Why are companies moving to Tamil Nadu

Written by Nirupama Subramanian | Sri City | Published: May 17, 2016 4:50:15 am

Located just across the border in Andhra Pradesh, 30 km short of Sriharikota, from Tada in Nellore to Chittoor, Sri City is a fast-rising symbol of Prime Minister Narendra Modi’s Make-in-India slogan.(Source: Sri City website)

THIS SPRAWLING 7,500-acre expanse, around 70 km from Chennai, is everything Tamil Nadu’s industrialists desire but do not have.

When businessmen talk about expectations from the next government, they point to Sri City, its palm-fringed entry, the smooth roads that will be expanded to three lanes on each side, the 24×7 power supply, the ban on labour unions and financial incentives.

Located just across the border in Andhra Pradesh, 30 km short of Sriharikota, from Tada in Nellore to Chittoor, Sri City is a fast-rising symbol of Prime Minister Narendra Modi’s Make-in-India slogan.

Last month, confectionary giant Mondelez International’s India arm, the makers of Cadbury’s chocolate, began operations in Sri City.

Spread over 134 acres, the May sun bouncing off the blue and white corrugated roofs of its new Rs 1,250-crore plant, it is billed as Asia’s largest chocolate factory, for both domestic and export markets. The company employs 1,600 people of which, as per Sri City rules, 10 per cent are from local villages.

Three weeks ago, Isuzu, which has an assembly plant near Chennai, operationalised a facility here, with a capacity for 50,000 vehicles, giving employment to 5,000 people.

Tamil Nadu was where Ford and Hyundai in the 1990s, and later Nissan, and a host of other auto majors flocked, for its industry-friendly policies, for the better infrastructure and its two seaports — Chennai and Ennore. Peugeot delivered the first reality check in 2011, choosing Gujarat, even though that packed up, eventually.

Early in 2015, Taiwanese company FoxConn closed down a facility in Tamil Nadu’s Sriperumbudur after Nokia, to which it supplied parts, pulled out over a tax dispute and labour unrest. Some months later, it chose to locate a massive mobile handset manufacturing plant in Sri City, employing 4,500 women employees.

Adding insult to injury, coaches for Chennai’s Metro are also being made in Sri City by Alsthom.

Several other majors have chosen the privately-owned, Andhra Pradesh-government backed, custom-built business park that includes a Special Economic Zone, a contiguous Domestic Industrial Zone, a Free Trade Warehousing Zone and an Electronics Manufacturing Cluster. It is within striking distance of Chennai and Ennore ports and the Chennai International airport. Big tracts of land inside Sri City have been earmarked for hospitals and “knowledge centres”.

Tamil Nadu is among the most urbanised of states, has an educated workforce, is the second biggest contributor to India’s growth, and at 11 per cent, is a significant contributor to the national industrial output. It is also ranked third highest in terms of cumulative FDI inflows from 2000 to 2014. But last year, it did not figure in the top ten states in the World Bank’s Ease of Doing Business list.

There has been such an erosion of Tamil Nadu’s reputation as one of the earliest Make-In-India states, well before Prime Minister Modi made the slogan his own, that it is easy to forget that Titan is a joint venture between TIDCO, the state government’s industrial development corporation, and Tata group.

Instead, what stands out is the virtually abandoned elevated expressway connecting two national highways to Ennore port, meant for freight traffic, begun during the previous DMK regime, and halted by AIADMK’s leader and Chief Minister J Jayalalthaa citing an alignment defect. The ensuing spat between NHAI and the state government saw the roadmakers threaten to close down the Chennai office.

Not surprisingly, the absence of major investment in Tamil Nadu over the last five years was one of the main talking points in the election. And industrialists and businessmen speak of Jayalalithaa’s centralised decision-making and her near-total inaccessibility.

Through the campaign, the DMK was not deterred by its own poor record in 2006-11, a term remembered for corruption and power cuts, in launching an all-out attack on the AIADMK for throttling business and industrial development, and for increasing unemployment.

“All big industry is fleeing to Sri City, because no one can meet Jayalalithaa. Even her Industries Minister is inaccessible… he does not make the decisions, in any case,” Pattali Makkal Katchi leader Anbumani Ramadoss told The Indian Express.

More than 1,000 km from Sri City, in western Tamil Nadu, in the knitwear and hosiery hub of Tirupur, garment manufacturers say that under the previous DMK government, the erratic power supply, coupled with the global depression, forced the closure of many units. The 2011 AIADMK government had resolved the power problem by buying electricity from private players.

But their biggest grouse with the Centre is for not reducing import duties on synthetic fibre, and some like N Chandran, chairman and managing director of Eastman Exports, one of Tirupur’s biggest integrated apparel units, say it’s the biggest problem now.

“The main challenge is the Centre’s fibre policy. Synthetic fibres make up 80 per cent of world demand. Indian exports are 80 per cent cotton. That is why we have just 3-3.5% share of the global market,” said Chandran.

The government is reluctant to lower duties to protect a couple of domestic players in the synthetic fibre sector, he says, but their prices were so much higher than world prices that it was unviable.

“Let them free up the fibre policy, then we will show how we can build capacities, add value to the imports and increase our exports, and generate lakhs of jobs,” said Chandran, whose Rs 1,500-crore company employs about 15,000 direct employees and an equal number indirectly.

Where the state government has disappointed is in local support. T R Vijay Kumar, owner of an export manufacturing unit and vice-chairman of the CII in the city, says plans to scale up with new technology and skills are still awaiting the government’s nod.

“We submitted two project reports to the government, but not a single paper moved in Chennai,” said Vijay Kumar, who supports the DMK.

Funding for projects proposed under a central government scheme has to be come from the state government, Centre and promoter. Vijay Kumar says the aim was to increase the sector’s domestic and export turnover from Rs 30,000 crore last year to Rs 1 lakh crore by 2020, with 1 lakh additional workers every year.

“The Medium and Small Scale Enterprises Ministry has already committed their share, but they have to get approval for the projects from the state government, which has not done it yet,” he said.

The city is bustling with 7,000 units, from those that make garments to dyeing, embroidery, and other ancillaries. Tirupur provides employment to six lakh people directly, and another two lakh indirectly.

About 70 per cent of these workers are women, and increasingly, the city is attracting workers from North India. Vijay Kumar says the city lacks the housing and medical infrastructure for such an influx. “Even to put up a streetlight, you needed approval from the top,” he said.

For Tamil Nadu, it’s a small mercy that Sri City does not have a garment hub.