 percent by the beneficiaries, 28 percent by formal financial

institutions, and 14 percent by the state government.199

In order to create congenial business and trade environment, the Policy and

Programme Division, MDONER has organised four North-East Business Summits since

2002. The first two summits were held in Mumbai (July 2002) and in New Delhi (January

2004) in collaboration with the Indian Chamber of Commerce, Kolkata. The third North­

East Business Summit held in Kolkata on I 0-11 April 2007 put the region in the business

map of India. Apart from the Governors and CMs of the eight Northeastern states, 5

197 See Gol, MDONER, "International Fund for Agriculture and Development (IF AD) Projects" available online at: <http://mdoner.gov.in> for details [Accessed 21 September 2009]. Also see Gol, MDONER, "North Eastern Region Livelihoods Project" available online at <http://mdoner.gov.in/index3.asp?ssid=207>[Accessed 21 September 2009]. 198 On this see International Fund for Agricultural Development (IF AD), Report and Recommendation of the President to the Executive Board on a Proposed Loan to the Republic of India for the Livelihoods Improvement Project in the Himalayas (Rome: IFAD Executive Board, Eightieth Session, 17-18 December 2003), p.3 and p.17. 199 Ibid., p.17.

Chapter 7: Auto11omy, Co11stitutrimal Patnotimr a11d A[YIIJHJelric Federalism- II: The Eco/JOIIJic a11d Friw11cial Routes 319

Union Ministers, and senior officials of the Central Ministries, the summit was attended

by 900 Indian delegates, 80 foreign delegates, and 40 Heads of Mission.200 The fourth

Summit held in Guwahati on 15-16 September 2008 firmly put North-East India on the

global business map as Thailand became the principal partner.201 As a run up to the fourth

summit, the North-East India Investment and Trade Opportunities Week was held in

Bangkok on 1-4 October 2007. This was followed by a high level visit by Thai officials

led by Krirk Krai Jirapet, the Commerce Minister who also happens to be the Thai Board

of Investment. The Thai officials visited Agartala, Guwahati and Shillong from 22-24

June 2007?02 The earlier ASEAN North-East India Investment and Trade Opportunities

Summit hosted by Ho Chi Minh City, Vietnam in February 2005, and increasing interests

shown by countries like Australia, Bhutan, Cambodia, and the Czech Republic, among

others certainly put the North-East in the international business map. There are increasing

proposals of investment partnership with MDONER especially on the thrust areas of

infrastructure, power, mini-hydel projects and thermal energy, tourism, inland water

transport and agriculture.

With this pace of development North-East India's economy is set to witness a great

leap forward in the coming decades.203 Even as the region's economy is opened up to

global finance, capital and trade, it would also be followed by large-scale movement of

people, culture and ideas. In an increasingly borderless world wherein 'region state' -to

borrow Kenichi Ohmae's evocative phrase- begins to gradually replace nation-states as

the 'unit for organizing human activity and managing economic endeavour',204 the

changing landscape of political economy in India's North-East would certainly impel

policy and institutional changes in the long run. Such policy and institutional frameworks

should be prepared to handle the concurrent problems of illicit arms trade, flow of

200 Goi, MDONER, Annual Report 2007-08 (New Delhi: MDONER, 2008), p.IO. 201 Goi, MDONER, Annual Report 2008-09, p.48. . 202 Ibid., p.49. Also see Patricia Mukhim, "Lessons from Thailand," The Statesman, New Delhi, 2 July 2007, p.8. 203 If the internationally reputed consultancy firm, Coopers and Lybrand were true, a proper development of tourism infrastructure in the region alone could attract 'more tourists than Singapore or Bangkok, as almost all the western and Japanese tourists visiting the south-east Asian region would fly or drive a few hundred kilometres more to enjoy the scenic and cultural beauties of the North Eastern region.' Report cited in Gogoi, "Border Trade in North East India." Needless to say, this would generate a windfall of tax revenue resources to the Northeastern states and would considerably augment their economic potential and growth. 204 Kenichi Ohmae, "The Rise of the Region State," Foreign Affairs, Vol.72, no.2, Spring 1993, pp.78-87.

Cbtrpter 1: AlltOIIOII!Y• Collstitllfiollal Patriotism a11d .Arymmetric Federalism- II: The Eco11omic a11d Fi11a11cia/ Routes 3 20

immigrant, drugs, diseases like HIV/AIDS, and epidemics like SARS and Swine Flu, etc.

across the borders.205 The proximity of the Northeastern states to the Golden Triangle

which is notorious for drugs, narcotics and guns/arms trade makes the region more

vulnerable. This would require improving our internal security system. Despite the fact

that the deployment of police per lakh population in the eight states of India's North-East

is about 510 in 2003 which is more than four times the level of deployment on an all­

India basis at 120, it has not been able to improve 'law and order'. 206 Improvement of

internal security, law and order would demand qualitative change in the police personnel

deployed. This would in turn demand effective training and skills.

If development is conditioned by peace, and the paraphernalia of law and order, then

the import of institutions should also be realized. The chapter shows clearly the multiple

overgrowths of disparate centralised institutions which are critical in the development of

India's North-East. What needs to be recognised is that distant, centralised and patronage

structures with their ready-made solutions may not always be helpful in giving effective

voice and participatory rights to the local people. On the contrary they may engender

distrust in such centralised projects as they are imposed 'top-down'. This demands

building the capacities of the local people by providing them quality education, training

and skills. They in tum should be harnessed by building appropriate autonomous local

institutions which would not only leverage 'policy innovation and experimentation' at the

local level, but also broaden the discursive spaces of local politics whereby the rules of

the game, the values and norms of the institutions are deliberatively evolved by a process

of what Tully calls 'multilogue'. 207 The principle of subsidiarity demands that

decentralization and devolutions of powers should augment the autonomy of local

institutions.

As some semblance of special economic zone emerges in India's North-East along

the highway of emerging 'region state', the local people would, in the words of Tiebout,

205 Routray considers that these factors explain the initial reluctance to open up the North-East borders. See Bibhu Prasad Routray, "The Indo-Myanmar-Thai Highway: Impact on Insurgency in India's Northeast," Bharat Rakshak Monitor, Vol.5, no.3, November-December 2002. 206 The figure is computed from the 2003 data given in "Table 14.2A: Strength of Police Force inNER: 1981-2003," in Gol, MDONER and NEC, North Eastern Region Vision 2020, Vol.3, p.202. 207 We have discussed this in chapter 2.

Chapter 7: Auto11onry, Co11stitutiollal Patriotim; a11d Aryn;metric Federalism- II: The EcoiiOIIIic a11d Fi11a11tia/ Ro11/es 3 2]

increasingly be 'mobile' and would tend to 'vote with their feet' .208 This is to say that

such economic zones would accelerate the movement of people to and fro across the

border. To put it another way, opening up the borders would also accelerate people-to­

people contacts which would hasten either the conflict-prone exclusivist 'sons of the soil'

movements, the kind of which was witnessed by Assam in the 1980s or inclusivist ethnic

solidarity movements having transnational linkages. The cases of Tai-Ahoms and Lisus

whose ethnic kindreds are spread across Thailand and South-East Asia, the Zo (Chin­

Kuki-Mizo) people who traced their ancestral lineage to the Yo dynasty in the present

Yunnan Province (China), or the Vaishnavite Meiteis (Manipuris) who are considered to

have strong religious ties with Balinese Hindus, among others, are striking examples of

the second category. They would throw up new vistas of overlapping national imaginings

across the Northeastern borders. Would the territorially fixated idea of Indian citizenship

and the emerging regional federal order be prepared to accommodate and tolerate such

transnational citizenship? The challenge really is how we tailor such emerging

transnational citizenship to fit into Ramesh's extremely pertinent prescription for India's

North-East future: 'political integration with India and economic integration with South­

East Asia.'

208 See Charles M. Tiebout, "A Pure Theory of Local Expenditure," The Journal of Political Economy, · Vol.64, no.5, October 1956, pp.416-24.