Regional disparities are one of the most acute problems of post-1991 economic reform period. As a result of the partition of India in 1947 the former territorial, economic and cultural links of the northeastern region was broken up, leaving for communication with the main part of the country only a narrow corridor Siliguri. Nevertheless north-eastern states have a greater potential growth which is still not entirely used. In 2014 Modi has declared its intention to revitalize the Eastern direction of foreign policy under Act East Policy, highlighting the special role of the North-east in this process. Top priorities of the Narendra Modi government’s policy in the north-east of India are focused on creating favorable environment for attracting investments and doing business, reconstruction and construction of new bridges, national highways, all-weather roads between the most remote parts of the region, promotion of organic farming, and implementation flood control measures. The formation of state governments with participation of BJP reflected qualitative shifts in the political process, that can contribute to the overcoming of the backwardness of India’s north-east. New leadership of that states has set a goal of firming up of trade and economic linkages both within region and with the rest of the country. The interaction between Centre and states must play a decisive role in unlocking development potential of the region. The article analyzes the main advances in the different fields of socio-economic development and also explores prospects and challenges of transformational policy of the Indian government in the northeastern region.