- Tamil Nadu faces intense competition from Telangana, Andhra Pradesh
- Political Shifts and GST have dented the Tamil Nadu's business momentum
- Some industries have already shifted from Tamil Nadu to other states
Nicknamed the "Detroit of India" for its auto industry Chennai is at risk of taking on another characteristic of the American city -- the demise of a manufacturing powerhouse. For India as a whole though, the ascent of less developed states could spell a future of more balanced, sustainable growth where regional rivalries fuel productivity gains, much as they have in the other giant economies of the U.S. and China.
"For a host of reasons, parts of South India developed more rapidly than the northern states post-independence," said Shailesh Kumar, senior Asia analyst at Eurasia Group, a political risk firm. "This trend may now be changing on account of the government's push to have states compete for business and investments, with the goal that in the end all of India will benefit. Andhra Pradesh and the newly-formed state of Telangana are among the fiercest competitors for new industry. With huge tracts of rural land available, they can bid aggressively for new industry," said Venu Srinivasan, Chennai-based chairman of Sundaram Clayton, majority owner of TVS Motor Co. Ltd. "The growth in Andhra and Telangana is amazing," Srinivasan said.
Chief Minister Chandrababu Naidu is tapping into Andhra Pradesh's tech prowess to try and make their built-from-scratch capital Amaravati a Singapore-style "fintech" center of India. "This is our strength," said J.A. Chowdary, the state's special chief secretary.
"India's states, particularly Andhra Pradesh and Telangana, are "engaged in a very healthy sort of competition, in terms of governance in general, in terms of attracting investment, in terms of building infrastructure," said Viswanathan Raghunathan, a business professor and author based in Hyderabad.
For Prime Minister Narendra Modi, more balanced growth across the nation of 1.3 billion would help fulfill his 2014 campaign promise to bring economic development to all Indians -- a pledge now under pressure from a lack of job creation. But as a former chief minister himself, Modi knows competition between states can lead to new investments and job creation, and he has tried to level the playing field by implementing national policies such as GST.
That's little comfort to businesses in Tamil Nadu, India's most industrialized state and long a destination for global manufacturers. Political shifts and policies such as the GST have dented the region's momentum, while a drop in remittances from workers in the Gulf has been most notable here.
"The south was a powerhouse for industry," said N.K. Ranganath, managing director of Grundfos Pumps India Pvt. Ltd., a division of Denmark-based Grundfos AS, in his Chennai office. "But over a period of time, that is kind of diminishing."
Tamil Nadu's industries minister, M.C. Sampath, said it was only a "rumor" that industries were leaving his state. "We are alert," he said in an interview on Nov. 6, citing a planned investment by PSA Group, the maker of Peugeot and Citroen cars, in his state. "This is the best place to do business in the country. Planned investments in Tamil Nadu still totaled $5.7 billion since 2015, with a recent uptick "despite ongoing political uncertainties," according to global real estate firm Jones Lang LaSalle Inc.
Southern states -- Tamil Nadu, Andhra Pradesh, Telangana, Kerala and Karnataka -- have long enjoyed better social indicators than poor northern states such as Bihar or Uttar Pradesh. Numbers tell the story: Andhra Pradesh, with a population of 50 million, has more factories than Uttar Pradesh, home to more than 200 million people. The challenge they face is the same for fading industrial regions the world over -- to shift from lower-wage assembly to higher-value manufacturing and research and development.
"You need to move up the value chain," said Jayan Jose Thomas, an economist serving on Kerala's planning board. "That transition is not easy."
Even in the south's famed IT outsourcing industry, all is not well. Worth $154 billion in 2017, according to the National Association of Software and Services Companies, the sector has been hit by job losses in some of its largest firms.
Some blame US President Donald Trump's attacks on the H-1B visa, the gateway for a steady stream of IT professionals to the U.S. Others put it down to uncertainty about the effects of the policy changes and the shift to automation and focus on higher-value work.
V.P. Senthil Kumar, whose firm provides IT hardware to firms including Hyundai and Tata Consultancy Services, said business crashed 80 percent since the GST introduction. Hundreds of products he supplies fall under different rates, including an 18 percent tax for monitors smaller than 17-inches and a 28 percent rate for larger ones.
"Nobody wants to invest because there's no clarity," Kumar said.
For some, the transition up the value chain means hiring less people -- a solution that compounds India's low-and-under employment problem.
Virendra Bhayani, whose family owns Bhupendra International, an exporter of plastic housewares, installed expensive machinery and now employ just 15 workers, down from 30.
"We are in a transition," Bhayani said. "The industry is going through a lot of changes."
(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)
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