July 2014 \
Investment Opportunity

Currently, Tamil Nadu is one of the most industrialised states in India. The state has the highest number of business enterprises that is about 10.56 per cent and is second in total employment in India that is around 9.97 per cent. Many heavy engineering and manufacturing-based industries are located in and around Chennai which is why the area is also called "The Detroit of Asia". Global auto giants like Hyundai, Ford, BMW, Caterpillar and Mitsubishi as well as domestic heavyweights like MRF, Ashok Leyland, TI cycles of India, Mahindra and Mahindra, Royal Enfield, TVS and TAFE Tractors have their manufacturing units around Chennai.

To rehabilitate the slum inhabitants, the state has recently announced that under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM), 44,870 tenements would be constructed at a cost of Rs 2,434.67 crore as “integrated townships” in mega cities, namely Chennai, Madurai and Coimbatore. The Government has also declared the formulation of a new satellite township in 311.05 acres and construct about 12,000 residential flats at a cost of Rs 2, 160 crores at Thirumazhisai.

OVERVIEW OF THE INVESTMENT SCENARIO IN TAMIL NADU

Major Projects taken up by Tamil Nadu Government

The government has taken two major initiatives. First, the government has introduced new set of policies which are the New Industrial Policy 2014 and Sectoral Policies that includes Automobile Industry Policy and Bio-Technology Policy. These policy initiatives have been taken up by the state government to attract investment in the manufacturing sector. As far as the infrastructure is concerned is working towards the identification of the projects in the sector where the investment is required to check up the growth rate. A consultation study has been conducted to identify the steps that should be taken by state government should to increase the growth rate to somewhere around 11 per cent which would place Tamil Nadu above some middle income countries in terms of per capita income.

After the study, a report with the name of Document 2023 has been released to check the investment growth. The document two volumes - Volume 1 sets a goal about what needs to be done to check the growth rate and make state the most developed regions. While, the Volume 2 talks about specifically identified 217 infrastructure projects and many of these project are being given to Public Private Enterprises. The Government has also enacted an act called the Tamil Nadu Infrastructure Development Act 2012, it comes under a high level body called that Tamil Nadu Infrastructure Development board it looks forward to increase the participation on PPP basis.

The state’s industrial policy is significantly different from other states because of the innovative features included in it.

Tamil Nadu’s Growth Rate

Tamil Nadu economy is different from other states. The reason is that the economy of the state is mainly dominated by the manufacturing sector with about 27 per cent while the agriculture is hardly about 10 per cent. The scenario of Tamil Nadu is significantly different from the all India pattern, the economy of the state is export oriented. The exports of the state in the year 2013-14 were about 2 lakh crores and 35-40 per cent of the total industrial output is also exported. The Industry primarily depends on the manufacturing sector which depends on exports.

Looking at the growth pattern of the state, the economy of the state has gone down when there is a global recession because of its dependence of exports when the Tamil Nadu economy went gone down because our dependence on exports very high. When the market does well, the state’s economy economy grows much faster. So, if you look at the comparison between all India growth rate and Tamil Nadu growth rate, whenever India does well, Tamil Nadu does even better. Similarly, when the Indian economy has drops, the economy of Tamil Nadu also drops. Other industries like textiles, leather, IT, automobile industry also depend totally on exports. IT industry exports about USD 12 billion and the textile and leather are predominantly exported. More than 50 per cent of the electronic hardware is also exported from the state. According to the figures of last 9 years, Tamil Nadu’s average growth rate has been about 9.75 per cent while India’s growth rate was 7.96 per cent. The performance of Tamil Nadu has been consistent and higher than all India growth rate. The investor’s can definitely expect great returns from investment in Tamil Nadu.

Investment opportunities in upcoming Industrial Parks and Corridors

There are over a dozen of industrial parks coming up in the state and mostly in the Southern parts. Few other industrial parks in and around Chennai. The creation of more industrial parks is an ongoing exercise carried out by the Government. The state is currently in the process of developing two industrial corridors like Chennai Bangalore Industrial Corridor (CBIC) along with Japan International Cooperation Agency (JICA) and the Madurai-Tuticorin Industrial Corridor which will link Tuticorin, the port city with Madurai which is the largest city. There is a lot of work going internally for the development of these two corridors. There are various land banks being created around them for the development of new industrial parks, logistics parks and SEZs. The idea of creating land banks is that there should have enough land to meet the requirement of the industry and investors. The state will be capable of offering land to the investors as soon as it is required by them for investment.

Core Sectors

Tamil Nadu has historically been attracting investments in textiles, leather, automobiles, autocar components, finance and IT. Renewable energy is another sector where the state attracts a substantial amount of investment; also the automobile sector continues to remain one of our most attractive segments for our investors. Over the years, various automobile companies have been signing agreements with the state government for setting up large projects.

The core sectors of Tamil Nadu are:

1. Auto components

2. IT and ITES

3. Biotechnology and Pharmaceuticals

4. Heavy Engineering

5. Infrastructure

6. Electronic Order manufactures

7. Renewable energy

8. Aerospace

The textile industry of Tamil Nadu accounts for about 40 per cent of India’s spindle capacity. Since the sector is being expanded by the Government, there is immense opportunity of investments in the expansion projects. Tamil Nadu’s leather industry account for 40-45 per cent of India’s exports and hence has great investment prospects.

Potential Sector

The potential sectors being focused upon by the Government are the areospace, pharmaceuticals and biotechnology, the state is also focusing on chemicals and petrochemicals. Tamil Nadu Government is very proactively promoting the Petrochemical Investment Reserve (PCIR) in Tamil Nadu.

Sectors favourable for NRI investment

All the above mentioned sectors are favorable for both foreign investors and NRI investors. Besides that the automobile industry continues to remain a wise choice for NRI investors. Automotive parts sector, being the mother industry for manufacturing of vehicles is extremely attractive as the components can be bought from the vendors at very low prices. The investors also have a huge opportunity in the renewable energy sector, the government has recently introduced Tamil Nadu Solar Policy 2012 under which the state is currently promoting 3,000 MW of solar power projects all over the state. Besides these IT, textiles and pharmaceuticals continue to remain the major players of investment attraction. With Chennai being the second largest exporter of IT after Bangalore in India, the sector has fantastic investment. Of course food processing is one more area that the NRIs can look forward to invest in.

Future investment prospects in Power Sector

The state had made news because of the persisting power problem in Tamil Nadu but the scenario is different, the power problem has become a story of past. There has been a significant improvement in the power scenario and the power interruptions have become very few and the industries are getting continuous power supplies. The state has added about 3, 300 MW of capacity to its power supplies. However, another 3,000 MW is now under various stages of implementation and some of the projects are getting commissioned while some are in the process of completion. The state is also likely to add some more capacity of 1000-1200 MW by March 2015. The state is not only wiping out the problem of power but it will have surplus power supply. Tamil Nadu is the only state with such a huge capacity of about 19,000MW. Making it the largest power generator in India. There are various power projects that have been identified for Private Partner participation in State Vision-2023 document. So, investments in this sector will be highly beneficial in the short as well as long run.

NRI investment in Automobile Sector

The state has a huge automobile sector, it is one of the top 10 automobile clusters in the world and the largest in India. The sector’s production capacity at present is about 1.4 million cars per year and 361 thousand commercial vehicles per year. Yamaha is also setting up one of the largest factories in Tamil Nadu. The state also has 450 Tier 1 manufacturers and a huge component base. Tamil Nadu also constitutes about 35 per cent of India’s components production industry. The Government envisages making Chennai the largest automobile cluster in the world, this is the goal set by our Honourable Chief. The NRIs can benefit a lot by investment in the auto components sector or can become vendors for the manufacturing firms. The sector has amazing and consistent returns.

—Inputs from Mr Thiru M. Velmurugan, I.E.S, Executive Vice-Chairman, Tamil Nadu Industrial Guidance and Export Promotion Bureau Compiled by Misha Singh




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