Pandemic slowed Tamil Nadu’s economic growth, now it can ill-afford poll freebie culture

Economists are concerned about high cost of freebies since pandemic has hit growth. Industry experts want new govt to focus on MSMEs & ease of doing business.

File photo of former Tamil Nadu CM Edappadi K Palaniswami during the opening of Amma mini-clinic in Chennai | ANI Photo

Chennai: Tamil Nadu’s elections are synonymous with a freebie culture, which political parties defend as welfare schemes for social welfare but most others see as dole.

The 2021 assembly elections, for which polling is set to be held on 6 April, are also loaded with freebies, with parties promising allowances for homemakers, bus subsidies, free washing machines and LPG cylinders.

Tamil Nadu is second only to Maharashtra as the most industrialised state and has the second largest economy in the country. Home to all sorts of industries and a base for manufacturing, the state is known in the West as ‘India’s Detroit’, for its automobile industry, and ‘Manchester of South India’, for its large textile industry. It has also been a hub for pharmaceuticals, electronics and leather.

And economists and industry representatives are worried that after a year-long pandemic-induced lull, these freebies will only push the state economy down.

Dr K.R. Shanmugam, director and professor at the Madras School of Economics, explained that though freebies are not new to the state, this time, the trend has only risen.

“The revenue expenditure alone is Rs 2.5 lakh crore, and the total expenditure announced in the interim budget was approximately Rs 3 lakh crore. If one looks at the household allowances promised by parties, they would amount to Rs 40,000-45,000 crore, which is one-sixth of the budget — a very large figure,” Shanmugam explained, adding that if parties gave freebies to “undeserving people”, they would curtail development and creation of infrastructure in the state.

Tamil Nadu is estimated to witness a growth rate of 2.02 per cent in 2020-21, compared to 8.17 per cent reported in 2019-20, though the state is registering positive growth compared to the rest of the country, which is estimated to see -7.7 per cent growth. However, in 2021-22, the state is estimated to have an overall revenue deficit of Rs 41,417.30 crore and fiscal deficit of Rs 84,202.39 crore, according to the interim budget.

Vidya Mahambare, professor of economics at Chennai’s Great Lakes Institute of Management, referred to Tamil Nadu’s economy as a “true success story” which has seen long-term growth.

“The state’s average incomes are fairly high and income inequality is much less. It has balanced development of both the manufacturing and service sector. However, the area which needs attention is employment and skilled jobs as the local population is highly educated,” Mahambare told ThePrint.

Auto industry shifting focus to e-vehicles

It has been reported that by this year, India is expected to emerge as the world’s third-largest passenger vehicle market. The industry has seen an upswing in car sales after the lockdown, having come off a trough in 2019. 

But e-vehicles seem to be the way going forward in the largest automotive corridor in India, Tamil Nadu, considering the Narendra Modi government’s aim that by 2030, 70 per cent of commercial cars, 30 per cent of private cars, and 80 per cent two-wheelers sold in India will be electric.

The e-vehicle ecosystem in Tamil Nadu had got its first boost in 2019, when e-scooter manufacturer Ather Energy announced the setting up of its factory in Hosur, where more than 4,000 employees would be trained to work at the plant.

The AIADMK government under Chief Minister Edappadi K. Palaniswami, in a bid to increase revenue in December 2020, signed 18 memoranda of understanding, raking in Rs 19,995 crore in investments, with the potential to create 26,509 jobs. This included Ola Electric Mobility’s electric two-wheeler manufacturing unit at Hosur, with an investment of Rs 2,354 crore, as well as a new industrial policy to incentivise emerging sectors.

Then, in February 2021, Ampere Electric, the wholly-owned electric mobility subsidiary of Greaves Cotton announced a phased investment of approximately Rs 700 crore in the state, with plans of setting up an e-mobility manufacturing plants in Ranipet.

Hyundai Motors, which runs the largest automobile plant in the state and the second largest in the country, is also looking to switch to manufacturing e-vehicles in the future.

“The way forward is e-vehicles, definitely. But the investment in this ecosystem needs to be far greater in Tamil Nadu,” Adithya L., assistant manager at Hyundai Motors India, told ThePrint.

He added that the infrastructure for e-vehicles in terms of charging and disposal of vehicles needed to be developed far more than it currently is, or else the switch to e-vehicles could be counterproductive.

“People will be disposing e-vehicle waste in the ocean and burning lithium to charge these vehicles. While investment has come on board for e-vehicles, there needs to be a clear policy to ensure their smooth roll-out,” Adithya added.

And despite all these investments, neighbouring Karnataka is emerging as a bigger e-vehicle hotspot as popular international EV maker Tesla has entered India by setting up a plant near Bengaluru.

What recovering textile industry needs

Tamil Nadu’s textile industry was badly hit by the Covid-19 pandemic — the Tiruppur-Coimbatore corridor, known as the textile export hub of India, came to a near-standstill.

It was reported in March 2020 that the textile industry in Tiruppur alone was expecting to see a loss of Rs 15,000 crore.

Now, though the industry has resumed operations, A. Sakthivel, chairman of the Apparel Export Promotion Council (AEPC), a central body under the Ministry of Textiles, said that the price of yarn, which had increased only in India, needed to come down as it was affecting deliveries and cartelisation.

“The state and central governments need to intervene and fix this,” Sakthivel said.

He also asked for a separate export promotion board, which would include stakeholders from the textile industry, to decide on Tamil Nadu’s export policy, and for the state government to allot land to build export houses.

MSME sector needs boost

According to Dr S. Chandrakumar, chairman of the Confederation of Indian Industry’s council for Tamil Nadu, the staggered pace of resumption of industrial activities after the lockdown have started picking up, though he pointed out that a few industries like leather, concentrated in Ranipet, and hospitality had been badly hit

But the main sector the incoming government would need to focus on, he said, were smaller enterprises and industries.

“They suffered a lot more as the larger enterprises could take the hit. So, larger players should not just think about themselves, but take the smaller enterprises along with them. However, that can only be facilitated by the government,” he said.

The CII has proposed to the state government to aid MSMEs through a ‘Smart Manufacturing Plan 4.0’, which would facilitate big industries supporting smaller industries.

Meanwhile, P. Anbalagan, chief of the Tamil Nadu Small and Tiny Industries Association, an apex body of MSMEs in the state, laid down a three-step roadmap that the new government of Tamil Nadu should follow to improve their situation.

The first step is a clear policy for single-window clearance for all licences. Although the state does have a policy, Anbalagan said it was not properly implemented. “The more delays there are in getting licences, the higher the cost of doing business, which will dissuade people from coming to Tamil Nadu,” he explained.

The second step is to streamline town-planning approval for building construction. “Currently, the approval from various local bodies is very tedious, and needs to be simplified for smaller industries,” Anbalagan continued, adding that the third step is a lower power tariff for micro and cottage industries, which is currently at Rs 5 per unit.

Another important aspect he pointed to was the micro and small industries should be categorised separately from medium enterprises, as they end up with most benefits.

Infrastructure problem

Prof. Mahambare said the new government doesn’t need to interfere at the sectoral level as much as in fixing the state’s infrastructure, as there is a “perpetual water and electricity problem”, which raises the cost of doing business and gives entrepreneurs second thoughts.

“If they fix this, the rest will work itself out. The government mainly needs to work on the ease of doing business,” she said.

Prof. Shanmugam, meanwhile, added that the focus area should be agriculture, which involves 70 per cent of the state’s population.

“Development of farming practices needs to be looked at, along with providing irrigation and availability of water for farming. They also need to properly implement the river-linking project,” he said.

(Edited by Shreyas Sharma)