My classmate from Shillong loves history and he teaches the subject.
Our evening meeting over good snacks and a bit of 'vital essential' turned interesting. "We ourselves are living history," he remarked.
The discussions shifted to global trade and economy for obvious reasons. And then he cautioned me about the Shadow Economy linked to north eastern states. In short, he said - we cannot yet know the consequences of the financial system that is running based on Shadow Economy.
Maybe it goes without stating that this 'shadow economy' in Nagaland, Manipur, parts of Assam and even Mizoram and Tripura represent one of India’s most "complex and entrenched parallel economic systems".
What will it take to stop the fall ?
There are multiple reasons responsible for the glories of this illicit stream. Unemployment is one of them.
Other factors are driven by decades of insurgency, political instability and very weak governance structures. The writ of the government simply fails and there is no fear of the rule of law.
Some of all these are related to human greed. But those working in these areas also suggest that if we can 'kick' the menace of bad habits and human weaknesses -- today's pain may be will be translated into gains. Otherwise the north east India and states such as Manipur, Nagaland and parts of Assam and Arunachal Pradesh will pay a much bigger price.
Take for instance the case of Nagaland. This shadow (or chiefly the underground) economy encompasses multiple illicit activities that collectively generate an estimated Rs 690-Rs 720 crore annually.
None can contest that this will significantly impact the state’s formal economic development.
I spoke on these issues with a few ex army and civil officials who had served in the northeast and states such as Manipur and Nagaland in the 1990s and later.
Needless to say, the finding was obvious.
The shadow economy’s impact extends beyond immediate economic effects to create deep socioeconomic distortions.
One ex military General summed up another refrain. "The normalization of illegal taxation has today justified corruption and cheating. It has created a culture where 'extortion' that is looting other people's money is normal. What is making the Govt of India entertain all these for decades puzzles me because this undermines the rule of law and democratic governance".
As a social conscious individuals, some of them also diagnose that women, particularly in the informal sector -- face increased vulnerability to harassment and extortion related to illegal trade specially with alcohol.
"You may not realise it as a chauvinist man.... Despite being over half of the informal workforce, women can actually become targets for unofficial tax and this dangerous Shadow economy".
It is also appreciated in the official circles that various pressure groups actually go silent on shadow economy or even illegal liquor business.
The youth unemployment rate and limited formal sector opportunities push young people - well educated ones - towards the Shadow economy participation.
This also leads to social instability. The lack of skilled workforce among locals and the serious malady of running away from hard work further limits legitimate economic alternatives.
The shadow economy in Nagaland operates through multiple primary channels.
Analysts maintain -- The illegal taxation by insurgent groups (Rs 250-Rs 300 crore annually)
-- the liquor black market (Rs 250 crore),
-Drug trafficking (Rs 118-120 crore in seizures alone in 2024),
- Arms smuggling (Rs 50 crore estimated)
- And money laundering operations (Rs 75 crore).
Even the likes of former Governor R N Ravi in their analyses (and probably confidential inputs to the Home Ministry) -- have stated that most pervasive element of Nagaland’s shadow economy is the systematic illegal taxation.
This is imposed by approximately 26 insurgent factions.
These groups - as is well known - operate parallel governments with their own finance ministries and so on.
The state government employees cough up around 22 to 25 per cent of their annual salaries to various groups. And 'worse' the money is deducted at the source !
Taxes are also paid by businesses and households and even those in operting house constructions or road maintenance. In the process, compromises are done at the level of 'implementing' the project works.
The development suffers and then there is a cycle wherein people would complain about 'injustice' either from New Delhi or Kohima or both.
My sources in various probe and security agencies sum up the irony.
First, the taxation system is so institutionalized that the militant groups (intalks with the centre and in ceasefire) issue official letters to government departments demanding specific percentages be deducted from salaries.
There are multiple taxes for every commodity entering Nagaland and Manipur. In the case of latter; things have become more complicated after the ethnic clashes of 2023.
In Dimapur - people will tell you about so-called Entry tax, exit-tax, godown tax, distributor tax, and retailer tax.
Ultimately, who pays --- the consumers. And who are they -- the voters !
And in Nagaland in particular -- voters are also paid on the eve of the voting day and even on the day of polling.
Election time becomes festival time - and all stakeholders - the neta class and the voters love all that.
This parallel taxation system has created what is also described as a “land of illegal taxation”.
The NDPP-BJP alliance is in power in Nagaland since 2018. The BJP had captured power in Manipur and also in states such as Assam and Arunachal Pradesh.
But the bitter truth -- which is again missed - is that the faceless citizens pay more to underground groups than to the legitimate government (s).
The system operates with such impunity that insurgent groups openly assert their “legitimate right” !!
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| ex Naga CM K L Chishi in 2023 - propounds theory of 'Onion-layers in electoral corruption' |
Prohibition’s Unintended Consequences
One has to look back and try to rediscover who needs to be blamed on this score.
Despite the Nagaland Liquor Total Prohibition (NLTP) Act of 1989, the state hosts a thriving illegal alcohol trade worth an estimated Rs 300 crore annually if not more.
One study by college students claimed that Nagaland spends over Rs 114 crore annually on Indian Made Foreign Liquor (IMFL) in Dimapur alone.
Of course, the statewide market is significantly larger.
Probe further. The prohibition has created a sophisticated smuggling network ranging from Manipur/Arunachal Pradesh, Nagaland, and Myanmar, with villagers earning Rs 200-300 per trip transporting alcohol across porous borders.
Nagaland as a state loses an estimated Rs 200-300 crore in annual excise revenue to neighboring states where alcohol sale is legal and taxable.
As an enthusiast supporter for development and lasting peace, one can say -- until the Naga political issue is resolved and effective governance is established, the Shadow economy will 'dominate' the economic life of the in the state and outside.
(We shall run a few more blogs on this complex subject. Suggestions and inputs from the patrons of this blog will be highly appreciated)
ends
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