Event ReportsPublished on Apr 20, 2018
'Governance issues' key to Tamil Nadu’s economic growth: Expert

Tamil Nadu was a powerhouse of industry. Now the impression is that it is standing still. “But is it correct to say Tamil Nadu is losing it?” asked Sushila Ravindranath, Consultant Editor, The Financial Express, speaking at a weekly Interaction  of Observer Research Foundation, Chennai Chapter, on 7 April, 2018.

Initiating a discussion on ‘Tamil Nadu Economy’, Ravindranath pointed out that the State had been dealt many ‘blows’ over the last few years – beginning with the Chennai floods (2015), Cyclone Vardah, preceded by then Chief Minister Jayalalithaa’s long hospitalisation and death (2016) and the political instability, marked by the change of two chief ministers in as many months (early 2017), and the cracks in the ruling AIADMK. Apart from these, there were external factors too like demonetisation and GST, which affected the small and medium enterprises (SME) the most. In Tamil Nadu, the SME sector is seen as an ‘engine of growth’, the speaker pointed out.

Despite these adversities, Sushila Ravindranath felt that if things were happening in each industry. However, one could not deny that the image of Tamil Nadu as one of the fastest growing and most dynamic States in the country, comparable to Gujarat, was under attack. If Tamil Nadu wanted growth and prosperity, important questions needed to be asked of each industry and answers found, she said.

Many changes

In the IT industry, it was important to acknowledge that many changes were taking place, not just in India but the world over. Coding itself was undergoing massive changes. In this context, Ravindranath wondered whether Tamil Nadu politicians understood the changing realities of AI and robotics and if so, what steps had been taken to adapt to these developments?

IT was an important industry for Tamil Nadu, employing 300,000 people (direct employment) 700,000 (indirect employment). However, it has not been providing as many jobs as it used to. This was something that should concern the government and Ravindranath recommended more research should be done in this area, before pronouncing a verdict either way.

Lack of data and proper analysis was a major drawback in Tamil Nadu, along with the attitude that research is not necessary. The speaker regretted that “In Tamil Nadu, we don’t study changes. We sit on vast quantities of data but we don’t analyse it. Or, that is the impression.” Besides, there were rumours of capital-flight and investors fleeing, and yet there was very little data on the major problems facing the state’s economy. “Are we losing jobs? Are we leaving IT? There are no answers. Tamil Nadu remains extremely under-researched,” Ravindranath criticised.

Losing out

In the manufacturing sector, it was clear Tamil Nadu was lagging behind neighbouring Andhra Pradesh and Telengana.  According to data released by the RBI, Tamil Nadu has recorded the lowest growth in manufacturing, a mere 1.65 percent over last year, compared to 10.30 percent in Andhra Pradesh and 7.1 percent in Telengana. The impact of this slowdown in manufacturing was seen the most in construction, which is another major job-providing industry.

The non-availability of sand, owing to non-availability and environmental restrictions on the home front and regulations on imports, has further affected construction. The impact of the Real Estate Regulation and Development Act (RERA) is unclear, as yet. Here, again more research was needed. She however felt that while it faced many challenges, one positive was that the real estate sector in Tamil Nadu had not become speculative.

‘Corrupt beyond redemption’

Sushila Ravindranath lamented that Tamil Nadu suffers from a reputation of being corrupt beyond redemption. Various studies and investment surveys found Tamil Nadu to be amongst the most corrupt in India. The NCAER State Investment Potential Index, which graded states on labour, infrastructure, economic climate, political stability and governance, and perceptions of a good business climate, found Tamil Nadu and Andhra Pradesh reported high on corruption issues.

While there was no labour unrest in Tamil Nadu, which should be seen as a positive, acquiring land and getting clearances remained a nightmare according to investor surveys, especially in the construction sector. Sushila Ravindranath saw a direct link between political instability and poor perception amongst investors. She asked: “Is it realistic to expect major investment when Tamil Nadu has been undergoing political crisis?”

However, Sushila Ravindranath, insisted it was not all doom and gloom. It was unfair to paint with a broad brush and to assume Tamil Nadu was losing the game in terms of economic growth. Beyond the rumours of investors fleeing, it was difficult to ignore certain facts, of new investors coming and foreign diplomats certifying the investment climate in the state, calling it “the preferred destination for starting new ventures” as well as Tamil Nadu being a world leader in renewable energy.

According to reports from the Global Wind Energy Council, in 2017 only five European nations plus the US, Canada, Brazil and China have larger installed wind power capacities than Tamil Nadu, put at 7.9 gW, making the state a ‘champion of green energy’. An analysis by the Institute of Energy Economics and Financial Analysis (IEEFA) concluded that as a proportion of its overall electricity-generating capacity, Tamil Nadu’s renewable energy puts it among the best countries and states in the world.

Other positives for Tamil Nadu’s growth include the recent announcements of FDI investor interest in the state, and the state government planning the second ‘Global Investors Meet’ in January 2019. Following the investors’ meet announcement, Industries Minister M C Sampath led a high-level business delegation to Japan, to further promote Japanese investments in Tamil Nadu. With close to 600 Japanese companies operating in the state, it is considered to have the most potential for Japanese investments.

‘Not entirely correct’

Supported by good infrastructure, with airports in every major city, and more importantly ports in Chennai, Ennore, Nagapattinam and Thothukudi, good rail and road connectivity, Tamil Nadu is a favourable destination, often preferred for these reasons to neighbouring states, the speaker said. It has already the maximum number of factories in the country – 16 percent of the total, according to RBI.

To conclude, its edge were not entirely correct. However, complacency over its position as the ‘Detroit of Asia’ would be its downfall. The state government could not expect things to remain static. The state is not going to be able to simply retain its edge without adapting to changes.

In every industry, there were new and crucial challenges being thrown up. Several changes were taking place in technology both in the country, and the world at large. As a result, industry is in a state of transition. Woefully, in Tamil Nadu it appeared, there was very little understanding of these and other changes, disadvantaged by pitifully scarce data and research into these areas.

Other neighbouring states were already assessing the challenges, undertaking reforms and moving ahead in many areas. Compared to neighbouring states, there were no major reforms in the last few years in Tamil Nadu, especially in terms of granting industry clearances. “Tamil Nadu might have been very competitive, but it cannot expect to remain that way, or that the rest of country to stay where they are,” warned Ravindranath. In this context, she added: “Ultimately, how Tamil Nadu stays ahead in the future is a matter of governance.”

This report was prepared by Dr. Vinitha Revi, Associate, Observer Research Foundation, Chennai

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