Financial Daily from THE HINDU group of publications
Monday, Dec 26, 2005
Industry & Economy
Despite flooding, investments buoy TN hopes
Mr Raimo Puntala, Senior Vice-President, Global Operations and Logistics, Nokia, and the Tamil Nadu Chief Minister, Ms J. Jayalalithaa, in Chennai on April 6.
Chennai , Dec. 25
FROM the tsunami that devastated Tamil Nadu's coastal districts in end-December 2004 to the floods caused by unusually heavy rains during the Northeast monsoon this year, it has been quite an eventful 2005 for the State.
Between the tsunami and the floods this monsoon, the official machinery has been repeatedly tested not just in handling crisis situations, but also in routine administrative matters. There was a change of guard at the top Mr N. Narayanan took over on May 1 as the Chief Secretary, after Ms Lakshmi Pranesh retired.
Along with Mr Narayanan becoming Chief Secretary a move that was widely anticipated and one that industry feels happy about, there was a new team to handle the State's economy. Mr K. Gnanadesikan succeeded Mr Narayanan as the Finance Secretary and recently, Mr D. Rajendran assumed office as the Industries Secretary.
There may not have been a flood of investments into the State, but there has definitely been a steady trickle.
Starting with Hyundai Motor India's announcement of a second plant, where the Indian subsidiary of the Korean automobile company will invest close to Rs 2,000 crore, taking its total investment in the State to nearly Rs 6,500 crore, Tamil Nadu has attracted some notable investments. Another automobile company, BMW of Germany, has chosen Tamil Nadu to set up a plant to assemble knocked down kits of its luxury BMW 3 and 5 series cars. BMW's investment at Rs 110 crore may not be much, but it definitely brings with it a lot of prestige, which will only help the Statefurther its claim of being the Detroit of the region. Before settling on Tamil Nadu, BMW had looked at 30 sites in 13 States.
This is one example of how pro-active the Tamil Nadu Government was, as was explained by a BMW official shortly after the company signed an agreement with the Government. The official said the company was impressed with the speed with which the official machinery worked.
A chief executive of a leading multinational company is convinced that Tamil Nadu will increasingly become the destination of choice for the manufacturing sector, given its inherent strengths, particularly the bureaucracy.
At one point, the discussions with BMW were stuck on the quantum of investment that the company would commit on paper and how many incentives it would be eligible for.
The Government was able to impress upon BMW that it would have to commit a specific figure if it were to be eligible for assistance under the State's new industrial policy, which provides for structured financial assistance instead of the sales tax incentives that were in place earlier. BMW too saw reason and agreed with the hope that it would still be eligible for concessions if, due to market conditions, it has to delay its investments a bit.
The Government is hoping that Volkswagen, another German car manufacturer, would soon make up its mind in favour of Tamil Nadu to set up a plant. The company has been in discussions with the Tamil Nadu Government, as with a number of other States, notably Andhra Pradesh, since 2003.
While BMW coming to Tamil Nadu only adds to the list of automobile companies with plants in the State, it is the decision of Nokia, the Finnish telecom equipment manufacturer, to set up a plant near Chennai that is seen as a real breakthrough for the State. This is the first major hardware manufacturer in the State. Nokia was followed by Flextronics, a Singapore-based electronics hardware contract manufacturer, which will also set up a plant near Sriperumbudur, about 55 km from Chennai on the national highway to Bangalore.
A couple of Taiwanese hardware manufacturers are also interested in setting up plants in Tamil Nadu, of which one company, Fox Conn, has more or less decided to locate its plant near Chennai.
Apart from these fresh investments, existing units, both Indian companies and multinationals, are expanding capacities. Saint-Gobain Glass India completed a major expansion at its plant at Sriperumbudur this year.
These investments have also posed a problem for the Government land. It had built up a land bank in the second half of the 1990s, which helped in allocating land to investors. The Government is now contemplating acquiring more land between NH 45 and NH 5 for industrial use.
Besides the investments in the manufacturing sector, investments in the information technology and IT enabled services sectors continue to pour in, with more and more IT parks being built all over the city.
As a result of the boom in this sector, land prices on the Old Mahabalipuram Road have shot up, making it unviable for fresh investments. Therefore, the Guindy industrial estate, the Porur-Manapakkam area and even the Ambattur industrial estate have seen some IT parks come up.
This growth in the real estate industry has also seen the entry of developers from other parts of India, with DLF from Delhi and the Hiranandani group from Mumbai showing interest in property development in Chennai and its suburbs.
Land prices have shot up and an electronic auction conducted by Hong Kong and Shanghai Banking Corporation for a residential property owned by it in the upmarket Boat Club area saw a record price being quoted Rs 42 crore for the 28,000-sq ft property or Rs 14,883 a sq ft (the previous recorded transaction in the area was around Rs 6,000 per sq ft.)
The kind of growth seen in the real estate sector is posing enormous strain on the city's infrastructure and industrialists are worried that Chennai will go the Bangalore way.
They would like major efforts to be made in improving urban infrastructure, be it in Chennai or other major towns such as Coimbatore, Tiruchi and Madurai, which the Government is trying to project as tier II towns for IT.
Other traditional areas of strength for Tamil Nadu textiles and light engineering are also looking up, while the State continues to lead in wind energy capacity addition.
Commercial tax revenues continue to be buoyant, which helped the Jayalalithaa Government announce a number of welfare schemes that the opposition parties have criticised as those done with an eye on the elections due early next year.
In the midst of all this, the State's position on value-added tax is what worries industry the most.
With BJP-ruled States also saying that they will switch over to VAT by April 2006, Tamil Nadu and Uttar Pradesh will be the only States not adopting the new system. This, industry says, is hurting the manufacturing sector. However, with elections around the corner, it is unlikely that the Government will take a decision on this now.
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