PROBLEMS AND PROSPECTS OF ECONOMY OF ASSAM

PROBLEMS AND PROSPECTS OF ECONOMY OF ASSAM

Main Problems of Economic Development in Assam and Factors responsible for these problems: There are various problems attached with the initiatives to develop the economy of Assam. Although every state has its own share of special problems, Assam may be described as a major 'problem state' with its geographical isolation, proneness to natural calamities, sensitive borders, disturbed law and order conditions and other factors as well. The factors impeding economic growth in Assam can be classified into Economic' and 'Non-Economic' factors.

·         Economic Factors: Following are the main economic factors which are responsible for creating problems of economic development in Assam:

o  Rapid Growth of Population : There's rapid growth of population witnessed in Assam. This is a very disturbing factor as the increasing number of population is a liability rather than an asset. The census data shows that Assam has one of the highest demographic growth rate in the country; the growth rate in the decade 1961-71 being 34.95 % against 24.80 % for all India. During the last two decade 1971-91, the growth rate of population In Assam was 53.26 %. A significant portion of the increase is due to the influx of people from outside. The rate of growth of occupation and wealth in Assam cannot keep pace with this high rate of population growth creating problems of unemployment, poverty and inequality of income in the region.

o  Natural Calamities : Assam is unfortunately one of those few states which is every now and then visited by natural calamities such as floods and droughts. The actual experience and a study of the problems connected with the Brahmaputra and its tributaries suggest that it will be a long time before the problems of flood are adequately tackled. The total damage to crops, cattle, houses, public institutions in Assam has been increasing year by year, that is, from Rs 13.2 crores in 1970 to Rs. 24.6 crores in 1972 and from Rs. 11.98 crores in 1976 to Rs. 39.80 crores in 1980 and then to Rs. 306.6 crores in 1989, Thus, production and income of the State are facing setback every year due to major erosion by the Brahmaputra and its tributaries and the growing occurrence of floods. Every year the revenue so generated, are being diverted for flood relief. The total diversion of revenue for flood relief has been increasing from Rs. 104.74 lakh in 1962-63 to Rs. 286.32 lakh in 1974-75 which accounted to 2.6 % and 1.8 % respectively of the state total revenue Thus a good volume of state's resources has been diverted for making repairs and for giving relief to the flood victims. As a result of such a burden on state's resources, plans for development have received a setback Thus, natural calamities in Assam make speedy implementation of plans difficult

o  Geographical Isolation of the State and Its Difficult Terrain: Geographical Isolation is a characteristic feature of the state which always goes against its development strategy. From the very early period, Assam was a neglected state partly due to its geographical isolation which restricted capital flow into the state's economy for industrialisation of the state. Geographical isolation of the state involves higher unit costs. Further, lack of contact, lack of attention and lack of supervision by the Centre are the results of geographical isolation of the state. The difficult terrain of Assam surrounded by hills, rivers and dense forest leads to an increase in the cost of administration for developmental projects, besides making mobilisation of resources particularly difficult.

o  High Cost Structure : The cost structure in Assam is very high. This is due to the existence of higher price level in the state in comparison to other states. It can be explained further by K.K. Bhatia's standard basket method, showing preliminary estimated indices of comparative costline of selected centres of different States of India with Delhi as the base. The results show that the index for Digboi (Assam) is higher by 18% over Delhi. This index for Digboi is again the second highest in the country followed by Bombay. If Digboi Is taken to represent Assam and the average of the 16 centres to represent India, then according to this Index (standard Basket Method) it is 21 % higher.

Taking all these into consideration, broadly speaking, it Is felt that the consumer price level in Assam may be taken to be about 20 % higher than all India average. The cost structure in Assam is thus very high and this has raised the cost of all the projects under different plans. This had added an additional strain on the financing of development projects in Assam. Besides, due to this high cost of living, chances of raising tax rates and the volume of savings for financing developmental plans have become narrow and the cost of administration also increases due to the high cost structure. Thus, this high cost structure is always going against the development of the economy of Assam.

o  Poor Transport and Communication Facilities: Assam is lacking a sound transport and communication system Geographical isolation, difficult terrain and lack of attention are some of the basic factors which are responsible for poor development of transport and communication facilities. Both the railway and road transport facilities in Assam are very minimum compared to its need. Assam accounted for 3.9 % of the total railway route length of the country as per March, 1993 but in case of broad gauge lines it accounted for 0.35 % of the total broad gauge routes of the country. The expansion works, like preparation of new railway lines, conversion of metre gauge lines into broad gauge lines, extension of national highways, construction of new bridges over the Brahmaputra, development of well connected transport factfifies and sound communication system etc. are not up to the mark, in the absence of such facilities, a region cannot develop industrially. In recent years, steps have been taken to improve the transport and communication system of the state without which the development of the economy is impossible.

o  Capital Deficiency: Capital deficiency is a characteristic feature of underdeveloped countries This characteristic is nothing peculiar to Assam when the whole country is suffering from capital deficiency. But this is a serious handicap with which toe state’s economy is involved The problem of finance assumes serious proportions, both because agriculture and small business dominate the economy and also because neither the Government nor the corporate sector saves enough to meet the cost of its own investment projects. The volume and rate of savings in Assam are very poor. The savings depend on the level of per capita income. As the level of per capita income in Assam is very poor, the saving potential is low. Unfortunately, the marginal propensity to consume, of the people of Assam is very high on account of sub-standard living conditions of the majority of the population Thus, inspite of having huge development potential, the State's economy cannot develop due to lack of capital formation. Further, a sizeable section of the population, who are earning their livelihood in Assam is of a migratory character. A substantial portion of the savings of such seasonal migrants is not available for being ploughed into Assam's economy as it is remitted outside. Similarly, the corporate sector and trade are substantially in the hands of persons exercising control from outside and they are remitting profits outside Assam A recent study has been made by an Expert team sponsored by I.D.B.I. on the basis of available statistics of rail and road borne trade. The study indicates that while the commodity flows into and out of Assam are more or less balanced at the level of about Rs. 200 crores annually, there is a regular outflow of monetary income from Assam to the extent of Rs. 63 crores annually. This heavy amount of outflows of capital is creating a heavy pressure on the financial condition of the state, besides making the pace of development slower.

o  Wastage of Natural Resources: Inspite of having a huge amount of natural resources, the State's economy still remains largely under-developed. As a result of this, instead of preservation, there's depletion of huge quantity of natural resources. The investment in Assam is mainly channelised towards the exploitation of the rich resources like tea, jute and oil. It is a reflection of the continuation of the old colonial pattern of investment Barring the setting up of a fertiliser factory and three refineries, no significant utilisation of the resources has come about. Assam has 28 % of the total hydro power potential of the country, which remains under-utilised. The vast coal resources have not been exploited, (except for traditional use of the Railway etc.) despite several possibilities for use as fuel for production of power, for production of coke and as base for several chemical industries. The forest resources in Assam are also under-utilised, particularly in the matter of non-standard species. Thus insufficient exploitation of natural resources in Assam is responsible for this poor economic development of the state.

o    Lack of Skilled Personnel: Assam is also suffering from an acute shortage of skilled labour. Most of the labourers are unskilled. For higher skills, Assam has to depend upon other states and foreign countries. Consequently it has to pay higher wage rates for skilled labour than in many other States. Besides, Assam also has to import technicians from outside the state on attractive rates of remuneration for installation of capital-goods industries and thus it raises the cost of the development projects besides making the gestation period of these projects lengthy.

o    Lack of Entrepreneurial and Managerial Talents: About the availability of entrepreneurial and managerial talents, the picture is very gloomy There is lack of initiatives and entrepreneurship on the part of local talents, to start new industries within the state for which there is sufficient development potential.

o    Poor Credit Facilities : The credit facility, which is a part of infrastructure requirement for development, is very minimum. The per capita bank credits in Assam which stood at Rs 15.6 in 1970 as against Rs. 83.9 for all India. The credit deposit ratio in Assam stood at 23.5 in 1970 as against 55.9 for all India. In recent years also, credit deposit ratios of the commercial banks In Assam stood at a poor level which were 44.3,49.5, 45 5 and 43.4 in 1975, 1976 1977 and 1978 (June) respectively. Again in December 1994 the deposit ratio in Assam was 55.9 % as against 59.4 % for all India Thus the lending policy of the commercial banks is far from generous to this poor State of Assam. In the absence of large scale credit facilities, industries in the private sector in Assam cannot grow satisfactorily.

o    Primitive Technology : Technological progress is the root of economic development. But Assam is suffering from lack of technological development due to poor scientific educational facilities Assam is still following the primitive technologies in agricultural sector and thus agricultural production remains stagnant whereas other states like Punjab, Haryana, Gujrat, Uttar Pradesh have been able to make sufficient progress in agriculture by applying modern technologies. Small scale and cottage industries in Assam are still following or adopting old orthodox technologies and cannot stand in the competitive market The economy of the State has remained extremely backward due to the absence of advanced technology.

Thus, most of the favourable factors which are responsible for sound economic growth are missing in Assam. Rather, various unfavourable factors are standing as an obstacle on the path of economic development of the state.

·                                

·         Non-Economic Factors : These inciude-

o    Sensitive Borders : Assam is bounded by sensitive borders on all sides. The borders specially with Bangladesh (formerly East Pakistan) on the west and south and with China on the north have remained too sensitive since Independence. This adverse factor always goes against the economic interest of the State by obstructing the easy flow of industrial investment both in the public and private sectors. Inspite of possessing huge natural resources, the investment in Assam has remained
a risky one due to its sensitive borders. Although at a slow pace, but with the change of time public sector investments started to flow within the state's economy. But the flow of private investment in the sector still remains poor.

o    Disturbed Law and Order Situation: The maintenance of law and order is a critical subject as Assam is a sensitive border State  Assam has to spend a heavy amount on police administration for the maintenance of law and order The per capita expenditure on police administration on Assam stood at Rs. 8.25 in 1972 which was the second highest figure among all the states. In recent years, the expenditure has increased considerably due to the problem of insurgency in the State. This unduly heavy expenditure on law and order maintenance has put a severe strain on the already slender finances of the State Government and has, to that extent, hampered the Government's ability to finance the developmental schemes. Further, this disturbed law and order condition will also restrict the flow of private capital into the State's economy.

o    Lack of Efficient Administrative Machinery : Maintenance of an efficient and clean administration is very essential for achieving sound level of development. But administrative machinery in Assam is neither efficient nor clean. The leakage of funds in various developmental works is quite common, resulting in poor performance of various plan and non-plan projects and wastage of financial resources of the state. The prevalence of red-tapism has always delayed the operation of various developmental plan projects and makes the utilisation of plan funds difficult which leads even to the surrender of scarce plan funds to the Central Government

o    Social Structure: Social structure in Assam is not favourable for economic growth The joint-family system creates under­employment and makes savings difficult. The caste system restricts the mobility of labour. The laws of inheritance have results in minute sub-division and fragmentation of holdings Religion has advocated austerity and renunciation which has always obstructed the people from the way of their material advance Further, united action by the people of the State on the economic front has been prevented by the diversity of castes and creeds.

Thus, we have seen the various hurdles which the State has to face on the way of attaining economic development. Both the economic and non-economic factors are equally responsible for this poor rate of development attained by the State.

Prospects of Assam Economy:   Assam is the largest economy of the Northeast region. It is India's gateway to the Northeast as well as to the neighbouring countries of Myanmar, China Bangladesh, Nepal and Bhutan, providing a vital link for trade with the Southeast Asian countries It is the most industrially advanced state in the Northeast India, because of its comparative proximity to the rest of the country and availability of infrastructure. Its prospects for economic development are as follows:

·         Endowed with Natural Resources: Assam is rich in natural resources such as natural oil and gas, rubber, tea, and minerals such as granite, limestone and kaolin. Assam tea is a well recognised product all over the world.

·         Sectors with Investment Potential: The state is rich in water resources. Other potential areas of investment include power and energy, mineral-based industries, tourism and crude oil refining.

·         Favoured tourist destination: With its pleasant climate and scenic landscape, Assam is a popular tourist destination. The state offers visitors a variety of choices from world heritage (leisure) sites to temples and monuments.

·         Availability of skilled workforce: Assam has numerous educational Institutions. A substantial portion of the city population, in the age group of 15 to 25 years, is computer literate

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