How Tamil Nadu Is Silently Mopping Up Big Investments

Data from the Employees Provident Fund (EPF) on 25 May this year showed that 39.36 lakh jobs were created in the country’s organised sector in the second half of the last financial year that ended in March. A surprising revelation in the data was Tamil Nadu being second among the states in creating employment in the organised sector. Over 4.65 lakh people got jobs during this period in the state.

For those who have been viewing developments in the state with concerns over protests and violence in some parts dominating the political scenario, it could have been a surprise. But not to those officials who have been silently going about doing their job. “Between September 2017 and April 2018, we have created employment for 5.1 lakh persons in Tamil Nadu. We, as a state, may not be seen making big statements but we have been going about in our own way,” says M Velmurugan, Executive Vice-Chairman, Tamil Nadu Industrial Guidance and Export Promotion Bureau.

That Tamil Nadu means business in getting investments into the state is evident from the Edappadi K Palaniswamy government recalling Velmurugan from retirement this March. After having served the bureau for over two decades, he had left it in August 2016. The state government’s intentions are in line with what is happening to the industrial scenario. In the last four months, the state has been able to attract investments to the tune of Rs 45,000 crore between February and May. “All the investments will be in the manufacturing sector that has a tremendous employment potential,” says Velmurugan.

Tamil Nadu has been at the forefront of attracting foreign investments for over two decades now, and it has gone about silently driving home its advantages. The state was among the first to introduce single-window clearance for investors dating back to 1994, when American automobile company Ford decided to set up shop in Tamil Nadu. It was Ford’s request to have a single window so that it wouldn’t have to run helter-skelter to get clearance from some 45 departments, which have to give their approval.

The move proved to be successful with South Korean car manufacturer Hyundai, Japanese firm Nissan and other companies following suit. “For the single window clearance, Tamil Nadu government set up a committee in which officials of various departments were included. The company wanting to invest will make a presentation to the committee on the various regulatory compliances it had made. The committee would then give a composite approval that will allow it to go ahead with construction and other works relating to its unit going on stream.

“With computers and Internet now available all across, the whole process has been automated. Departments will have to raise their queries within 15 days and if there is no word in 30 days from any department, it is deemed as approval,” says Velmurugan.

The process of investment and doing business in Tamil Nadu has improved with the passing of the Business Facilitation Act, says Aubrey Daniels, Regional Director – Tamil Nadu chapter, American Chamber of Commerce in India. “The act stipulated a timeline for each process. There seems to be improvement in the governance. We are, however, yet to know if it has passed the test of fire,” he said.

In January this year, the ruling All India Anna Dravida Munnetra Kazhagam (AIADMK) government passed the Business Facilitation Act that will allow single point of receipt of allocation to get clearances required to set up or expand a company. The clearances are ones that would be required in normal circumstances too, including time-bound renewals. The act provides for grievance redress mechanism and penalising authorities for failing to act on time. The act was passed on the heels of the Union Ministry of Commerce and Industry mandating the Business Reform Action Plan last year that stipulated states to have similar legislation by 31 October 2017.

Under Business Facilitation Act, 10 approvals for pre-establishment of an industry have been integrated in the Tamil Nadu Industrial Guidance and Exports portal. Though the act is for all industries, including large, medium, small and micro scale, initially it is for large-scale units.

The ease of doing business in Tamil Nadu has improved also with accessibility to bureaucrats improving. Earlier, during the rule of J Jayalalithaa, entrepreneurs had to wait to meet her. They couldn’t directly meet any bureaucrat. Now, things have changed and businessmen are allowed to meet bureaucrats.

“Things are comparatively better now. Multi-national companies are looking to expand in the state,” says Aubrey.

Velmurugan said Tamil Nadu has been able to attract global Fortune 500 companies and one of them is now set to implement its sixth phase of expansion. Agrees an official with a business chamber pointing out that many companies that had set up shop in Tamil Nadu are now setting up back-end and other offices. “Even the closed Nokia facility could be in operation soon with the Centre agreeing to some requests from the company. An announcement is due soon,” said the official, adding that the business climate has improved in some areas, while there is scope to improve in other areas.

According to N Shekar, President, Aerospace Industry Development Association, policy facilitation has been enacted because the state government has realised that the expected growth is not happening and it is beginning to lose investments. “After the political climate has settled, Tamil Nadu is looking at improving investments. The Business Facilitation Act and the process to apply online have been introduced. But how many will choose the process and how much success will it achieve – we have to see,” he said.

Shekar said Tamil Nadu’s policy framework is good and the state government is trying to create a conducive atmosphere for medium and small enterprises. “The government is trying to promote aerospace and defence industrial policy. It has to come up with industry-specific incentives. Our association has given inputs that has been circulated within the government but it has been pending for the last two years. Seriousness is lacking,” he said.

Karnataka and Andhra Pradesh have announced incentives, while Uttar Pradesh has drafted one and Telangana is set to announce its policy. “We expect Tamil Nadu to announce its industry-specific policies before the Global Investor Meet in February next year,” Shekar said.

According to R Sampath Kumar, Co-founder and Chief Executive Officer of BeWo Technologies, the state government is trying to facilitate a policy advisory committee that will be backed by organisations like the Azim Premji Foundation.

Welcoming the initiative of filing a single application for investments, Kumar says people will have to be aware and educated about it. “There is no purpose if only 10 per cent of the industrialists are aware of such initiatives. Industrialists should be able to spend at least 95 per cent of their time to improve their business,” he said.

Velmuruguan says that Tamil Nadu has been conscious about the industries that it wants. “Automobile, automobile components and electronics are the industries we have focused on. Traditionally, we have been strong in these sectors,” he says, pointing out at companies like TVS Motors, Rane, Amalgamations Group and Motherson function in the state since 1950s and 1960s.

“These companies supply 23-24 per cent of India’s automobile component products and traditionally, the state has been strong in the automobile and manufacturing sectors,” Velmurugan said, adding that Chennai has emerged as one of the world’s leading research and development (R&D) centre for automobiles.

“Ford will have one of its largest facilities in the world providing employment to 12,000 people. Daimler has also set up an R&D centre in Chennai,” he said.

Velmurugan said Chennai offers one of the best infrastructure to investors in India. “There are three major ports, an international airport and good roads that connect to all parts. Chennai’s air cargo is the second largest in the country,” he added.

Be it Fortune 500 companies or multi-nationals, they go by their impression of a particular place. “Some states could be saying they are offering this or that. But these companies make their own SWOT (strength, weakness, opportunities and threat) analyses and due diligence before deciding to invest in a particular state or place. Some of these companies have found Tamil Nadu better,” he said, pointing out that a multi-national company scouted for a place to put up its facility since 2014 before deciding to invest in the state.

Tamil Nadu offers incentives to investors based on the employment opportunity they create or offer. “Take Hyundai, for instance. It has 703 vendors supplying components and 115 of them from South Korea. Nearly 85 per cent of the automobile maker’s components are made in Tamil Nadu by these vendors, most of who operate around the company’s vicinity in clusters.

Shekhar agrees that setting up trading or industrial clusters will help. “Clusters will help improve business. In the US, there are many aerospace parks with governments coming up with enabling policies to invest and providing infrastructure. The state government should invite and bring large and smaller players together to work in clusters,” he said, adding that an attempt is being made to create such a concept in Chennai.

Velmurugan says creation of parks or clusters are working for vendors. For example, Tata Realty and Infrastructure Limited is constructing an info-tech park at Taramani in the heart of Chennai. The park has already been sold out.

But business chambers say that some of the projects are still progressing in fits and starts. Tamil Nadu will have to bring people from the private industry like Telangana to ensure these projects are completed on time and are able to attract good investments.

Kumar feels that the state can do much more if the authorities oversee progress of projects and investments rather than act as controlling agents, resulting in a painful experience for investors.

But for now, industrialists and business chambers are happy that they are getting access to bureaucrats and ministers. And Tamil Nadu would like to play to its strength by welcoming investments in sectors like manufacturing, textile, leather, automobile and its components.