The report on Assam by C & L which was put out in NTDB by the

International Trade Administration of U.S. Department of Commerce. <p>

ITEM ID : IT MARKET IM970603.119

DATE : Aug 26, 1996

AGENCY : USDOC, INTERNATIONAL TRADE ADMINISTRATION

PROGRAM : MARKET RESEARCH REPORTS

Program key : IT MARKET

Update sched. : Monthly

End year : 1996

Date of record : 19960603

TITLE: ASSAM ECONOMIC PROFILE

SUBJECT COUNTRY(IES): INDIA

POST OF ORIGIN: NEW DELHI

SERIES: INTERNATIONAL MARKET INSIGHT (IMI)

ITA INDUSTRY CODE: ZEC

DATE OF REPORT (YYMMDD): 960531

DELETION DATE (YYMMDD): 961131

AUTHOR:

APPROVING OFFICER:

OFFICER'S TITLE:

NUMBER OF PAGES: 4

1. SUMMARY. IN JANUARY 1996 COOPERS AND LYBRAND, A

REPUTABLE BRITISH CONSULTANCY COMPANY, RELEASED AN

"INVESTORS' GUIDE TO ASSAM." THE GUIDE HIGHLIGHTS

AGRICULTURE, FOOD PROCESSING, FLORICULTURE, AQUACULTURE,

COAL-BASED INDUSTRIES, MINERAL PROCESSING, TOURISM, THE

EXPLORATION AND PRODUCTION OF NATURAL GAS AND OIL, AND

INFRASTRUCTURE AS THE MAIN AREAS WITH POTENTIAL FOR

INVESTMENT. ALTHOUGH THE POLITICAL CLIMATE IN THE STATE

HAS NOT YET STABILIZED, INDUSTRIAL ACTIVITY THERE IS

GRADUALLY INCREASING. DESPITE ITS MANY RESOURCES AND A

NUMBER OF GOVERNMENT INCENTIVES TO INVESTMENT, THE

STATE'S FULL INDUSTRIAL POTENTIAL WILL NOT BE REALIZED

UNTIL IT SOLVES A NUMBER OF PROBLEMS, INCLUDING

INSURGENCY, WEAK TRANSPORTATION LINKS WITH THE REST OF

INDIA, AND POOR PUBLIC FINANCIAL MANAGEMEN. END

SUMMARY.

2. BACKGROUND. ASSAM, THE RCHEST OF INDIA'S SEVEN

NORTHEASTERN STATES, HAS ERTILE VALLEYS, DENSE FORESTS,

A RICH MINERAL BAE INCLUDING OIL AND NATURAL GAS, AND

ENORMOUS WATR RESOURCES. (FYI: THE BRAHMAPUTRA RIVER,

WHICHFLOWS THROUGH ASSAM, ACCOUNTS FOR A THIRD OF THECOMBINED

ANNUAL FLOW OF INDIAN RIVERS. IT IS SAID

TO RANK BEHIND ONLY THE CONGO AND YANGTSE RIERS IN THE

VOLUME OF WATER IT CARRIES DRING THE RAINY SEASON.)

DESPITE ITS NATURAL ASSETS, ASSAM HAS REMAINED

ECONOMICALY UNDERDEVELOPED DUE TO WEAK INFRASTRUCTURE,

LACKOF LOCAL ENTREPRENEURIAL SKILLS AND LOW INVESTMENT

BY BOTH THE FEDERAL AND STATE GOVERNMENTS. INSUGENCY

AND POLITICAL INSTABILTY HAVE VITIATED THE INVESTMENT

CLIMATE FURTHER. ECONOMIC LIBERALIZATION AND THE

DECLINE IN RECENT YEARS OF VIOLENCE BY ULFA MILITANTS

HAVE REVIVED INVESTORS' CONFIDENCE TO SOME EXTENT AND

SPURRED A GRADUAL INCREASE IN INDUSTRIAL ACTIVITY.

3. IN JANUARY THIS YEAR COOPERS AND LYBRAND COMPLETED

ITS "INVESTORS' GUIDE TO ASSAM," WHICH WAS COMMISSIONED

BY THE ASSAM INDUSTRIAL DEVELOPMENT CORPORATION (AIDC).

THE STUDY, WHICH CLAIMS THAT ASSAM "HOLDS THE PROMISE OF

BEING THE GATEWAY TO SOUTHEAST ASIA AND A STRATEGIC BASE

FOR COMMERCIAL ACTIVITIES," REFLECTS THE EAGERNESS OF

ASSAM TO OBTAIN INTERNATIONAL PARTNERS IN ITS

INDUSTRIALIZATION EFFORTS. THE GUIDE EMPHASIZES ASSAM'S

STRATEGIC LOCATION AND ITS CLOSE PROXIMITY TO

BANGLADESH, BHUTAN, NEPAL AND BURMA, THROUGH WHICH IT

ALLEGEDLY COULD HAVE EASY ACCESS TO THE ASIA-PACIFIC RIM

COUNTRIES. IT ALSO HIGHLIGHTS ASSAM'S UNDENIABLY RICH

NATURAL RESOURCES.

4. THE STUDY PROFILES EIGHT SECTORS IN WHICH ASSAM HAS

SIGNIFICANT NATURAL RESOURCES AND MAY ENJOY A

COMPETITIVE ADVANTAGE. THESE ARE:

-- THE EXPLORATION AND DEVELOPMENT OF OIL AND NATURAL

GAS AND INDUSTRIES BASED ON THEM;

-- MINING AND MINERAL-BASED INDUSTRIES;

-- COAL MINING AND COAL-BASED INDUSTRIES;

-- AQUACULTURE;

-- PLANTATION AND AGRO INDUSTRIES;

-- TOURISM; AND

-- THE DEVELOPMENT OF INFRASTRUCTURE.

BRIEF DESCRIPTIONS OF THESE SECTORS FOLLOW.

-- EXPLORATION AND PRODUCTION OF OIL AND NATURAL GAS:

ASSAM HAS OVER 1.3 BILLION TONS OF PROVEN CRUDE OIL

AND NATURAL GAS RESERVES. (TOTAL RESERVES ARE

ESTIMATED AT 3.1 BILLION TONS). ASSAM 'S OIL SHALE

RESERVES ARE CAPABLE OF SUSTAINING CRUDE OIL

PRODUCTION OF 140 MILLION TONS PER YEAR FOR 100

YEARS. THE STATE HAS THE LONGEST CROSS-COUNTRY

PIPELINE FOR THE TRANSPORTATION OF CRUDE OIL TO

REFINERIES AND ONE OF THE LONGEST PETROLEUM PRODUCT

PIPELINES AS WELL. A FEW "BLOCKS" HAVE ALREADY BEEN

IDENTIFIED FOR OIL EXPLORATION BY PRIVATE INDIAN AND

FOREIGN COMPANIES, AND MORE ARE LIKELY TO BE OPENED

UP SOON. THERE IS SAID TO BE ENORMOUS POTENTIAL FOR

OIL AND NATURAL GAS-BASED INDUSTRIES.

-- OIL AND NATURAL GAS-BASED INDUSTRIES: ALTHOUGH

NATURAL GAS IN ASSAM IS RICH IN PETROCHEMICAL

FRACTIONS, PRESENT UTILIZATION IS LIMITED TO THE

MANUFACTURE OF METHANOL, FORMALDEHYDE, MELAMINE, UREA

FORMALDEHYDE, UREA AND LIQUIFIED PETROLEUM GAS

(LPG). POTENTIAL AREAS INCLUDE CONVERSION TO

LIQUIFIED NATURAL GAS (LNG) AND COMPRESSED NATURAL

GAS (CNG), THE MANUFACTURE OF SPONGE IRON, AND

DOWNSTREAM INDUSTRIES BASED ON A GAS-BASED CRACKER

COMPLEX.

-- MINERAL-BASED INDUSTRIES: ASSAM HAS HUGE RESERVES OF

MINERALS INCLUDING LIMESTONE (OVER 820 MILLION TONS),

CHINA CLAY (OVER A MILLION TONS); AND GLASS SAND

(OVER 8 MILLION TONS). OTHER MINERALS FOUND IN THE

STATE ARE MICA, SILLIMANITE, GYPSUM AND VARIOUS BASE

METALS. THE STATE ALSO HAS 10 BILLION CUBIC METERS

OF GRANITE.

-- COAL-BASED INDUSTRIES: ASSAM'S COAL RESERVES ARE

ESTIMATED AT 320 MILLION TONS. THE COAL CONTAINS

VERY LITTLE ASH, A HIGH LEVEL OF VOLATILE MATTER, AND

A SULPHUR CONTENT OF 4-5 PERCENT.

-- AQUACULTURE: ASSAM HAS TWO VERY LARGE RIVERS WITH

NUMEROUS TRIBUTARIES AND SOME 350,000 HECTARES OF

FRESH WATER BODIES THAT WOULD BE IDEAL FOR

AQUACULTURE.

-- PLANTATION INDUSTRIES: IN ADDITION TO TEA, OF WHICH

ASSAM PRODUCES SOME 360 MILLION KG, THERE IS

POTENTIAL FOR THE COMMERCIAL PRODUCTION OF MEDICINAL

PLANTS, AROMATIC PLANTS, RUBBER, AND BAMBOO AND OTHER

PLANTS FOR THE PRODUCTION OF PAPER.

-- AGRO-BASED INDUSTRIES: ASSAM, WITH ITS FERTILE LAND

AND VARIED CLIMATE, HAS GOOD POTENTIAL FOR THE

CULTIVATION AND PROCESSING OF A WIDE VARIETY OF

FRUITS, VEGETABLES AND SPICES, FLORICULTURE AND

SERICULTURE.

-- TOURISM: ASSAM (AND ITS NEIGHBORING STATES) LIE AT

THE CENTER OF ONE OF THE WORLD'S RICHEST

BIOGEOGRAPHIC AREAS. THE REGION IS EXCEPTIONALLY

RICH IN FLORA, FAUNA AND DIVERSE CULTURES. ITS DENSE

FORESTS, RIVERS, WILDLIFE SANCTUARIES AND SOME 20

GOLF COURSES OFFER ENORMOUS OPPORTUNITIES FOR

TOURISM. GUWAHATI, THE STATE CAPITAL, IS THE GATEWAY

TO THE OTHER NORTHEASTERN STATES AND TO BHUTAN. IT

COULD BECOME A GATEWAY TO BANGLADESH, BURMA AND CHINA.

-- INFRASTRUCTURE: ASSAM IS SEEKING PRIVATE INVESTMENT

FOR THE CONSTRUCTION OF HYDROELECTRIC AND THERMAL

POWER PROJECTS, TELECOMMUNICATION SYSTEMS, BRIDGES, A

RAPID TRANSPORT SYSTEM FOR GUWAHATI, AND A SATELLITE

TOWNSHIP. THE STATE ALSO WANTS HELP IN DEVELOPING

INLAND WATERWAYS FOR CARGO AND PASSENGERS. (THROUGH

AN AGREEMENT WITH BANGLADESH, CARGO CAN NOW BE

SHIPPED FROM ASSAM TO CALCUTTA BY A ROUTE THAT LINKS

THE BRAHMAPUTRA TO THE HOOGHLY BRANCH OF THE GANGES.)

5. INVESTMENT INCENTIVES. THE GOVERNMENT OF INDIA

OFFERS A FIVE-YEAR TAX HOLIDAY FOR INVESTMENTS IN ASSAM

(AND THE SIX OTHER NORTHEASTERN STATES). IT ALSO

SUBSIDIZES TRANSPORT OF RAW MATERIALS FROM THE ENTREPOT

TOWN OF SILIGURI IN NORTHERN WEST BENGAL TO ANY LOCATION

IN ASSAM (AND THE NORTHEAST). IN ADDITION, THE

GOVERNMENT OF ASSAM PROVIDES SEVERAL INCENTIVES

INCLUDING A SALES TAX EXEMPTION FOR THE FIRST 7 YEARS, A

POWER SUBSIDY OF UP TO RS. 3 MILLION (USD 86,000) PER

YEAR FOR 5 YEARS, AN INTEREST-FREE LOAN FOR SITE

DEVELOPMENT, AND A STATE CAPITAL INVESTMENT SUBSIDY.

6. COMMENT. THE COOPERS AND LYBRAND GUIDE, ALTHOUGH

PROFESSIONALLY RESEARCHED, SUFFERS FROM THE HYPERBOLE

AND WISHFUL THINKING COMMON TO SUCH GOVERNMENT-

SPONSORED STUDIES. THE STATE'S LAW AND ORDER SITUATION,

ALTHOUGH MUCH IMPROVED COMPARED TO THE WORSE DAYS OF

ULFA VIOLENCE IN THE LATE 1980S, IS STILL A SERIOUS

DETERRENT TO INVESTMENT. THE RECENT DEATH OF CHIEF

MINISTER SAIKIA AND THE ELECTION OF A NEW GOVERNMENT

HEADED BY A STATE-BASED PARTY HAVE INCREASED POLITICAL

UNCERTAINTY. THE UPSURGE IN ETHNIC CONFLICT IN THE

WESTERN DISTRICTS SINCE THE ELECTIONS HAS RAISED

QUESTIONS ABOUT THE ABILITY OF THE NEW GOVERNMENT TO

MANAGE THE STATE'S MULTIPLE INSURGENCIES. EVEN

COMPANIES (INCLUDING AMERICAN ONES) WHO ARE PREPARED TO

COPE WITH ASSAM'S LAW AND ORDER PROBLEMS FIND THE

STATE'S DISTANCE FROM INDIA'S MAJOR POPULATION CENTERS,

ITS WEAK TRANSPORTATION INFRASTRUCTURE, AND THE

GOVERNMENT'S POOR FINANCIAL MANAGEMENT TO BE OBSTACLES

TO PROFITABLE INVESTMENT.