developing india

 Industrial Development of India

In this twentieth century when science and technology have gained unquestionable supremacy, the level of the' industrial develop­ment of a country has become the yardstick to be applied to judge its actual development. All other progress has become meaningless; if a country is technologically backward, it is backward irrespective of any other excellence it might have acquired.

It is a well-known fact that British Government never inten­ded to develop the industries in our country during pre-independence period. After independence the people of this country entertained high hopes from the government for the betterment of their life it is the industrial development which provides basic infrastructure necessary for the development of the economy as a whole. Industrial Policy, 1948 and the Industries (Development and Regulation) Act, 1957 gave an idea of the attitude of the Government with regard to the development of industries. But, it was only the adoption of planning in 1951 which created a favorable atmosphere for the development of industries.

The history of organized industry in India may be traced to 1854 when the real beginning of the cotton mill industry was made in Bombay. The foundations of jute industry were laid near Calcutta in 1855, Coal-mining also progressed about this time. There were the only major industries which had developed substan­tially before the First World War. During and after World war I and II, a somewhat more liberal policy was adopted by the authorities, such as, a discriminating protection policy, which gave impetus to industrial development. Several industries developed and a number of new industries came up but their production was neither adequate nor diversified in character.

The development of the economy can be measured with the help of different criteria, such as the growth rate in industrial out­put, industry's contribution to national income, and industry's contribution to employment. A close application of these criteria divides the planned period into two distinct phases, the first lasting till 1965-66 and the second following there from. The economy took rapid strides daring the first three Five-year Plans but slowed down later. The Seventh Plan envisages a growth rate of 8 percent with some segments of industry registering a higher growth rate, but only time can unfold the future achievement. Since indus­try's contribution to national income and its capacity to generate employment have displayed similar trends, we cannot describe our industrial development as spectacular though there has been a spurt of new industrial complexes all over the country.

The pattern of our industrial growth was determined by the state of economy in which the British left us. The British had used India as a source of cheap raw material and a lucrative market for finished products and they had not made any effort to develop the infrastructure. After getting independence, India immediately felt the need of capital goods and it was decided to promote the rapid growth of capital goods industries. Almost till the end of the Third Five-Year-Plan, India had to import a variety of capital goods inclu­ding iron and steel, transport equipment and various kinds of machinery. But the situation has radically changed now. India is now in a position to export these capital goods even to the technologi­cally advanced countries of Western Europe, America, Soviet Union etc.

A significant feature of our industrial development has been the phenomenal growth of the public sector. This sector comprises public utility services like the railways, road transport, post and telegraph, power and irrigation projects, departmental undertakings of the Central and State Governments including the defence produc­tion establishments, and a number of other industrial undertakings which are wholly supported by the Central Government. The public sector now contributes about one-fifth of the share of industrial sector in the national income and the surpluses earned by it form an important source of non-tax revenue of the Government. It also offers job opportunities to a large number of people.

If we aim at an accurate assessment of our achievement, we should either compare our industrial growth with the growth in other countries during the corresponding period or, we should measure our achievement in terms of our targets. Another yardstick can be to compare our achievement with our needs. This kind of assess­ment can be quite revealing. In 1947, Japan was in no better a position than India. If India had been ruthlessly exploited by the British and fiercely rocked by communal hatred; violence and blood­shed in the wake of partition, Japan was laid waste by atom bombs during the Second World War. But today, Japan is technologically one of the most advanced countries of the world. Our achievement has also fallen short of the targets laid down in the Five-year Plans. If we compare our performance with our needs and targets it is obvious that what we have achieved is too inadequate to meet them.

Industrialization in India suffers from a few obvious draw­backs. Though the aim of industrialization has been to bring amelioration to the miserably poor millions, somehow economic power and wealth have been concentrating in a few hands and the masses have, by and large, been left un-benefited. The industrial licensing policy which is only an adjunct to the industrial policy has given rise to many evils, economic, social and political. This breeds unrest among the poor, and the labourers employed in big industrial houses often resort to strikes and lock-outs, giving a serious blow to the productivity of the system. Finally, regional disparities and imbalances that should have been eliminated by now still persist. There exist m India a few pockets that have regis­tered rapid economic development while a few areas find them­selves utterly neglected.

Almost every plan has revealed that industrial production fell short of the target by a wide margin but, then, there are some inherent shortcomings in our planning system. It need not be emphasized that planning has widened the horizon of industrial sector and opened new vistas of industrial growth

 Finance  Development 

Financing of corporate growth has generally not been paid much attention in the development economics literature. Recent analysis of the Emerging Markets Data Base of the International Financial Corporation suggests that corporate financing patterns in India, among a select group of other developing countries, are different from those in developed countries. Based on the data for a sample of the largest firms, these analyses provide evidence that Indian firms make more use of equity financing than firms in developed countries. These results have been used to argue in favour of investing heavily in the development of stock markets in developing firms. In this paper, we investigate the possibility that such an analysis could be too sample-specific in that the largest firms do not represent all of the Indian private corporate sector. Our analysis, based on sectoral and cumulative firm-level data for India, suggests that while firms do make a significant use of equity issues, the nature of equity financing may be different in an environment in which a number of firms are not listed on stock exchanges but may be issuing equity. The results show that bank loans and internal finance are more important sources of corporate financing. Sectoral and firm-level data from the United Kingdom are utilized o compare the behaviour of Indian firms with that of firms in developed countries, for which there is a rich literature on financing corporate growth. We conclude that India is not obviously very different from the low internal finance developed countries and that, since a large part of equity issues are by unlisted firms, the gains from the promotion of stock markets may be limited

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Security & Development in India

Many profound theories have attempted to explain the proliferation of civil violence in general by reference to socio-economic and cultural developments such as response to feelings of intensifying deprivation and oppression or stresses engendered in States undergoing rapid modernisation. However, none of these theories can explain why, or under what precise conditions, people resort to terrorism rather than to other forms of violence.¹

A broad stream of justification has marked the intellectual response to terrorism in India, and this tendency persists even today, after decades of strife have cost the nation thousands of innocent lives and billions of rupees towards the cost of counter-terrorism, and many billions more in terms of the developmental opportunities lost. There has been a great proliferation of "a false sociology of poverty, political neglect and whatever other stereotypical pop-psychological explanations… (we)… can invent to justify the unjustifiable."² At its worst, this trend finds its source in the propaganda of the terrorists and their front organisations; but even at its best, it is based, on the one hand, on a naiveté that gives overwhelming credence to the political rhetoric and postures of extremist organisations, against all evidence of their actions or any objective analysis of the situation on the ground; and on the other, on an unexamined dogma that reduces all conflict and its resolution to developmental catechisms.

This last stream of economic determinism simultaneously asserts a kind of identity between causes and solutions, reducing the entire problem of the elimination of terrorism to a question of ‘massive investment’ in developmental projects in affected regions, which would magically eliminate both the source and all violent manifestations of discontent. This intellectual fashion has had a powerful – if fitful – influence, both on India’s national policy, and on the pattern of demands raised by the governments (and indeed by the terrorists themselves) of various States afflicted by the scourge of terror. The result has been a massive – though usually ad hoc and erratic – allocation of resources by the Centre to such States, particularly at times when a Central government is under some political pressure to be seen to be responding ‘effectively’ or ‘proactively’ to terrorism.³ In all such cases, little effort has been devoted to evaluating the utilisation or impact of such allocations in the past, and these actions are simply premised on the erroneous assumption that ending grievances will end terrorism.⁴

The dynamics of terrorism, however, acquire a character and autonomy entirely divorced from the paradigms of such naive determinism, resulting in a high rate of failure for all initiatives based on the conviction that terrorism can be made to disappear through appropriate developmental investments. Indeed, the only things that have been known to ‘disappear’ in most such cases, are all signs of the funds invested, and it is somewhat surprising that this dogma has persisted for such a long time in the complete absence of supporting evidence.

The following analysis, consequently, is premised on the assumption that, irrespective of underlying causes, objectives or ideology, once levels of violence and of general civil administrative collapse have exceeded certain parameters, they set into motions dynamics that are entirely autonomous and independent of the antecedent or ‘triggering’ mechanisms and motives. This paper, consequently, makes no attempt to evaluate or analyse any such ‘causal’ factors in the emergence or development of any particular insurgency or terrorist movement.

Funding & Development in India’s Northeast

The strife-riven States of India’s Northeast are a case in point. It is commonplace to say that this region has remained an area of neglect for more than five decades since independence. From the point of view of national political consciousness, this is, perhaps, a correct evaluation. In the context of developmental allocations and a wide range of economic and social indices, however, this is far from the truth.

The States of the Northeast are ascribed a "special category" status by the Government of India, and the National Development Council (NDC), the apex body for the approval of Plan funding, earmarks 30 per cent of total Plan allocations for special category States as central assistance for State Plans. Significantly, these States receive 90 per cent of Plan assistance as a grant, and just 10 per cent as a loan, as against the norm of 30 per cent grant and 70 per cent loan for other States. Favoured treatment is also given by the Finance Commission with respect to the sharing of Central tax revenues. Clearly, therefore, these States have not been made to suffer as a result of their resource endowments. The financial flow of funds to the Northeast, and the persistence of ‘underdevelopment’ against a backdrop of financial support from the Centre, consequently demand an examination of the decision making processes and patterns of resource allocation within these States.

In the first place (as Table 1 indicates) the financial support to these States from the Central devolution (Planning & Finance Commissions), accounts for over 80 per cent of the per capita revenue receipts in this region. Secondly, developmental expenditure as a percentage of revenue expenditure ranges between a high of over 72 per cent (Arunachal Pradesh) and 60 per cent (Nagaland). Thirdly, capital expenditure as a proportion of total expenditure was, on an average, at least 10 percentage points higher than the national average. This is also the case if another avenue of capital/asset creation in the region, the per capita plan outlay, is considered. Simply put, these States, on the average, fare much better than the national average on each of these parameters.

This is also the case for a variety of socio-economic indices. Specifically, literacy rates in the region tend to be significantly higher than the national average, while population densities are significantly lower (Table 2). Morbidity rates in the region are also well below the national average, at 94 per thousand, as against the national average of 122, for short duration morbidity, and 3,076 per hundred thousand as against the national average of 4,578 for major morbidity.⁵ Per capita incomes, at Rs. 5,070 per annum, are higher than the national average of Rs. 4,485, and the population below the poverty line, at 33 per cent, is less than the national figure of 39 per cent.⁶ Even access to electricity, at 44 per cent of households, is marginally above the national average of 43 per cent;⁷ as is access to a health sub-centre / hospital within five kilometres of the village, which stands at 47 per cent of villages in the Northeast, in comparison to the All India average of 41.2 per cent.⁸

Table 2 : Select Socio- economic Indicators in the Northeast

State	Population Density	Literacy Rate
		Total	Male	Female
Arunachal Pradesh	10	41.59	51.45	29.69
Assam	286	52.89	61.87	43.03
Manipur	82	59.89	71.60	47.6
Meghalaya	79	49.10	53.12	44.85
Mizoram	33	82.27	85.61	78.6
Nagaland	73	61.65	67.62	54.75
Tripura	263	60.44	70.58	49.65
All States	274	52.21	64.13	39.29

Source: Economic Survey 1998-99, Govt. of India, Table 9.2: S-115

Note:

1. Density is expressed as population per square Kilometres.

2. Literacy rate refers to population aged seven years and above

There are, of course, a number of other parameters, the network of roads, industrial development, etc., on which these States lag far behind national averages.⁹ But the image of grinding poverty that is often projected is inaccurate, and the ‘social backwardness’ that we ascribe to the tribes of this region is a heavily concept-dependent value judgement. Indeed, the character and equity of local institutions for village and self-governance in tribal societies tend to be far superior to the caste riven, feudal panchayatsin much of rural India, the status of women is certainly higher, and crimes against women dramatically lower than they are elsewhere in the country. Our impression of backward or ‘primitive’ tribal societies in the Northeast is cast, at least in some measure, in the mould of the market economy and its indices, and in the patterns of our cultural prejudices.¹⁰

To return, however, to the state of health of public finance in the region, it is notable that the ratio of development to non-development expenditure is declining despite increasing Central devolution, and the non-development expenditure as a percentage of total revenue expenditure has risen sharply. An analysis of budget papers for the period 1991-92 to 1998-99 for the seven states of the Northeast indicates that although the development to non-development expenditure ratio remains above unity, the gap is diminishing rapidly (Table 3). This trend is confirmed by the estimates of non-development expenditure (NDE) as a percentage of total revenue expenditure. For example, in Nagaland and Tripura, NDE was consuming close to half of total revenue expenditure by 1998-99, up from a third in 1991-92. While increases in other States are smaller, the only exception to this rising trend is Arunachal Pradesh.

Table 3: Revenue Account Derivatives

State	Dev/NDE		NDE as % TR Exp.
	1991-92	1998-99	1991-92	1998-99
Arunachal Pradesh	2.92	2.53	29.25	28.31
Assam	3.00	1.78	25.00	35.92
Manipur	2.00	1.86	33.33	34.91
Meghalaya	2.56	2.11	28.11	32.19
Mizoram	3.13	1.91	24.19	34.42
Nagaland	1.76	1.21	36.27	45.16
Tripura	2.51	1.19	28.45	45.67

Source: Compiled by the authors

Table 4: Disaggregated View of NDE in 1998-99

(in percent of total NDE of Revenue Account)

State	Interest	Admn.Services	Pension
Arunachal Pradesh	27.82	57.05	7.37
Assam	37.65	37.98	16.67
Manipur	28.69	45.00	18.35
Meghalaya	27.44	56.25	6.28
Mizoram	33.04	48.51	7.25
Nagaland	28.15	56.52	9.27
Tripura	22.54	63.22	9.86

Source: Computed by the authors

The two main components of rising NDE are administrative services and interest payments, with the former consuming between 38 and 63 per cent of the total by 1998-99 (Table 4). Of this administrative expenditure, policing consumes between 50 to 70 per cent of the total – this would appear to be reasonable in States characterised by high levels of civil strife. However, the role of the State police in counter-insurgency operations is severely limited in the Northeast, with the Army and the Central para-military forces carrying the brunt of the responsibilities for fighting terror. K.P.S. Gill’s inference that there exists an extremely unfavourable ratio of operational to static and non-productive force in the State police would thus appear to be valid for this region as well.¹¹

A closer analysis of expenses within the Development Expenditure (DE) category also raises interesting questions, especially with regard to "general economic services" and including the sub-head "secretariat economic services." Secretariat economic services accounted for a mere 40 per cent of the total general economic services during 1991-92. By 1998-99, this proportion had increased to 80 per cent. Evidently, the maximum "development" taking place in this region is confined to the State secretariat’s themselves.

If administrative expenses in both the NDE and DE categories are totalled, it is seen that they account for as much as 70 paise in every rupee of "development expenditure" in some of the seven States of the Northeast.

In addition to the substantial amounts of money that the States of the Northeast receive from the Centre are the large overdrafts from the Treasury that have become a routine practice in this region. The total amounts available for development, over the years have, consequently, been very significant. In Assam alone, for instance, the Planning and Rural Development Departments had expended a total of Rs. 11.65 billion over the period April 1992 to February 1998, on Rural Development, with no visible impact on the ground, and no system of accountability for the funds so expended.

Where does all this money go? And can the cycle of terrorism ever be broken through such a strategy of massive investment in development?

The Blind Spots of Development Planning & Security Strategies

A simple and frequent answer to the first of these questions is often condensed into a single word: corruption. This appears to be a view that is gaining ground among officials at the Centre who now claim that the States of the Northeast are afflicted by levels of corruption that are higher even than those that prevail in the perennially sick State of Bihar. Evidently ‘leakages’ – as the diversion of public monies to private coffers is euphemistically referred to – are extraordinarily high in the Northeast, and this is one reason why "Development packages leave the people – all people – of militancy-affected States cold."¹² Indeed, the greatest enthusiasm for ‘financial packages for the Northeast’ is displayed only among the bureaucracy – both at the Centre and in the States – and by the nexus of politicians and contractors who will eventually and substantially benefit from these flows of funds. The ‘corrupt elite’ of the Northeast has thus frequently been accused of enriching itself at the cost of the common people and of the development of the region.

As with all reductionist explanations, however, this is just far too simple and ignores vast areas of complex linkages within the peculiar political, social and economic structures that have emerged under the shadow of terrorism. Before we address these, however, it is useful to look at another of the dominating – and flawed – premises of counter-terrorism policy in India.

The thesis that developmental expenditure is the panacea to all violence – including terrorism – is often countered by a competing dogma, what is sometimes referred to as a ‘law and order approach,’ that emphasises the use of force to the exclusion of all other means, in order to restore the authority of government. This approach asserts that all issues of politics and development can be addressed only after terrorist depredations have been crushed. Thus, where the ‘economic determinists’ insist that development automatically generates a ‘peace dividend’ in the form of de-escalation of conflict and political violence, the opposing viewpoint argues that development is itself the ‘peace dividend’ that can arise only after ‘law and order’ has been imposed by the force of arms.

Both positions, of course, contain a germ of truth; neither, however, embraces its entirety. The fact is that substantial development has flowed into the Northeast; its impact on target populations has been negligible because of the corruption and violence of the prevailing politics. Much of this investment, moreover, has indirectly ended up financing militancy through the enveloping economy of extortion and collusion. On the other hand, despite as much as five decades of a ‘military approach’ in Nagaland, there has been no resolution of the basic issues, and violence invariably resurfaces after every transient spell of enforced or negotiated peace.

The difficulty is that, by and large, all analysis of conflict and development in the Northeast has (quite naturally) been defined in terms of available data, and the source of a bulk of this data has been the government. The character and content of this data is, consequently, defined by the settled practices and categories of the various statistical exercises carried out for the entire country, and tends to ignore the peculiar circumstances created by mass conflict in specific regions. A sensitive and responsive central bureaucracy would, of course, set into motion the processes of correction when it realised that the statistics on which it was basing government policies and actions were flawed – or at least not sufficiently comprehensive to provide an adequate and rational basis for decision-making. ‘Sensitive and responsible bureaucracy,’ however, is evidently an oxymoron, and no such entity has been reported to exist in India. "India’s imperious, indolent and inept bureaucracy,"¹³ by and large, prefers to conduct its deliberations and arrive at its decisions at a safe distance from the rough and tumble of the cutting edge of counter-terrorism operations, and to deal with problems that they ‘understand’ – mainly, sloganeering on poverty, underdevelopment and conventional civil disturbances. Their ‘solutions’, consequently, are also discovered in tried and tested – albeit entirely unsuccessful – strategies of massive ‘development funding’ and the shuffling around of existing forces from one theatre of civil strife to another. This is familiar, and consequently safe, territory where adequate precedents can be found to provide an alibi for every possible – and inevitable – failure. The fact that terrorists refuse to co-operate with their mindset and persist in continuously changing the rules of the game has yet to disturb this style of functioning, and no effort whatsoever has been made to document critical changes on the ground, and to fashion policies that would be relevant to the conditions actually prevailing.

There is, of course, one new pool of data that has emerged, as a result of the efforts of various security forces (SFs), but this is exhausted by comparative casualties inflicted by and on the militants and SFs, weapons possession and seizures, force availability and deployment, and a few other categories that have a direct bearing on tactical and strategic perspectives of the forces operating in the field. There have also been a few localised studies, usually by various research agencies and non-government organisations, tracing out the general impact of ethnicity and migration on the course of conflicts; however, while these have generated some debate, they are yet to have visible impact on policies.

We are, consequently, left with macroeconomic and public finance data, on the one hand, and with data on SF operations and terrorist strikes, on the other – and this naturally reinforces the prior predilection to interpret all events and define policies within the framework of the two conventional and competing models – ‘economic determinism’ and the ‘law and order approach’.

Such analyses and policies inevitably ignore certain critical aspects of the unique social, economic, political and administrative processes and relationships that exist in the Northeast, and that inevitably emerge in areas afflicted by long periods of civil strife. The most significant among these is that insurgencies and terrorist violence, once they pass beyond a certain point, are invariably accompanied by a collapse of the institutions of civil governance – including the justice system – throughout the affected areas. These areas are, consequently, transformed into a shifting battlefield between the extremists and the SFs. Needless to say, the state’s existing agencies of development have neither the power nor the will to reach out into this hazardous ‘war zone’. In substantial measure, moreover, all critical activities, policies and decisions relating to the conflict are progressively taken over by the Central Government and are defined and co-ordinated by bureaucrats located thousands of miles away. Critically, as already noted, the shrinking role of the State Governments has historically been associated with disproportionate and increasing unproductive expenditures in administration.

It is within this context that the question of a ‘corrupt elite’ and of ‘leakages’ needs to be addressed. Here, we find, that the usual presumption of a clear opposition of interests between the government (and its officials and various agencies) and the militants is often unjustified. Indeed, complex collusive arrangements between various political groupings, administrators and officials, on the one hand, and different militant factions, on the other, are more the norm that the exception. Some of these ‘collusive arrangements’, in fact, are often institutionalised by the various secret or public ‘peace agreements’ that are forged, from time to time, between government negotiators and extremist factions. For instance, the allegedly ‘comfortable’ arrangement that had been arrived at, and that had persisted for over two and a half years, between the Centre (and its primary symbol in Nagaland, the Army) and the National Socialist Council of Nagaland-Isak Muivah (NSCN-IM), was briefly disturbed only when alleged NSCN-IM militants made an unsuccessful bid on the life of the State’s Chief Minister, S.C. Jamir on November 29, 1999.¹⁴ It was in the wake of this assassination attempt that Jamir exposed the farcical character of the Centre’s ‘peace accord’, calling it a "licence to kill, threaten and extort." He added further, "This is just a ceasefire between the NSCN (Isak-Muivah) and the security forces and not a ceasefire with the people. Such a truce will only aggravate the situation."¹⁵ It is significant that an elected State government in Nagaland has no role in the negotiations between the Centre and the militants operating in the State, and is, in fact, kept entirely ignorant of the character and content of ongoing negotiations.

Another aspect or form of collusion is exemplified by the ‘arrangement’ that the Arunachal Pradesh Chief Minister, Mukut Mithi, is widely believed to have arrived at with the National Socialist Council of Nagaland – Khaplang (NSCN-K). This Naga militant organisation dominates the Changlang and Tirap districts in his State. In order to dislodge the 19-year old Gegong Apang Government, intelligence sources disclose that Mukut Mithi and his supporters entered into an agreement with the NSCN-K, according to which the latter guaranteed that no candidate would contest any election against Mithi’s Arunachal Congress for six years in the Changlang and Tirap districts; in return the MLAs and ministers thus elected unopposed would co-operate with the NSCN-K and follow their directions during this period. It was also clarified by the NSCN-K that the movement initiated for the demand of Union territory status for the Changlang, Tirap, Lohit and Dibang Valley districts was only for ‘eye wash to the public’ (sic).¹⁶

The lines of collusion and opposition, of support and confrontation, are often not as clearly drawn. In Assam, both the ruling party, the Asom Gana Parishad (AGP) and the main militant organisation, the United Liberation Front of Asom (ULFA), trace their roots, motivation, ideology and leadership back to the same students’ movement in the late Seventies. While the distance between the AGP Government and the ULFA has progressively grown over the years, linkages at a personal level between most ministers and various militant leaders and factions persist, and these play a very significant role in the State’s politics.

Similarly, in Tripura there is growing evidence of a deepening nexus between the major political parties and extremist groups. The National Liberation Front of Tripura (NLFT) is alleged to have close links with the Congress (I), while the All Tripura Tiger Force (ATTF) is reportedly aligned with the ruling Left Front.¹⁷ It is now increasingly clear that the militancy in the State is substantially supported and sustained by the political patronage received by these groups. In fact, this has been the case with every terrorist movement in all parts of the country, and the Northeast is far from an exception.

The progressive ‘withdrawal’ of civil governance and the network of collusive arrangements with militant factions are compounded by the emergence of widespread patterns of illegal economic activity that become the mainstay and motive of all insurgencies after what may be called their early ‘ideological’ stage. These include a thriving economy of extortion, smuggling, gun-running, narcotics, and an oligopolistic control over government contracts. Indeed, the various ‘ideological’ factions and rivalries within militant movements in the States of the Northeast are often thinly disguised ‘turf wars’ to retain or gain control over lucrative ‘areas of influence’, especially important routes of (illegal) cross border trade, including the drug trade.

The growth of this underground terrorist economy, backed by the disruptive power of the militants, distorts and inhibits the processes and growth of legitimate economic and developmental activities. In this context, it is also important to note that a wide variety of economic activities that were integral to the lives of the people of this region – including cross border trade, the use of a variety of forest products, some collective rights over land use, etc. – have, since Independence, suddenly (and from the point of view of the local populations, arbitrarily) been ‘criminalised’, forcing otherwise law abiding citizens into a collusive relationship with militants.

Within their areas of influence, moreover, militant groups gradually usurp a wide range of governmental functions, including the (albeit conditional) protection of life and property, and the provision of ‘justice’ to local communities. Militancy can, in fact, fruitfully (though only partially) be examined as a conflict to defend or expand monopolistic control over critical functions – economic and administrative – against all ‘intruders’, including the government, with militant groups taking on the character of a ‘primitive state’ in a situation of widespread anarchy.

These issues are widely – but randomly – commented upon, both within official circles and in the media. At a local level, they are, once again, fitfully factored in into the responses of various agencies of the state, including the SFs engaged in counter-terrorist operations. However, these processes are simply ‘invisible’ as far as the processes of developmental and strategic planning are concerned. This is what makes these processes irrelevant to the situation on the ground, and leads to an enormous and growing hiatus between the intention and the execution. Crucially, moreover, it circumscribes the range and spectrum of non-military interventions that could help to approach a resolution of the problem. Since the problem is not defined or understood in terms of the dynamics of the underground terrorist economy, and since the magnitude and proliferation of this economy are not quantified, the problem of terrorism and insurgency is looked upon, simply, persistently and obtusely, as a political, law and order, or developmental problem, with an inchoate layering of elements such as corruption or political collusion. In this, it would appear that far greater credence is given to the political postures and ideological pretensions of extremist groups than is merited by the reality. They are treated as political rebels or malcontents; or as, in some sense, representing – albeit by improper and illegal means – the democratic will and aspirations of the local communities. At worst, of course, they are projected as ‘anti-national’ elements working at the behest of foreign powers, a popular perception vigorously promoted by government agencies, but one that entirely ignores local dynamics. The fact, however, is that, at the leadership level, they would often be more accurately represented as criminal entrepreneurs. In their group dynamics, they bear close resemblance to the processes and operations of organised crime.

The moment terrorist movements are perceived, even in part, to have the character and dynamics of organised criminal enterprises, a critical shift occurs. Significantly, the glamour and glory attached to their identity as sub-national revolutionaries is compromised. This is significant at more than a psychological level. The image that dominates our minds today is of dedicated (though misguided) young men, heavily armed with sophisticated weapons, confronting the might of the state in bloody skirmishes. There is, of course, some truth in the image – young and heavily armed men are, from time to time, engaged in armed clashes with the SFs. But, as much of the preceding analysis suggests, the picture is entirely incomplete. The fact is that an overwhelming proportion of their activities – as with the activities of most contemporary organised criminal groups – are not predatory but collusive. That is, they are based on a continuing and symbiotic relationship of acquiescence between the ‘terrorist entrepreneur’, on the one hand, and government agencies, officials, enterprises and individuals whose primary businesses lie within the ambit of the law, on the other. In other words, their offences are, in substantial measure, "consensual in so far as they involve the active complicity of otherwise legitimate members of the larger society."¹⁸ The greatest threat they pose is not the threat of arms, but of a more insidious subversion, based on their co-operation and competition both with governments whom they claim to oppose, and with the larger community within which they operate. A great deal of their power is based on their capacity to exploit legitimate business and financial activities, and their ability to corrupt government and law enforcement agencies. As the Secretary General of the United Nations, declared in 1994, "The danger is the more pernicious because organised crime does not always confront the state directly. It becomes enmeshed in the institutional machinery. It infiltrates the state apparatus, so as to gain the indirect complicity of government officials… (it) poisons the business climate, corrupts political leaders and undermines human rights."¹⁹ These are perceptions and concepts that are widely and progressively being applied to the analysis of organised crime, but are yet to be extended to the examination and containment of the criminal activities of terrorist conglomerates.

Such an extension puts powerful new tools into the hands of the state and its agencies. The one element that is not replaceable in the criminal enterprise – as in legitimate enterprises – is profit. Insurgencies today are being sustained by the enormous, almost unbelievable volumes of finances generated by their activities. Moreover, this is, by and large, easy money. In the initial stages of most terrorist movements, finances to fund activities are ordinarily secured through raids and robberies that demand some daring and involve a great deal of risk. In the subsequent ‘settled’ stage, where an area of influence or domination has been established, the money is much easier to come by. The ULFA, for instance, by 1990, found that their demands met with no resistance, and their revenues exceeded their own highest expectations:

'It was amazing, we asked for a little and they were prepared to go well beyond what we wanted,’ said one ULFA leader. ‘That was when we realised how soft the state was, how weak the businessmen were, how much black money they had, that they could pay up and still have enough for themselves.’²⁰

As already stated, extortion and other outright criminal activities are not the only problem. The deeper problem is the inter-meshing of the legal with the illegal. An interesting example is the subversion of the Public Distribution System (PDS) in Assam. According to government sources, the subsidised essential commodities that are made available through the PDS are diverted to the open market, generating illegal revenues of an estimated Rs. 600 million per month, a large proportion of which reportedly accrues to the ULFA. The processes of this operation are exemplified by the diversion of the State’s allocation of 40,000 tonnes of rice and wheat under the PDS. The difference between open market prices and the PDS price in 1998 was Rs. 4.00 per kilogram. Most of this rice is sold in the open market, and the ‘premium’ shared. Whole wheat is also distributed to consumers at an official rate of Rs. 5.00 to Rs. 5.50. Assam’s monthly allotment of wheat till early 1998 was 30,000 tonnes, most of which was simply allocated to flour mills, many of which were directly owned by ULFA and Surrendered ULFA (SULFA) surrogates. The flour was then sold in the black market at a hundred per cent premium, generating illegal incomes estimated at about Rs. 100 million per month. Similarly, the PDS price of salt is Rs. 1 per kilogram; a bulk of the monthly allocation of 15,000 tonnes of salt is sold in villages at prices exceeding Rs. 3 per kilogram, generating illegal incomes estimated at Rs. 300 million. Villagers in Assam also pay up to four times the ‘control price’ for each litre of PDS kerosene oil.

‘Rural development’ is another lucrative sector, and it is estimated that as much as 70 per cent of all funds available to the State government in Assam under this head is systematically siphoned off under a well organised network of ULFA and SULFA cadres, contractors, civil servants and members of the political executive. According to official sources, of the total of Rs. 11.65 billion made available under this head during the period 1992-93 to February 1998, less than Rs. 4 billion went into legitimate schemes. There is little evidence of projects executed on the ground that supports the claim even of this fraction of expenditure. Critically, misappropriation of this scale in Assam is not possible without the direct collusion, both of the State government and of the ULFA leadership and cadres.

These cases provide only anecdotal estimates of the total volume and range of financial activities in which insurgent groups in the Northeast are engaged.²¹ No comprehensive data or estimates exist, but the totals would possibly dwarf the expenditure of many of the State government’s departments.²²

These revenues create enormous power and influence, especially through the direct capacity to give employment. SF sources indicate that the various underground groups offer recruits a remuneration of that is often several multiples of what is available to a recruit in the police or para-military forces, and is virtually inconceivable in any other entry-level salaried position in this region.²³ With significant levels of unemployment and under-employment, this creates decisive leverage with the local populations.

The control of these vast resources combines with a challenge to the state’s presumed monopoly over the instrumentalities of violence, to undermine the fundamental legitimacy of governments. The progressive erosion of state authority is reflected in the government’s inability, or perceived inability:

1. to protect the lives and properties of the people;
2. to enforce the ordinary laws of the land (and the consequent and increasing dependence on extraordinary laws and force to sustain authority);
3. to reward and punish;
4. to collect taxes;
5. to carry out functions of financial management with requisite credibility;
6. to enforce discipline among State employees;
7. to evoke a fear of sanctions.

The erosion of the government’s legitimacy and authority is often paralleled by a simultaneous acquisition or ascription of legitimacy and authority to the ‘revolutionary’ groupings. In this, the insurgents have a decided advantage, in that they have much less to prove, and standards and expectations that are much lower than those applied to the established government and its agencies. Thus, a ragged band of a few ‘soldiers’, an occasional, dramatic, often crude demonstration of ‘justice’, random aid for individuals in distress or support to a village development project – such as the construction of a mud track (using voluntary labour from the village itself),²⁴ suffice to create the impression of a ‘people’s movement’ committed to ‘justice’ and the alleviation of the poverty and misery of the larger population. The fact that a far greater number may benefit from government projects and programmes does not undermine the legitimacy of the rebels. The government is doing less than it is supposed and expected to do. Anything the terrorists do, exceeds expectations, and is a windfall. The parameters applied are simply not the same.

These factors have a critical bearing on the debate on the ‘people’s will’ and ‘loyalties’. As stated before, there is a tendency among terrorism’s various, and sometimes well-intentioned, apologists to assert that such movements, in some sense, express the inchoate democratic will of the people. There have been times when this has seemed entirely credible – as, for instance, in the Punjab in the late 1980s, when it was widely believed that a large majority of the Sikh population, including Sikhs in the police and other government services, were strongly sympathetic to the movement for ‘Khalistan’. This was a period of near complete anarchy, with the institutions of the state in disarray, and the SFs themselves in retreat. By 1992-93, however, the moment signs of the restoration of the state’s power became visible, the ‘sympathies’ disappeared. Today, the ‘tattered rump’²⁵ of the terrorist movement finds few defenders in Punjab, and sustained efforts at recruitment for a revival of the movement, backed by arms and liberal funding from Pakistan, have met with complete failure.²⁶

The failure of the government to protect its citizens – and the (qualified and discriminatory) assumption of this function by the terrorists – is the crucial consideration in this determination of public response to the rival claims of ‘legitimacy’. In Vietnam, an analysis of the comparative legitimacy of the South Vietnamese government and the Viet Cong during the Vietnam War identified the following determining factors: comparison of the relative risks of punishment; material contributions demanded; opportunities for reward; and the opportunities provided for meaningful activity provided by supporting group or the other. The study concluded that the first of these factors, the perceived risk of death or other punishment far outweighed the others in importance.²⁷ As one commentator expressed it, "you can argue about whether security is 10 per cent of the problem or 90 per cent of the problem, but it’s the first 10 per cent or the first 90 per cent."²⁸ The fact of the matter is that ‘the people’ are, except in rare and extraordinary circumstances, not particularly concerned about ideological niceties, and just wish to get on with life. This gives a natural advantage to those who most effectively threaten – or conversely, protect – them.

These, then, are the broad contours of the general administration, political and macroeconomic dimensions and dynamics in a situation of the widespread breakdown of law and order. However, it is not sufficient to document and analyse these elements. The microeconomic linkages and socio-political impact at the local and village level, on the one hand, and the intercourse between various individuals and factions within terrorist movements are also have extraordinary significance for policy. Many of the Centre’s ‘grand designs’ for peace in the Northeast have foundered against the realities of these transactions. The example of the Union Ministry for Home Affairs’ (MHA) ‘surrender package’ for militants is a case in point. The present scheme has been in force since April 1998. The wisdom of the scheme – which may well be interpreted as rewarding terrorists at the expense of law abiding citizens – is itself suspect, but this is not our present point. The scheme seeks to wean terrorists away from the path of violence by offering incentives and benefits to those who are ready to bid a ‘farewell to arms’, and targets "misguided youth and hardcore militants who have strayed into the folds of militancy and now find themselves trapped."²⁹ Under the ‘give up and gain’ criteria, a terrorist surrendering with weapons is given Rs 25,000 per rocket launcher or sniper rifle; an AK47/AK56 assault rifle secures Rs. 15,000; rates are similarly prescribed for pistols, grenades, rockets, remote control devices, explosive materials, etc. Each surrendered militant, moreover, would be paid a monthly stipend of Rs. 2,000. A ‘rehabilitation package’ also includes soft bank loans and vocational training.³⁰ The surrender scheme has created an entirely new category of nuisance – the Surrendered ULFA or SULFA – and has resulted in "growing criminalisation in Assam".³¹ SULFA cadres now operate a flourishing extortion racket and intercede in all the other illegal and quasi-legal businesses that the ULFA also have a stake in. The only visible difference is that they have no declared political agenda – and this concession on their part has been sufficient for the State government and the Centre to adopt a live and let live policy towards them. No prosecutions have been launched against any surrendered militant, however serious the crimes he may have committed.³² However, substantial revenues generated by the SULFA through their varied activities also flow to the ULFA – as also to their patrons in the political executive and State administration. If anything, the state’s surrender policy has created and reinforced linkages between overground and underground formations.

Internecine strife between terrorist groups is also often related to a struggle for control over various financial operations and territories. Thus, the Kukis, who were once considered Nagas,³³ were later pitched into a fierce and bloody conflict with the latter. One of the major elements of the dispute was a ‘turf war’ to control the main drug route in the region, the highway linking Imphal to Myanmar, and its centre at Moreh.³⁴

The examples above are random and it is not within the scope of this paper to enumerate all aspects and cases of the wide spectrum of activities and linkages of the underground economy of terrorism. Indeed, at the present stage, reliable data on the subject is non-existent. It is, moreover, not the case that administrators and officials on the ground are ignorant of these cases, trends and incidents. Intelligence agencies regularly document the clandestine financial activities and linkages of underground operations. This flow of data, however, is discrete, and there has been no effort to organise and analyse it in a systematic manner. Moreover, the methodology of data and information acquisition suffers from a variety of inherent defects and biases. The cumulative impact of these factors is that the accuracy and utility of these information flows is suspect. More significantly, since long term trends at various levels of disaggregation are not available, the influence of these information flows on policy and strategy is negligible, and the primary response remains local and tactical.

Reconstructing the bases of planning for peace

The premise of this paper is that no coherent and effective policies can be drawn up for the restoration of an abiding peace in, and for the enduring development of, the States of India’s Northeast unless they factor in these various ‘unorthodox’ elements of the political, administrative and socio-economic conditions prevailing in this region. An obvious corollary is that the models and patterns of development that have been applied, or that have even succeeded in, other parts of the country, cannot mechanically be extended to this region.

Evidently, a massive exercise for the quantification and objective definition of the various trends, processes and linkages outlined above – or, perhaps more accurately, the broad categories generally identified, since the listing is by no means exhaustive – is, consequently, a precondition of any coherent or consistent approach. Specifically, the areas that such an exercise would minimally be required to cover would include:

1. A study of the patterns of devolution, availability and utilisation of developmental resources to various State governments in the region, of the actual flow of funds, and of the impact of various existing projects and programmes on their target groups. Such a study would naturally entail the documentation of the viability of various programmes, as currently drafted, in situations of widespread terror.
2. A study of the functioning of the various institutions of civil governance in a situation of widespread breakdown of law and order, and the interaction between various arms of government in comparison with their constitutionally mandated relationship.
3. A study and comprehensive documentation of the dynamics and magnitude of the underground terrorist economy. This would include the analysis of the role of militant groups as providers of a range of ‘goods’, including administrative and quasi-judicial ‘services’, and their impact on local populations and institutions of governance.
4. A study of the character and pattern of counter-terrorism interventions by the state in various conflicts in the region, the role of the SFs, and their capacity or potential to substitute for the ‘absentee state’s’ developmental agencies.
5. A study of the status and functioning of existing and traditional institutions of local self-governance in situations of relative administrative anarchy in order to evaluate their potential as agents of development in the context of altered governmental interventions.

Needless to say, this is a tall order, especially in a situation of near administrative anarchy within the region, and the distinctly primitive systems of information management that exist in India’s bureaucracy, even at the highest levels at the Centre. Nevertheless, even preliminary efforts to document the operations of the underground terrorist economy, and even to systematise existing information and data, and to accommodate the insights of this exercise within the planning process, would bear immediate fruit. Eventually, however, our actions can only be as effective as our perceptions and premises are accurate reflections of the situation on the ground.

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