Why Tamil Nadu is no longer one of India’s top 10 investment destinations

Tamil Nadu, which has in the past prided itself on being an automobile hub, has witnessed a sharp drop in investments over the past two years.
Why Tamil Nadu is no longer one of India’s top 10 investment destinations
Why Tamil Nadu is no longer one of India’s top 10 investment destinations
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As an investment destination, Tamil Nadu is a shadow of its former self. From being in the list of top 10 states in 2015, Tamil Nadu has fallen to the 12th spot, accounting for only 0.79% of the total investments across the country last year. Having attracted investments to the tune of Rs 3,131 crore in 2017, Tamil Nadu is not only behind neighbouring states like Karnataka, Andhra Pradesh and Telangana but also behind Madhya Pradesh, Odisha and West Bengal, as per the latest data compiled by the Department of Industrial Policy and Promotion (DIPP), which falls under the Union Ministry of Commerce and Industry.

According to the data, Karnataka topped the list of states, having received investments worth Rs 1.52 lakh crore in 2017 through 194 proposals. Karnataka constituted 38.48% of the overall investments in India, Gujarat came second at Rs 79,068 crore (20%), while Maharashtra attracted investments worth Rs 48,581 crore (12.29%) last year. Andhra Pradesh and Telangana rounded off the top five investment destinations in the country. As per DIPP’s figures, India received overall investments to the tune of Rs 3,95,296 crore through 1,972 proposals in 2017.

Tamil Nadu, which has in the past prided itself on being an automobile hub, has witnessed a sharp drop in investments over the past two years. From investments worth Rs 19,811 crore in 2015, Tamil Nadu saw a steep decline in 2016, when it received investments of Rs 6,172 crore. This figure has dropped further to Rs 3,131 crore last year.

So why is Tamil Nadu no longer an attractive investment destination?

Industrialists like Rafeeq Ahmed observe that a combination of political instability and lack of ease of doing business have contributed to Tamil Nadu’s fall in attracting investments. “People are not keen to do business here despite Tamil Nadu having talent – engineers, graduates. The power situation is also fine, there is no labour unrest and the other fundamentals are good. Getting approvals, however, remains a challenge especially in building construction – there is the problem of sand mining,” says Rafeeq, the former chairman of the Council of Leather Exports. 

Tamil Nadu’s loss is its neighbours gain, he says, pointing out, “Karnataka, Telangana and Andhra Pradesh are extremely aggressive states when it comes to encouraging investments – offering lots of sops.” Rafeeq adds, “People have no time now. They want to invest quickly. Tamil Nadu received 18 applications in the single window clearance. But only three have been cleared. At least 14 should have been cleared, if not all.”

K Saraswathi, Secretary General of Madras Chamber of Commerce and Industry (MCCI) states that the DIPP ranking may not be an accurate indication of the investment climate in the state. However, she admits, “Tamil Nadu has been a tougher place to do business. Over the last few months, there has been a hesitation in the minds of people as far as governance issues are concerned. We have given suggestions to the government including ensuring speedy clearances. Timelines have to be adhered to.”

Besides this, potential investors have also faced issues with tax regulators in the state, who have not been friendly, says Saraswathi.  The MCCI Secretary General notes that states like Andhra have been favoured owing to land availability, although much of the labour comes from Tamil Nadu. While stressing that things have to be implemented on the ground, she, however, points out certain positives in the present administration including accessibility. “Accessibility was less earlier. This has improved, there is access to ministers and bureaucrats now,” says Saraswathi. 

The opposition DMK, however, blames the AIADMK government for its failure in wooing investors. “The present dispensation lacks a coherent vision. It is all about making sure there is a good investment climate, helping industries acquire land so that they can set up. There have been no reform measures in the last two years. The government is concerned about its own survival,” argues Manuraj Shanmugasundaram, spokesperson for the DMK.

Tamil Nadu, he says, can no longer boast of being the Detroit of Asia, having lost out on a number of auto majors to states like Andhra that now has in its kitty – KIA Motors, Isuzu and Hero. “The existing industries are moving away. Tamil Nadu should have been the natural choice for the next phase, but this is not the case,” says Manuraj.

He further hits out at the Edappadi Palaniswami-led government for announcing the Global Investors Meet (GIM) for 2019, pointing out that out of the Rs 2.42 lakh crore of promised investments in GIM-1, the state government has managed to receive investments worth only Rs 62,738 crore. “Companies that came to GIM-I were low hanging fruit. But TN has still done so poorly to attract investments. What is the point of doing roadshows if no one is coming?” asks the DMK spokesperson.   

This dip in investor confidence is also reflected in the 2017 State Investment Potential Index compiled by the National Council of Applied Economic Research (NCAER), where Tamil Nadu dropped to the sixth position from its earlier rank of number 3 in 2016.  The index ranks states based on five pillars–land and labour, infrastructure, economic climate, governance and political stability, and business perception.

The index revealed that Tamil Nadu’s strengths are industrial parks, technically educated workforce and per capita GSDP (gross state domestic product). However, as far as its weaknesses were concerned, NCAER’s index states, “As with the other industrially-advanced state, Maharashtra, Tamil Nadu’s Achilles heel seems to be the poor perception of the State among investors.”

Tamil Nadu, along with Karnataka, was perceived to be one of the most corrupt states in the country, hurting investor potential. TN also scored low with firms surveyed reporting it as one of the most difficult states to acquire approvals. Apart from this, acquiring land for industrial purposes was also a hurdle.

In comparison, neighbouring states like Andhra Pradesh, Telangana and Karnataka provided a hassle-free experience for firms when acquiring land.

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