The state is making a determined bid to position itself as the auto production hub of Asia
AFTER nearly three decades in the industrial backwoods, Tamil Nadu is back with a vengeance. In a business which will dominate all industrial activity—automobiles—the state is all set for conquest. It is now trying to position itself as the auto production hub of not only India, but Asia.
Consider the investment inflows in the automobile industry into the state:
Operation Rapid Industrialisation of Tamil Nadu. That's what Tamil Nadu Chief Minister M. Karunanidhi has baptised his baby. He is confident of converting the state into the Detroit of Asia. Among other things, he has lowered the level of Super Mega Status to all companies with capital investment of more than Rs 1,000 crore, down by a third from Rs 1,500 crore. This status carries benefits: sales tax concessions (both in terms of rate of taxation and tax deferrals), concessions on duty for captive power generation and an assurance of uninterrupted power and water supply.
But why Tamil Nadu? Primarily for its remarkable 50-year experience in the automobile ancillary sector. A whole host of automobile ancillaries coexist in the state. Spurred on mainly by truck manufacturer Ashok Leyland, they have matured as an industry, and provide an optimal base to support new projects.
Then there is the state's relatively strong infrastructural base. The relative index of infrastructure developed by the Centre for Monitoring Indian Economy pegs the state at an index of 128, against the national average of 100. Says P.C. Cyriac, industry secretary to the Tamil Nadu Government: "We are the only state in the South without power cuts. In addition, we are planning fast to implement some short-gestation power plants to meet the future demand-supply gap. We have two major ports (Che-nnai and Tuticorin), two in the intermediate category (Nagapattinam and Cuddalore), and six minor ports. Good road conditions, availability of skilled labour, better industrial relations and trade unions who recognise productivity." In the last few years, the state has not witnessed any major labour unrest or closure of factories.
There's more—the state's high level of urbanisation, 48 per cent, compared to the national average of 24 per cent. This would help companies get a more educated and aware work force. There are more than 120 Indian Technical Institutes, 30 engineering colleges, one technology university and one Indian Institute of Technology. This gives the state a human capital advantage.
And most important: the state is not paranoid about foreign investment. Global majors like Lucas, Siemens, Fuller, Massey Fergusson, Westinghouse, Bayer, Elf-Atoc-hem, Technipetrol and General Electric have had long associations with Tamil Nadu. Observes R. Seshasayee, deputy managing director, Ashok Leyland, and former chairman of the Confederation of Indian Industries (southern region): "The lack of xenophobia creates a major psychological boost for investors to choose Tamil Nadu." Ashok Leyland, which was a pioneer in the industrialisation of the Hosur belt of the state, has put up a modern plant in collaboration with Italy-based Iveco at a cost of Rs 450 crore. "The state-of-the-art facility represents the coming of age of India's commercial vehicle sector," says Seshasayee. "Having achieved a remarkable 95 per cent indigenisation, its products—Cargo 1412, Cargo 1614 and Cargo 3014—offer the world's leading technology at competitive prices."
What's truly driving the current industrial initiative is the political equation between the Centre and Tamil Nadu. With nephew Murasoli Maran holding the industry portfolio at the Centre, Karunanidhi sees this as a historical opportunity to correct the 30 years of neglect of the state. Following the ouster of the Congress government in 1967, Tamil Nadu plummeted from its position as the third most industrialised state in the country. Using tongs of the License Raj, say observers, the Congress regime at the Centre 'punished' the state by not clearing a single mega project proposal between 1967 and 1989. The sole exception was the Rs 2,000-crore aromatics venture cleared by the V.P. Singh government.
Even when the winds of liberalisation started blowing, the huge cut-outs of Jayalalitha may have prevented them from reaching the state. "In Tamil Nadu, the government's interest does not stop with signing MOUs. They put so much pressure in really launching the projects, that sometimes one wonders who is the businessman—we or the government," observes a senior auto component manufacturer who had a tough time under the Jayalalitha regime. "The best thing is the transparency in the Karunanidhi government's dealings. The rules are clear, the concessions are printed and given, and the state takes care of providing land for the project if we declare the quantum of investment. No bureaucratic hassles."
To be sure, Karunanidhi has learnt from the mistakes of his predecessors. And is pursuing industrialisation as never before. But the state's deprivation has not blinkered his vision. In a reflection of the theories of management gurus Michael Porter and C.K. Prahalad, Karunanidhi believes that like corporations, each state has its areas of competitive advantage and core competences and one should concentrate on these for faster growth. For Tamil Nadu, he believes, the automobile sector is its core competence.
The automobile ancillary industry in the state, which is already competitive, will not only support the new projects, but also gain from them. Says C.K. Birla, vice-chairman, Hindustan Motors, which has tied up with major vendors to develop parts locally: "We are starting with an indigenisation level of 50 per cent. This will be increased to 90 per cent by the year 2000." Concurs Parker of Ford: "The Chennai facilities permit us to use 60 per cent of local content and the indigenisation is expected to be much more in the coming years." This will take the total investment in various downstream and ancillary units to almost Rs 4,000 crore.
But with opportunities will also come competition. For instance, Hyundai, in true Korean tradition, is bringing in at least 10 auto component facilities linked to its plant with an investment of Rs 350 crore. According to Mong Gyu Chung, chairman, Hyundai Motor Company, India is more advanced than China in the automotive sector and Chennai represents the best in the Indian automobile scene. "In the 21st century, India will become the focal point of the world, and Chennai will be the Detroit of Asia."
An interesting point in this rapid auto revolution in Tamil Nadu is one of attitude. Karunanidhi is not inviting all and sundry simply on investment size. The projects are screened, and so far, only the latest models of automobiles have been given the go-ahead. For instance, Hind-ustan Motors' new plant coming up in the outskirts of the city will be producing Lancer cars, which were launched in Japan in 1995 and in other markets last year.
All of which finally augurs well for the Indian consumer and manufacturer alike.