The Dravida Munnetra Kazhagam (DMK) government in Tamil Nadu, led by Chief Minister M.K. Stalin, has managed to bring in 18.34% more of foreign direct investment (FDI) in the April-September 2021 period, over the corresponding period of the preceding year.
The total FDI inflow in the said period was Rs.8364 crore and the April-September 2020 figure, Rs.7000 crore.
The Stalin government assumed power on May 7, 2021 after defeating the DMK’s main opponent, the AIADMK.
Tamil Nadu is in fifth position in the country in terms of FDI inflow, and the state intends to build a $1-trillion-strong market by 2030.
The government has set up an eminent advisory panel consisting of Nobel-laureate Esther Duflo, Professor of Development Economics at MIT; former RBI Governor Raghuram Rajan; former Chief Economic Advisor Arvind Subramanian; Delhi School of Economics Professor Jean Dreze; and former Union Finance Secretary S. Narayanan. The panel’s mandate would be to submit recommendations to the government on improving the economic situation of the state.
Prof. Duflo and her husband and co-laureate, Abhijit Banerjee, who won the Nobel in 2019, had also been advising the TN government previously. The Finance Minister, Palanivel Thiagarajan, is an MBA from the Sloan School of Management and a PhD from the State University of New York at Buffalo. He was also an investment banker.
Why Tamil Nadu
The state’s vast natural resources, its available land area, human resource, and a cooperative government makes it an ideal destination for foreign investors. Recently, the TN government had brought down the price of land in Sidco industrial estates to enable the growth of micro, small, and medium enterprises (MSMEs). Tamil Nadu’s economic activity is mostly centred around the MSMEs’ service and production sectors and agriculture.
FDIs form 14.9 per cent of the total investment inflow into the state. In 2019-20, the inflow was $26000 crore. In terms of GDP contribution, TN is at the second place after Maharashtra.
Tamil Nadu is home to 44 of India’s most-valued 500 companies. The 44 include Titan, Ramcharan and Co, Apollo Hospitals, Cholamandalam Investments and Finance, Ashok Leyland, Zoho Corporation, MRF, TVS Motor Company, Hatsun Agro Products, and Tube Investments of India.
Tamil Nadu witnessed fast-paced changes and was quick to reap the benefits of liberalisation in the three decades that followed. TN also earned a respectable position as an investor- and industry-friendly state. For a break-up, 45 per cent of economic activity of the state is in the services sector, 34 per cent in production, and 21 per cent in agriculture. Tamil Nadu is a hub of industrial production in the country, especially in the automotive and electronics segments. TN boasts of hosting India’s largest tyre manufacturers and being the second-largest electronic hardware-producing state in the country. TN is first in terms of wind energy production.
The textile sector in TN is the third-largest taker of FDIs in the country. Over 75 per cent of powerloom-produced textiles is exported from the state. In 2018-19, TN’s export constituted 9.25 per cent of the country’s total outgo of goods. The automobile export from the state forms 45 per cent and automobile components, 35 per cent of the national figure. Tamil Nadu also has set up 41 special economic zones, 39 industrial clusters, and five sector-specific corridors.
Aerospace and defence
In the latest count, Tamil Nadu has 120 aerospace component makers and over 700 distributors. The government intends to allow 100 per cent FDI in the sector by 2025 and create a $500-crore export market. The thinking is that foreign investors would also flock to the state as the government has already earmarked Rs.3100 crore for a defence industrial corridor.
From an investor perspective, the state is highlighting opportunities in maintenance, repair, and overhaul (known as MRO in aviation parlance), setting up of flying schools, and expansion and renovation of airports. The investors will get technical support from the specialized establishment called Advanced Computing and Design Engineering Centre (ACDEC). Reportedly, an MRO facility is coming up in Chennai, too.
Tamil Nadu’s output in the food processing sector comprises 8 per cent of the national figure. The units are looped into the network of agriculture research centres and colleges. Plans are afoot to set up at least six mega food parks and eight agro-processing clusters.
Tamil Nadu is the highest producer of mangoes, plantain, papaya, rice, maize, coconut, groundnut, cashewnut, beans, and grape. The state is the second-highest producer of eggs and poultry birds; third in tea and coffee; and fourth in fishing. Foodgrain production has consistently been touching the 10-lakh crore-tonne mark in the state. Multinationals and big national companies in the sector function out of Tamil Nadu and some of these are Hindustan Unilever, Suguna, ITC Ltd, Tata Coffee, Britannia, Nestle, Pepsico etc.
Tamil Nadu is easily counted in among the 10 best automobile hubs in the country. The components of two-, three-, and four-wheelers, and electric vehicles are produced in the country. Over 1,300 units produce components for trailers and semi-trailers. Companies like Hyundai, BMW, Renault-Nissan, TVS Motors, Yamaha, and Royal Enfield have units in Tamil Nadu.
The Centre has allowed 100 per cent FDI in the automobile sector in the automatic route. This means no prior permissions from the RBI or the government. By 2026, the indian auto sector could be worth $30,000 crore, as per estimates.
In terms of sale of chemicals and petroleum products, Tamil Nadu ranks sixth among states and the production accounts for 6 per cent of national output. There are 2588 companies in this sector and around 8000 units in the polymer sector. Altogether, the micro and mini units in the sector employ 10 lakh people. The state has been looking for investments in the petroleum and refineries sector.
Electronics and hardware
Some of the big names in electronics have set up shop in Tamil Nadu and hardware like desktops, computers, printers, and servers are produced here. The state contributes 16 per cent to the national sectoral output and is the third major exporter of electronic goods.
The state has two special economic zones for electronics companies, at Sriperumbudur and Oragadam. Tamil Nadu ranks second in smartphone use and internet subscriptions in the country. Companies like Panasonic, Dell, Hitachi, Nokia, and Toshiba function in Tamil Nadu.
Trailblazer in IT
Of the total IT investments in the country, Tamil Nadu has secured 11 per cent. The capital city of Chennai is deemed as a SaaS destination and outsourcing hub. Frontline software and product companies like IBM, Accenture, HCL, Infosys, Amazon, and Cognizant have considerable presence in the state. The state-owned Electronics Corporation of Tamil Nadu (ELCOT) has developed eight IT parks on 1321 acres of land. In 2017-18, IT exports touched $1,500 crore and FDI was $600 crore.
A helping hand
The TN government’s decision on December 7 to reduce the price on Sidco plots is seen as a step to help small investors, in the wake of COVID. The cost of one acre of plot in Uthangarai industrial estate in Krishnagiri district came down to Rs.38 lakh from Rs. one crore, it lowered to Rs.81 lakh from Rs.3.5 crore in Kumbakonam; Nagapattinam, Rs.2.5 crore to Rs.85 lakh; and in Coimbatore’s Kurichi industrial estates the price came down to around Rs.4 crore from almost double that.