India’s Northeast Region: Scope for Investment in Fast-Developing States

Posted by Written by James Fox Reading Time: 7 minutes

India’s Northeast Region (NER) is among the poorer and less developed parts of the nation but provides investors with a strategic landscape and various greenfield opportunities. A key appeal of the states in this region is the abundance of raw materials, cheaper labor costs, and access to Southeast Asian markets. In this article, we take a closer look at investment opportunities in the NER and how the region is transitioning from a primarily agrarian economy.


India’s Northeast Region (NER) is the easternmost region of the country and represents both a geographic and political administrative division. It comprises of eight states – Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Tripura, and Sikkim.

These eight states account for an area of 262,230 square kilometers (101,250 sq mi) –just larger than the UK – and almost eight percent of that of India. Interestingly, this region shares 99 percent of its borders with other countries – Bangladesh, Bhutan, Chinese Tibet, and Myanmar – and only one percent with another Indian state – West Bengal.

The region is also strategically important for India’s economic growth. The Look East policy emerged as an important foreign policy initiative for New Delhi in the post-Cold War period – connecting Northeast India to East Asia and ASEAN. Launched in 1991 by the Narasimha Rao government, the policy was created with the aim of developing political contacts, increasing economic integration, and forging security cooperation with countries of Southeast Asia. In 2014, the Narendra Modi government launched a new iteration, the Act East Policy, to promote economic cooperation, enhance connectivity and cultural ties, and develop strategic relationships with countries in the Indo-Pacific region through continuous engagement at bilateral, regional, and multilateral levels. Major ongoing projects in the region under this policy include the Kaladan Multi Modal Transit Transport Project, the India-Myanmar-Thailand Trilateral Highway Project, and Port Connectivity with Thailand and Indonesia.

The NER might be one of the less developed regions of India, but it possesses huge potential in several industries and sectors. With peace established in the region, the government is also putting increasing emphasis on encouraging growth in the NER.

In the last two decades, economic growth in the NER has been impressive, with an annual growth rate in excess of 8 percent. The movement towards more productive industries plays a large part in this.

Growth industries in Northeast India

Petrochemicals

Assam has the highest recoverable reserves of crude oil and natural gas in India. The Ministry of Petroleum and Natural Gas’s (MoPNG) Hydrocarbon Vision 2030 aims to ramp up oil and gas production in the NER with the goal of contributing to overall socio-economic development.

Assam has more than 100 oil fields and 200 million metric tons of crude oil reserves. Today, Assam accounts for 15 percent of India’s crude output and 50 percent of the country’s entire onshore production of oil and natural gas. The resource has the capacity to enhance economic transformation across the state.

However, the discovery of hydrocarbon resources has also engendered intra-state squabbling over resource rights. The Oil and Natural Gas Corporation (ONGC) has discovered vast reserves of hydrocarbon deposits in parts of the sensitive Kolasib district on Assam’s borders. It is speculated that up to 5,52,674 cubic feet of gas could be extracted from the Meidum exploration site in Kolasib, Mizoram.

There are four ONGC blocks – all of which carry tremendous potential – that fall within disputed areas along the Assam-Nagaland border, also known as the Disputed Area Belt (DAB).

Despite these challenges, the industry is developing and so are ancillary and downstream sectors. The Assam Gas Cracker Project – North-East India’s largest petrochemical project – is being implemented by Brahmaputra Cracker and Polymer Limited (BCPL). Assam also has the highest number of refineries in the country – the government says it is a testimony to the amount of oil produced in the state.

The hydrocarbon industry can also support other sectors. Earlier this year, it was announced that Assam would export methanol and formaldehyde to Bangladesh. The industry can also produce organic intermediate products, such as plastic, rubber, fiber, and other raw materials.

Renewables

While the region’s hydrocarbon resources mean it could become a net-exporter in the coming years, the states also have considerable potential in renewable energy. It is estimated by the Central Electricity Authority (CEA) that the region has a total hydropower potential of 58,971 MW.

This figure is truly sizeable when considering the UK – a world-leader in renewable power – only has 25,530 MW of wind capacity in operation. This is enough to power 19 million households a year.

However, as of July 2021, only about five percent of the NER’s hydro potential has been developed. And while the states have negligible potential for solar installations, the CEA says the region has estimated solar power potential of 57,360 MW.

Sikkim is a state with a strategic locational advantage in terms of hydropower with the Teesta and Rangeet – two major rivers flowing through the state and nearly a hundred tributaries. Sikkim has a considerable hydropower generation capacity, with an estimated potential of 8000 MW, according to Invest India. Meanwhile, Bangladesh-bordering Meghalaya has a hydroelectric power potential of approximately 3,000 MW.  

As of June 2021, the northeastern states have an installed renewable energy capacity of 2,329 MW, representing only a small fraction of the region’s capacity. 83 percent of this capacity is accounted for by hydropower plants. As such, reports suggest considerable untapped potential for renewable investment projects.

Manufacturing

The NER has a primarily agrarian economy, but manufacturing sectors are developing in line with the central government’s objectives. The northeastern states are deemed to have considerable manufacturing potential, primarily for two reasons.

Firstly, the location of the region, connecting India to the Southeast Asian markets, makes the NER a truly attractive location for a potential manufacturing hub. Secondly, the region has rich social capital, cheap labor costs, and plenty of natural resources, including huge energy potential moving forward.

There are ongoing efforts to encourage skills development on a state and national level to enhance the region’s attractiveness to manufacturing-related investment. Under the Skill India programs, 300,000 youths have been trained in the region over the past six years. The program, which provides free skill training and certification across various roles, is provided to improve employability.

Many existing manufacturing industries are linked to the agrarian sector, such as tea, textiles, grain mill products, and food processing. The processing of forestry products for plywood and paper are also a source of manufacturing growth.

Key sectors in India’s northeastern states

State

State and economic facts

Key sectors

Assam

  • India’s oldest operating oil refinery at Digboi.
  • Largest producer of onshore natural gas in India.
  • Contributes 50 percent of tea production in India.
  • Pharmaceuticals and medical equipment
  • Plastics and petrochemicals
  • Power
  • River transport and port township
  • Information technology
  • Textiles and handloom

Arunachal Pradesh

  • Longest international border in North-East India –bordering Bhutan to the west (160km), China to the north and northeast (1080km), and Myanmar to the east (440km).
  • 80 percent forest cover – rich flora and fauna of the state are characterized by 601 species of orchids and 622 species of medicinal plants.
  • Home to India’s largest, and world’s second largest, monastery – Tawang Monastery.
  • Power
  • Agriculture and forest-based industries
  • Textiles and handicrafts
  • Tourism

Manipur

  • Highest number of handicrafts units and craft persons in the NER.
  • Leading producer of bamboo in India.
  • Kachai Lemon festival celebrated every year to promote investment in the crop.
  • Agriculture and allied activities
  • Horticulture
  • Sericulture
  • Bamboo-processing industries

Meghalaya

  • Producer of one of the finest varieties of turmeric – the Lakadong turmeric.
  • Third largest producer of strawberries in India.
  • Shillong: ‘Rock capital of India’ is known for its music festivals.
  • Hydroelectric power
  • Agriculture and horticulture
  • Mineral industry
  • Tourism and hospitality

Mizoram

  • Highest forest cover in India – 85.41 percent of its geographic area.
  • Second largest producer of bamboo in North-East India.
  • Second largest producer of strawberry in India.
  • Textiles and handloom
  • Fisheries
  • Agriculture and food processing

 

Nagaland

  • Third highest producer of cobalt in India.
  • 600 million tons of crude oil reserves.
  • Naga tree tomato and Chakhesang shawl are registered geographical indications (GI) of Nagaland.
  • Agriculture and allied activities
  • Apiculture
  • Mining
  • Sericulture

Sikkim

  • Largest producer of large cardamom in India.
  • Highest per capita income among northeastern states.
  • Home to 315 glacier lakes and world’s third highest mountain peak Mt. Kanchenjunga.
  • Agriculture and food processing
  • Hydropower
  • Tourism
  • Pharmaceuticals

Tripura

  • Fifth largest tea producing state in India.
  • Fourth highest literacy rate among all Indian states.
  • Natural gas is available in non-toxic form (with ~94 percent methane).
  • Bamboo
  • Tourism
  • Information technology
  • Food processing
  • Technology

Policies and initiatives supporting NER

The NER is one of the less developed regions of the country. It faces many challenges, the most prevalent being comparatively poor infrastructure, particularly with regards to connectivity. There are also issues around generating economic opportunity in the hilly and difficult terrain, which can lead to high operational costs. Citizens suffer from a lack of employment opportunities, and this creates the need for subsistence farming – rarely a positive marker for economic development.

However, as discussed, the region also has immense economic potential, with growth prospects in several areas, including petrochemicals, manufacturing, and renewable energy.

The central government has been touting the NER as a location for investment in recent years. In November 2021, Union Home Minister Amit Shah called on industries and businesses to invest in the northeast and said the Narendra Modi government has created a conducive environment for the industrial growth of the region.

Shah highlighted that the government has been successful in restoring peace across the region in recent years and underlined achievements in upgrading infrastructure and connectivity. Connectivity, be it road, rail, and air, is a particularly important part of the economic development process given the region’s geographic positioning and its capacity to directly link India with East and Southeast Asia. The government hopes to connect all eight states by air by 2024 and seven of the eight state capitals by rail.

This commitment was demonstrated in the Prime Minister’s Development Initiative for North East (March 2022). Projects within the initiative include a pilot project for construction of the ‘bamboo link road’ in Mizoram and the Aizawl by-pass.

These initiatives are being complimented at state and central government levels by further policies and schemes to enhance connectivity and encourage investment. These include:

  • Tripura Industrial Investment Promotion Incentives Scheme, 2017
  • The IT, Electronics, Telecommunications Policy for the state of Sikkim
  • The Nagaland Startup Policy (2019)
  • The Meghalaya Electric Vehicle Policy (2021)

Through a wide range of policies and initiatives, New Delhi and the regional leadership aim to encourage investment into these eight states. The government will hope that investors see the unique opportunities this region offers, with access to East Asian and ASEAN markets.


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