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By Dr Amiya Sharma


Assam is the leading state in the North East corner of India and perhaps the only state in India to be known because of a product grown and that is tea. The state has an area of 78.44 thousand square km, which is 2.4% of the area of the India and its population is 22 million (1991 census), which is 2.6 % of India’s population. In the fifties, its per capita income was higher than the all India average, but today it is much below the latter. However, the potential for growth of the state is tremendous because of its natural resources like petroleum, natural gas, surface water, forest cover, fertile soil for growing rice, tea and tropical products. Since 1979, the state is going through a period of turmoil because of the anti-foreigners movement against the illegal migrants into the state. The repercussion on the economy has been immense. For example, between 1980-81 and 1996-97, India’s GDP per capita grew at 3% per annum whereas the SDP of Assam per capita grew only at 1%. Today, when the Indian economy is showing signs of a take-off, the economy of Assam is going through one of the worst phases in its history. Even though there is positive growth of the SDP and even the per capita SDP a close look into the fragmentation of the society, frustration of the youth, poor infrastructure, sickness of the most industrial units would confirm the seriousness of the problems facing the economy.

Of late there has been a lot of discussion in various circles as to what needs to be done to stop the conditions from worsening. The paper assesses the options open to the policy makers and suggests that the authorities need to put much more emphasis in the agriculture and allied sector, trade and the services sector. True to Gerschencron's hypothesis, the industrial sector has been the centre of attention for all policy makers. Instead the government will do well to divert its attention to the primary and tertiary sectors and at the same time try to attract outside investment, especially for development of infrastructure.

The following assumptions about the nature of the economy need to be underlined for appreciating the recommended policy action:

  • that the government is in dire need of funds for even carrying out day to day activities not to mention the development works
  • that the capability of the government is in question even if funds are made available to it to undertake any development work.
  • that the private sector is ready and willing to fill the void.

These assumptions are based on the following observations. The development expenditure of the state is only a small percentage of its revenue and it is shrinking since salary, pensions, establishment expenses and debt service payments account of nearly 90% of the budget. At the same time, a large percentage of central funds out of the earmarked 10% for the NE states are lying unutilized and the center had to create a non-lapsable pool because of that. Because of the complaints about large scale corruption, the Union Home Ministry is now asking the people of the state to monitor the activities of the government in the state. There is a very high growth of private institutions, hospitals, agriculture and the service sector enterprises reflecting the mood of the people that merely relying on government may not achieve anything substantial. Invisible Hand of Adam Smith has already held most of the countries in its grasp in the form of liberalization. In Assam too, the same effect is being experienced. Almost in every circle there is talk about the incompetence of the state government.

However, as pointed out by the World Development Report 1997, without a strong government to take care of law and order situation as well as to guarantee contracts, development may not take place. In essence then, one has to follow the principle that is also advocated in Germany that there should be as little of governance as possible and as much as is necessary.

Based on the above assumptions about the state of economy, the following strategy is suggested. The development of the state must be based on the one or two sectors in an economy in which the government does not have adequate resource to concentrate on all the sectors. Following the flying geese model as applied to the development of the South East Asian countries as also the product cycle theory, one may look at the sectors that have the comparative advantage to develop first. To analyze this, let us examine the factors that determine the growth of a particular sector. These are

  • Infrastructure which is in shambles with the Index much below the National average ( Assam’s 93 in 1992-93 compared to All India Average of 100)
  • Raw material which are in abundance for industrial and agricultural growth
  • Manpower: there is shortage of skilled as well as unskilled labor even though there is a large number of educated unemployed ( Centre for Policy Reasearch study)
  • Technology: most of the modern technology needs to be imported. RRL, ICAR have a reasonably large number of technology
  • Market: It is small given the population, isolation and income
  • Bureaucratic Interference: this has become a well-known menace giving Assam the unenviable position of being the second most corrupt state, the most corrupt being Bihar (Report in India Today).
  • Institutional Support: Financial Institution and government support mainly, which are nowhere near the extent provided in other states.
  • Insurgency related problems: "bandhs", boycotts, strikes, kidnapping, arson etc
  • Entrepreneurship: first generation entrepreneurs mainly, amongst the local Assamese people

Now, a close analysis of these factors and the three sectors contributing to the SDP would show us the following picture.

Effect of various factors in different sectors of the economy

Factor Sector



Raw Material



Bureaucratic Interference


tional Support


Primary Sector

Agriculture & allied sector




























Secondary Sector




















Tertiary Sector

Trade &





























  • L------Badly Affecting/not favourable
  • M------Moderately Affecting/ somewhat favourable
  • H------Not Affecting/favourable

Based on the above analysis, it is clear that for the private sector to take the economy further, it is the primary and the tertiary sectors that deserve more attention compared to the secondary sector. However, one is not saying that the secondary sector needs to be ignored completely. But at least the importance that this sector gets seems to be uncalled for given the present conditions in the state. Table I and II below show the contributions and growth rates of the different sectors to Assam’s SDP. It is clearly seen that the contribution of the secondary sector has not grown as it should have. Also, the deceleration of the mining, manufacturing etc as a group is a matter of great concern.

Table I: Percentage Contribution by Industry of Origin to NSDP at constant prices.










1. Agriculture









2. Forestry and Lodging









3. Fishing









4. Mining & Quarrying









Sub Total

Primary Sector


























6. Construction









7. Electricity, Gas & Water Supply









Sub Total

Secondary Sector

















8. Transport, Storage etc









9. Trade, Hotel & Restaurant









10. Banking & Finance









11. Real Estate etc. & Business services









12. Public administration









13. Other services









Sub Total

Tertiary Sector

















Data source : Directorate of Economics & Statistics, Govt. of Assam

Table II: Compounded Annual Growth Rates of NSDP:


1950-51 to 1979-80

1980-81 to 1996-97

Agri & Allied



Mining, Manufacturing etc



Trade ,Transport






Data Source: Assam Prakalpa: "Assam Beyond 2000"

It is argued in this paper that, a more liberal policy almost bordering on laissez faire policy instead of the present policy of interference should be recommended for all the sectors, aided by a policy to attract investment from outside, especially foreign investment. A special strategy to attract investors is to be formulated and that is where the government may concentrate instead of the industrial sector.

Agriculture and allied sector:

First of all, as far as the resources are concerned, land in Assam is very fertile although there is much pressure on it (density of Assam is 285 per sq km as compared to India's 257, in 1991). Technology needs improvement but then the existing can perform well too, given other complementary inputs. In 1995-96, fertilizer consumption per hectare in Assam was 12.8 kg compared to all India average of 75 kg and power consumption per thousand hectares was 11 kwh in Assam compared to al India average of 379 kwh. There is no dearth of market since the state imports reportedly about Rs 2500 crores worth of food and other items per annum. Entrepreneurs do exist as is evident from existence of innumerable small farmers. What is lacking is good institutional support. The existence of such support to some extent has led to movement in the small tea garden in Assam, where many educated unemployed graduates are now venturing. But the same is not true in case of the ramie crop which is full of potential but has not picked up since no financial assistance is available for the growers.

If the potential in this sector is utilized properly, it can act as the immediate damage- controller of our economy. First of all, the gestation period is low. Three good crops in a year or even two good crops in a year can give a boost to the state which cannot be matched by that from other sectors. The contribution to SDP from agriculture has not decreased much over time, although the trend shown for India as a whole shows a much faster decline of the sector as is expected of any developing country, a la Kuznets. From 49.66% in 1970-71, agri sector in Assam declined to 33.97% compared to 47.4% in 1970-71 in India which came down to 29.1% in 1994-95. This trend in fact underlines the importance of the sector. Given this fact, it is important to mention here that if the area where mono cropping is practised is converted to double cropping and the areas where double cropping is practised is converted to triple cropping, then the per capita SDP of Assam can be doubled in about ten years time, according to a study.done by Dr Jayanta Madhab in 1999.

This sector has more or less been left to the private sector and fits in well with our basic premise of minimizing governmental involvement. It is the sector where the amount of investment need not be very large for modernization of practices and the problem of marketing of products faced by the industrial units is much less in this sector. With agricultural development along modern lines the resurgence of activities in the rural areas will stop the influx of the youth into the cities and may alleviate the insurgency problem.

However, obtaining finance for agricultural activities is more difficult than for any other sector. One of the main complaints of the state government has been the insignificant agricultural credit given in Assam by the financial institutions. A modified system of micro credit for even the slightly better-off farmers may help in this situation. The government on its part needs to divert all its effort towards promoting private participation in developing agricultural infrastructure like approach roads, major irrigation projects, cold storage and market infrastructure. One step in this direction has been the World Bank sponsored Assam Rural Infrastructure and Agricultural Services Project (ARIASP). A recent move by the Governor of Assam to provide 100,000 shallow tube wells (STWs) has already resulted in a bumper harvest and there is a new scheme to give additionally some more tillers, STWs and tractors. Such is the power of institutional support. Moreover, in an emotionally charged state like Assam reflecting herd mentality, this change of direction should be accompanied by a lot of publicity. Efforts should be made to downsize the agriculture and allied departments and shift resources and responsibilities to the NGOs and Voluntary agencies.

The practice of paying for the service and other facilities rendered by the government needs to be inculcated amongst the population in general and the farmers in particular. The minds of the people have been corrupted by unending streams of promises, fully or partially fulfilled, of free doles in our country. Research by the World Bank shows that those countries which had poor governance have had been more harmed by the foreign aid rather than being helped by it. In Assam, there are instances where excellent projects needing some contribution from the farmers have been rejected by them because of promises of fully funded government projects which eventually never took off.

For successful implementation of the agricultural upheaval, some modifications of the land laws may be needed. The practice of keeping land fallow for a period longer than that which is necessary between crops should be stopped by all means, even by administrative fiat. In fact, even the fear of such a legislation may mobilise the farmers to go for multiple cropping. It is rather baffling to find that in many parts of Assam, especially those inhabited by indigenous people land remains fallow for most of the year.

Industry Sector:

This has been the most talked about and pampered sector in the state. In fact, the lack of development of the state is sometimes equated with the lack of industrialization. There is definitely some scope for industrialization of the state: the supply of raw material is there for certain industry like the petroleum, natural gas and also in a smaller scale for lime stone and coal based industries. Forest based industries which had thrived earlier, are now dying because of the Supreme Court ban on felling of trees. But agro- industries based on horticulture, sericulture would have better scope, as pointed out by various consultants. However, presently the supply is not assured and even the market is doubtful for these industries. That may be the reason why there is a dearth of entrepreneurs in this line. Another thing is that even though one is saying that this is the most pampered sector, it is not getting the funds which should have been available to the entrepreneurs. Although this sector gets the bulk of the funds from the financial institutions, even then most of the entrepreneurs are left high and dry because of term loans or working capital loans.

Market support, supply of power and other infrastructure are not favourable for the growth of industry. High cost of transportation, absence of mechanical engineering industries within the state, difficulty in obtaining skilled manpower and meager involvement local inhabitants as workers are other problems. Only the provision of finance and other institutional support is better than in the case of agriculture but it leaves much to be desired. As far as finance is concerned, it is well known that lack of working capital has caused many of the existing units to close their shutters. Not even the state governments have been to get positive response from the financial organizations after repeated requests. Without proper arrangements for making working capital loans, there is not much scope for industrialization in the state. Getting land for large scale industries in Assam has also been a problem faced by entrepreneurs (Centre for Policy Research study, 1999)

During the last few years, this sector has faced the wrath of the insurgency situation. The private individuals in this line of business are the targets of the insurgents since they stand out in the society unlike the rich farmers. Even the trading sector does not suffer so much in comparison with the industrial sector. At the same time, governmental intervention is much more in this sector, a crucial impediment that may however, change with the change of government's outlook. In fact there were vociferous complaints from businessmen at a meeting of the Chief Minister, bankers and businessmen that the industrial sector suffers because of two types of extortion, one by the ultras and the other by the government officials.

It is to be noted that the contribution of manufacturing in SDP has been decreasing from 12.46% in 1990-91 to 6.16% in 1997-98, lending credence to our view that all this emphasis on this sector is rather misplaced. Over fifty percent of the small scale industries are sick. Reportedly, of the forty-eight public sector units, only two are making profits. Despite the absolute imperative for privatization or closure of some of the units the state government has not been able to do anything to revive the units. The hue and cry against the privatisation of the agricultural farms has been far less. Industries in the tea sector, oil and natural gas sector are doing well in general. But it is seen that those upstream or down stream industries of the above two sectors are also not doing very well in Assam, causing much resentment amongst the public. There is also scope for development of agro based industries but all these should be encouraged in the private sector, the government looking after infrastructure only.

Trade & Related Services Sector:

This is the sector that has been ignored but has been growing in spite of all odds. A look at the sectoral growth rate will show this trend: the sector's contribution has increased from 2.4% in 1990-91 to 3.27% in 1997-98. The lack of infrastructure has not hampered the growth of this sector since the prices and profitability seem to climb together for the goods traded. And it is known that the North East is a sellers’ market given the lack of connectivity with the rest of India. Earlier, the trading community used to be very small but now, there seems to be no dearth of traders in the state. And this is partially because market does not seem to be a problem for the goods traded. In fact since the other neighbouring countries are also equally under developed there is much unregulated business going on in the North East.

It is also true that government's intervention is not as much as in the case of industry. Industry is pampered by the government and hence it faces more regulations and bureaucratic interference. Lastly, the current insurgency and extortion culture in the state has not been able to dampen the trade activities in the state. If anything, the profits have been going up because the ones form outside the region and unable to cope up with the situation have left the state.

In spite of all these factors, trade and services sector has not received the attention it deserves. Almost everybody is aware that most of the industrialists in the world and particularly in Assam had actually started with trade and related services as their main occupation. Britain was a nation of traders. Countries like Singapore, Hong Kong, Taiwan developed mainly because of entrepot trade. Besides generating surplus for investment trade also creates knowledge about the products handled and this is important for industrialization to take place. With liberalization of the economy, the North East is in a very good position to take advantage of its location which, ironically, had been the cause of its backwardness. One example is the export of bicycles through Moreh. In stead exporting bicycles manufactured in Punjab there should have been at least one production unit or even an assembling unit in Manipur or Assam. However, without any encouragement from the government to the local people to trade, there is not much surplus generated, there is not much interest in the business related to production of bicycle. Also since Punjab has the reputation of being good producer of bicycle, an assembling unit has better chance of survival than a new unit. As regards competition from products outside the state, it is reported that in order to ‘kill’ the nascent cement plants in the North East, the big players from outside often flood the market with cement at lower cost.

Transport, especially the road transport sector, has seen the private sector reap large profits and provide employment to a large number of literates and semi-literates. Complementary business centres have sprung up all over the state, in spite of the insurgency problem and lack of good infrastructure. All along the bus routes, there are the stoppages where facilities for repairs, spare parts, telephone booths, hotels, cinema halls and even bank branches have come up. The growth of this service sector is so remarkable that even the people in Delhi, Bombay and a few developed countries would be surprised to see this, in a state which is otherwise devoid any progress. Once again, this is a sector in which the public sector has minimal participation. In fact, unable to face competition, the public transport corporation is almost dying.

If the strategy is to foster trade, what is to role of Government? Although there is not much intervention in this sector, the government should facilitate trade by ensuring easy availability of finance since the present mode of financing by commercial banks is not enough. As suggested by an NRI businessman, we need to encourage a lot of "Papa-Mama" shops, i.e., small family enterprises that will build up the capital needed for larger industrial enterprises. Hong Kong had one manager for every eleven people in the eighties, reflecting the nature of business there. Recently, in the neighbouring state of Manipur, a market has been established by the government called the Moreh Market where some hundred shops have come up employing over three hundred people and generating tremendous business, related to goods coming from Myanmar. Along with trade, we should encourage those units who would ‘piggy-back’ on the big companies or MNCs by producing semi-finished goods, printing labels, packaging, providing warehouses etc. for them. Bottling plants for Pepsi, Coca Cola etc have come up in the region. Similar ventures need to be facilitated.

Care must be taken to see that the local people are able to take advantage of border trade once it is regularized. For this, provision of easy finance and good regulatory measures need to be ensured. Once the traders themselves learn that value addition brings in more profit, they will start industrial units. This has happened in Singapore and Hong Kong as a result of their entrepot trade and may happen here too. Needless t o state, good cooperation among the North-East states is a sine qua non for its success. The link between the rest of India and the South East Asia can be established properly only if the states cooperate. The proposed East West highway, Trans Asian Railways and the International Airport will go a long way in boosting trade.

Investment from outside and FDI:

There is some feeling in Assam that the present state of unrest is due to lack of development, the latter itself being due to lack of investment. The reasoning would then go further to point out that the State has been neglected by the Centre and therefore there has not been as much investment as was due. The other strain of argument would point to the present turmoil related to insurgency as the factor affecting the flow of investment. Whatever be the correct way to discuss the situation, it is of utmost importance to realize that without outside investment Assam will not be able to solve its unemployment problem and increase the rate of growth of its SDP substantially. Proposed industrial investment between August1991 to December 1994 was only Rs 1038 crores, compared to Maharashtra’s Rs 67,978 crores and Gujarat’s Rs 59,709 crores. Financial assistance disbursed by all financial institutions amounted to Rs 972 cumulative upto March 1993, compared to Rs 23,068 crores in Maharashtra and Rs 13228 crores in Gujarat.

It is pertinent to point out that here we are talking about investment from outside the State and that could be even foreign direct investment which the rest of the country is talking about. For Assam, attracting outside investment has to be a strategic move. This region has been connected to the rest of the country by only a chicken neck of 22 km which is about 2% of the total boundary of the region. More than the physical connectivity, it is the psychological distance which matter to the people. One is wont to think that the feelings are reciprocal for the people of the rest of India. A member from the Japanese Embassy visiting Assam said that the Japanese tourists who come to Bangkok could easily come to Assam which is less than an hour’s flight; but they think that Assam is much further than Delhi.

Although there is some truth regarding the Centre’s neglect of Assam regarding devolution of funds from its kitty, the main factor affecting the lack of development is certainly not this. There are other states in the country that do not get their due share from the central pool but have been able to do well. Assam receives 90% of central funds as grants and 10% as loans as it is considered a special category state. Even then some people feel that a lot more could have been done for the North East to compensate for the disadvantage it was burdened with because of the partition. The Shukla commission (1996) appointed by the Centre has estimated that in !997, the back log for the basic minimum services is a whopping Rs 3960 crores for Assam and for infrastructure it is Rs 94000 crores for the NorthEast. However, it is also puzzling to find that year after year, funds have to be returned to the Centre by the State for not being able to utilize them on time. Given the dilapidated condition of the state economy, it is only logical that the private sector be given more leeway.

The foreign investors' decisions to invest will depend on the negotiations with the host government. It is found that policies of the recipient country are more important than the measures adopted by the investing country in determining the flow of investment. Ideally the negotiations should be based on an extensive cost benefit analysis considering all aspects ranging from incentives to restrictions that host governments place on foreign investment. The negotiation process should result in making policies that meet the mutual interests of both the parties. The state govt. may go for technical collaboration agreements, licensing and management contracts, instead of foreign equity investment.

Investment from outside private sources should flow in once the insurgency situation in the State improves. There is reason to believe that this will take time. One way out is to encourage trade, which will bring into contact outside businessmen. These are the target groups who may be willing to invest, at least in the joint ventures. The businessmen in the State must be taken into confidence and all sorts of help rendered. They are the ambassadors to the outside world of business. The proverbial "herd instinct" of the investors has to be exploited to the maximum and for that these local businessmen have to give out positive signals. Unlike the risks involved in the setting up industries, especially regarding marketing of the products produced locally, in trade, there is not much risk and also its footloose nature helps in dealing with the difficult situation in Assam.

Attracting FDI is like bringing in tourists. That is, to bring in tourists, the state must be able to "market" itself and this is a difficult proposition today. One has to compete with the rest of the world, developed or developing, which are also looking for foreign investment. In the world today, franchising has become a way of expanding brand names and it is rather difficult to procure good contacts even if the money is available. Business relationship and lobbying are important for the deals to be successfully concluded. At the same time, "packaging" of the state is very important. As a prudent strategy, instead of the ‘Fortune 500’ companies, Assam should be aiming for the smaller, less known category of investors for investing here. They have less bargaining power and hence can settle for less.

A joint effort by all the NE states together will be more effective than if Assam alone approaches the investors. It is seen that more closed the economy, more difficult it is to attract foreign investment. India having had the reputation of being a controlled economy more effort will be required to convince foreign investors. At the state level, Assam and the NE states have the reputation of being protected from foreign powers and therefore, more effort has to be made to attract investors. Assam could play to the sentiments of foreign investors by portraying its clean environment, virgin forests, gender equality compared to other states, religious tolerance, ethnic diversity as added attributes.

To be successful in attracting FDI, the need for consultants, lobbyists cannot be over emphasized. An autonomous body to look after this sector may be more effective because of known aversion of the foreign investors to the Indian bureaucracy. It may even be more appropriate if the consultants and lobbyists are from outside and foreign countries, since they will be more effective in convincing the investors than someone from within. Thus, money will have to be spent. The upshot is that it is no use lamenting that FDI is not forthcoming. There must be a concerted effort, a strategy and funds for putting that strategy into practice. Even some overseas offices will have to established in major financial cities abroad as done by some of the more progressive states in the country.


A shift in the emphasis from the secondary to the other two sectors is suggested in the paper. Based on subjective evaluations of the comparative advantage of the three sectors, agriculture and allied sectors and the trade and services sectors can be the leading sectors in the sense of the flying geese or the product cycle models. Assam is a state charged with emotions and therefore, even if we are to stress on agriculture, the thrust must be done with a lot of publicity to mobilise the people. Similarly, trade which has been the step child, may be due to its concentration in the hands of a few families belonging to particular community, needs to be given its rightful place. Lastly, the underlying cause of all the turmoil existing in the state today is the lack of employment opportunities for the youth. Therefore, there must be a concerted effort and strategy to bring in outside investment. An autonomous body for dealing with outside and FDI is suggested. At the same time, the role of the business community cannot be over emphasized for attracting outsiders to invest here. Underlying all these policies runs the basic premise that there should be as little of governance as possible and as much as is necessary.


  • Bhattacharyya and S. Palaha : "Policy Impediments to Trade & FDI in India", IIFT, Wheeler Publishing, 1996.
  • World Development Report, 1997.

  • Salvatore : "International Economics", Prentice Hall Inc., 1995.

  • Debroy : "Beyond the Uruguay Round…", Response Books, 1996.
  • "Facts about Germany" edited by Arno Kappler. Newspaper articles.

  • "Insurgence to Resurgence" A Blueprint for Economic Development of Assam. North East Chamber of Commerce and Industry, Guwahati.

  • "Trends in Social Sciences and Humanities in North East India (1947-97), ed by Singh, et al. Regency Publications, New Delhi.

  • "A Vision for Assam, 2010" by Dr Jayanta Madhab; paper presented at NEEA, 1999, Margherita, Assam.

  • "Assam Beyond 2000", by Asom Prakalpa, Guwahati, 1999.

  • "North Eastern Economy", by Centre for Policy Reasearch, New Delhi, 1999.

  • "Development Planning of North East India", P.C. Barua ed., Mittal Publications,1990.

Dr Sharma is an economist working for NEDFi, Guwahati. 

© Dr Amiya Sharma.

This article was written on 2004-12-07.
Currently Dr Sharma is the Executive Director at Rashtriya Gramin Vikas Nidhi.

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