Regional Economic Agglomeration and Openness: The Economic Development of the North Eastern Region (NER)
- Part 4 -

Dr. Bishwanjit Singh, Loitongbam *

Table 4 presents the sector compositions of the NER at factor cost from 2004 to 2011. The share of agriculture and allied activities exceeds that of the industry sector during the whole sample period. The share of agriculture and its allied activities has increased from 20% in 2004 to 23% in 2011 while that of the industry sector marginally increased from 8% in 2004 to 10.63% in 2011.

However, compared with other sectors, the service sector has significantly improved and has contributed a major share to the economic growth of this region (De U.K., 2011), mainly due to a rise in state-sponsored public administration expenditure (Srivastav, 2010). Even though the service sector of the region is growing significantly, it doesn't create additional employment and income-generating opportunities and its basic structure has not been altered (Srivastav, 2010). The share of the service sector largely increased from 40% in 2004 to 67% in 2011.

* 2012-13 has excluded for Sikkim due to non-availability of data.

From Table 3 and 4, it is shown that industrialization is still underdeveloped and the share of manufacturing activities is below national norms in the region. Only Assam contributes majority of manufacturing output of the region. Thus, the NE states should develop value chains link between their economic activities so that there is a win-win condition prevails among the States. Since Guwahati is the major business hub of the NER, it should act like the New York of the region.

Given the infrastructure and economic opportunities, it is prudent to set up most of the business based on Guwahati. It will save time and increase efficiencies and productivities. For example, when most of the companies establish in Guwahati, it will generate and raise income and employment to the local people. Larger the economic activities, higher are the need of resources.

Other parts of the region can supply these resources which in turn will enhance efficient use of 'once' underutilized (both natural and human) resources of the region. Moreh of Manipur can act as gateway to the ASEAN economies and eventually to the World. To make these happen, the transportation plays a very crucial role. In addition to improve present road connectivity, it is necessary to think of waterways in every possible ways.

The Bharmaputra River has been underutilized so far or at least not up to the extent that it should have. As far as operational of waterways in NER is concerned, it heavily depends on the relationship between India and Bangladesh. Since the route of the NER's waterways is via Bangladesh, a tacit understanding and mutual cooperation between the two countries is very vital.

Otherwise, it will be very difficult to make these waterways fully operational. Both the Centre and the concerned state government should work hand-in-hand in order to use waterways effectively and efficiently in the region. In short, once the regional economic integration takes place, there will be positive spillovers effect to other parts of the region. It also leads to increase economic activities that will, in turn, raise the demand and supply of the region economy.

It is also time to make the local companies to shine as MNCs. How do the presence of foreign MNCs benefit local companies and manufacturing in NER? If the agglomeration with business friendly environment once prevails in NER, there is no way to go backward. Many MNCs will come to NER (for example Guwahati) for doing business due to cost advantage. These MNCs will bring FDI and technology and eventually helping us enhancing productivity of the region through knowledge spillovers.

These will accelerate the economic growth of the region. Foreign investors will also come to NER to exploit the opportunities of labor intensive manufacturing exports. Because productivity differences create large variation in incomes across countries, and technology plays a key role in determining productivity. As an example, the introduction of one product might speed up the invention of a competing product, because the second inventor can learn from the first by carefully studying the product or its product design (the "blueprint").

Some of the possible way of technology transfer is through international trade in intermediate goods, export (learning by exporting) and international R&D spillovers. First, the pattern of intermediate goods trade i.e. international economic activities such as trade, FDI, etc. lead to additional contacts with foreign persons who may possess advanced technological knowledge, like exporter, importer, engineers, researchers, this may stimulate the diffusion of foreign technology.

Second, through exporting experience companies will benefit from interacting with foreign customer, for example because the latter impose higher product quality standards than domestic customer, while at the same time providing information on how to meet the higher standards. International R&D spillovers are comparatively tricky. Most of the tacit knowledge can be acquired through "by example from master to apprentice" or through person-to-person demonstrations and instructions. Thus, the presence of foreign MNCs will help local entrepreneur and companies in improving their capabilities through FDI and technology spillovers (as stated by Alfred Marshall above).

3. Conclusion:

In what ways NER should look forward to achieve faster economic growth? The paper proposes two suggestions. First, for NER to keep making progress and to transform into a new economic powerhouse, it needs to improve utilization of scarce resources, improvements in technologies, and the exploitation of scale economies. A finer production fragmentation will make it possible to better explore the comparative advantage within the diverse NER.

The government should try to lower the cost of cross border merchandise movement and on the other hand, should increase the number of trade items to almost free trade. It will represent deepening of economic and social integration between NER and neighboring countries. Trade liberalization and production fragmentation has the potential to eradicate poverty.

For example, the development of China's processing trade regime has helped lifting thousands of rural poor out of poverty, by creating labor intensive manufacturing jobs for unskilled workers. Development of horticulture, poultry, dairy, and animal husbandry sectors will raise farmers' income and will help in poverty reduction. Horticulture exports should be promoted according to the principle of comparative advantage. Though horticultural exports would create more rural employment opportunities, it requires labor input and capital input.

The latter is very important to ensure the quality of the horticulture products to meet the sanitary and phyto-sanitary (SPS) requirements and to export to both domestic and regulated markets. However, given the sheer size of grain sector and little financially viable options, it is hardly believed that farmers could prosper through growing land-intensive grain. Thus, without a dramatic transformation of NER agricultural trade policy, labor-intensive horticultural exports would not have a chance to grow.

Besides horticulture is cash crops and its price is very volatile and hence risky business. Second, one of the major problems of the underdevelopment of NER is that it fails to develop a value chain link among the States. It renders to lower market and inability to develop its manufacturing base. The paper suggests that regional economic integration will provide a better solution for these problems.

Regional agglomeration will help NER in achieving faster economic growth through increasing returns, monopolistic competition, transaction costs and the occurrence of external economies and in turn shape firms' and labors' location behavior. Besides, the government should promote export sectors, intensively employing unskilled labor, which will create more job opportunities in the cities for rural surplus labors.

All these requires improving physical infrastructure, such as ports, roads, power, telecommunications, etc., an accountable and corrupt-free governance, and mutual cooperation with one another. Besides, a good relationship with Myanmar is very vital for the economic development of NER and Manipur in particular. A good relationship with Indo-Myanmar depends on Indo-China Relation. Myanmar's polity heavily depends on China and its economy as well. FDI in Myanmar will have a positive spillover towards NER.

It also requires people to people contact with NER and China. If we have people to people contact along with cultural bonding, China could help the economic development of NER as China is now a game changer in the world order. The Centre should give local governments additional concessions or preferential policies to FDI, particularly the exporting foreign funded enterprises, through cheap loans, free land use, subsidized energy supply and lax enforcement of environmental law, etc. Transforming NER into a new economic powerhouse will help India becoming an economic superpower sooner than expected.

Finally, we highly recommend whether differences in institutions, regulations, and cultural factors are an issue for keeping the region as a closed economy

Concluded....