I was struck by the untapped potential of the North East Region (NER) on my recent visits to Guwahati, Shillong and Gangtok. Rather than trying to integrate these eight states into the Indian economy and developing mutually satisfying border facilities with their neighbouring countries, the situation is getting worse year by year. Money is pouring in from the Centre with no development focus, and most of it is being frittered away, thanks to poor governance by these states, and India?s not so cordial relationship with its neighbours.

I visited Shillong as a part of the Thirteenth Finance Commission (TFC) team. Leading experts and academicians of all the states other than Sikkim attended the meetings. They provided an overview of their problems and suggested how TFC could help to mitigate these. I was amazed to find that the TFC was the first Finance Commission to have such an open dialogue with experts from all the NER. As the leader of the World Bank?s Economic Development Institute team to study macroeconomic management and fiscal decentralisation in China in 1994, I had asked the Chinese authorities to follow the Australian and Indian institutions of transferring revenue sharing and grants from Centre to the States! Little did I know that not much progress has taken place since then in India in refining the formula to strike the delicate balance among development expenditure needs, per capita income and human capacity levels, internal security issues of border states, and tax efforts. After 60 years of independence, we still don?t have any rational local taxation system. Fiscal decentralisation has not gone beyond the State level.

I am glad that the TFC is giving the NER the focus it deserves. These states are important for national security; they lack economic security, and yet have tremendous growth potential. The division of a prosperous Assam into seven states was purely on account of ethnic rivalries, and no consideration was given to their economic viability. The main task of the North-East Council should be to help NER operate on the patterns of the EU, with overlapping development programmes.

The basic problems of the NER are:

* Terrible transport infrastructure with very poor connectivity. Frequent floods add to the problem. Railway links are practically non-existent;

* Poor soft infrastructure?-education and health;

* Insurgencies and migration, given its geography, and our current relations with the neighbours;

* Poor governance and practically no local administration in the NER;

* Industrial development has bypassed the NER.

The TFC should take into account these problems and encourage states to develop local taxation or raise non-distorting non-tax revenues; it should encourage efficient expenditure allocation and governance; and most importantly, provide adequate, yet rational, transfer of revenues and grants. But these should be linked to their tax efforts.

The national priorities for the NER should focus on:

* Infrastructure, especially roads and air linkages. A holistic plan for this should be the task of the revamped North-East Council;

* Security should be beefed up to prevent excessive migration, insurgencies, and turmoil;

* Serious capacity building is needed to provide not only basic education, but also develop technical skills so that SMEs, IT and other services can flourish;

* The massive untapped potential in tourism, floriculture and horticulture should be developed on a war footing. The NER has the finest flowers and orchids that can give us manifold of foreign exchange earnings from these by Thailand. I brought a large box of strawberries from Meghalaya that were far superior to the ones found in the upscale grocery stores in the US.

We need private-public partnerships to transform this wonderful region. Let us not waste our efforts with exhibitions and seminars with tribal troupes for ministers to watch. That is condescending. The capabilities of the NER people go far beyond handicrafts. We need to revitalise agro industries, tourism and IT, to begin with.

?Jayanta Roy is principal adviser, CII. These are his personal views