 "Tamil Nadu tries to halt the Andhra juggernaut")
With deals worth Rs 240,000 crore signed during the two-day Global Investor Meet early this month, Tamil Nadu's image as an investment destination, which had taken a beating over the past few years, seems to have got a new lease of life.
Among the companies that have decided to invest in the state are HCL Technologies (Rs 6,000 crore), Mahindra & Mahindra (Rs 4,000 crore), and Delta India Electronics (Rs 4,000 crore). In all, 98 memoranda of understanding were signed during the meet.
For Chief Minister J Jayalalithaa, these agreements hold particular appeal as they have come amid growing concerns about the state's declining investment environment. Despite the odds, "the investments were twice the target for the Global Investor Meet," says Tamil Nadu Additional Secretary CV Shankar.
Encouraged by this, the state has set its sights higher now: it wants to become not just the top investment destination in the country but also gain a place among the top three in Asia. To that end, it has announced it will hold a global investor meet every two years.
"My government will do whatever it takes to ensure that we reach there, and maintain the position," Jayalalithaa said at the meet.
She has promised single-window clearance within 30 days of the date of application for all projects signed during the investment meet. In addition, Tamil Nadu is working in partnership with the Japan International Co-operation Agency to look into ways to improve the investment climate in the state. Plans are also afoot to make available the entire gamut of statutory and pre-project clearances online for the ease of investors.
To ensure the benefits of growth are spread across the state, close to half the investments committed will go to southern districts - Madurai, Tirunvelveli, Tuticorn, Thanjavur and Kanyakumari. The state government has announced a new package of incentives to encourage investors to set up plants in that region. A land bank with 42,000 acres has been set aside for the purpose.
Experts believe that with manufacturing picking up, these measures would to a large extent help the state regain its momentum.
Fending off competition
However, Tamil Nadu's problems run deep. For the state with the second largest gross domestic product in the country, the events of the past few years have been anything but welcoming for investors, leading many to be sceptical about the state's future.
Finnish mobile manufacturer Nokia's tax dispute with the Central government that kept its Chennai factory out of the sale of its mobile unit to Microsoft last year, and Taiwanese phone component maker Foxconn's decision to pull out of the state further dented its image.
It is also not hard to see investors getting overwhelmed by the complexity of doing business in the state. Japanese automobile maker Nissan has been rethinking about its expansion plans as fiscal incentives worth Rs 2,700 crore promised to the company have been delayed. While sources in the government say it is looking at clearing Nissan's dues soon, the company is awaiting clarity before going ahead with its investment plans.
There are others concerns too. The state has been caught in a tug of war for investments with neighbouring Andhra Pradesh and Gujarat, which are aggressively wooing companies with better infrastructure facilities and faster clearances.
Over the past year, a number of big-ticket projects bound for Tamil Nadu have gone to Andhra Pradesh's swanky new business district called Sri City, about 50 Kms from Chennai. Andhra Pradesh now boasts of several big names like Mahindra & Mahindra, Hero MotoCorp and Japanese automobile manufacturer Isuzu Motors as its investors. This week, Chinese solar cells manufacturer Longi announced it was investing Rs 8,000 crore in the state. A host of IT companies have opted for Sri City too, driven by the ease of doing business there and the promise of high-speed internet connectivity.
In his quest to attract $2 billion in IT investments over the next five years and create 5 million technical jobs, Andhra Pradesh Chief Minister N Chandrababu Naidu has rolled out an ambitious plan to provide every village in the state with broadband connectivity of 1,000 mbps, and have one e-literate person in every household. It is thus quickly closing the skills gap with Tamil Nadu, which because of its large pool of engineers has the second largest concentration of IT companies after Karnataka in south India.
The cost of setting up business is also cheaper in Andhra Pradesh, as the state government is doling out tax incentives and land at throwaway prices to woo investors. Hero MotoCorp, for example, has been provided 100 per cent exemption on value-added tax, or VAT, on bikes produced in the state, say industry sources.
Sri City is also leveraging its proximity to Chennai, a huge market, and connectivity to ports both in the north and south to boost its prospects.
Tamil Nadu has a lot to do to catch up on the power front with Andhra Pradesh which offers electricity at a highly subsidised rate of 75 paisa a unit. Experts say Tamil Nadu, even though it is surplus in power now, cannot afford to slash prices because of the poor state of its discoms.
Given Andhra Pradesh's competitive advantage, it has already attracted investments worth Rs 20,000 crore in less than two years. Many say Andhra Pradesh is doing to Tamil Nadu what the latter did to Karnataka in the 1980s. By aggressively marketing its new business district of Hosur just across the border from Bengaluru, Tamil Nadu managed to stop investments meant for Karnataka just short of its borders.
TVS Motor, Ashok Leyland and several other companies pumped in hundreds of crores into Hosur during the decade, turning the area into a manufacturing hub.
However, Tamil Nadu's decline does not boil down to aggressive marketing by Andhra Pradesh alone. It ranked 12th in World Bank's recent report titled Assessment of State Implement of Business Reforms, with Gujarat at the number one spot and Andhra Pradesh at number two.
With its glory days behind it, investors are moving cautiously. "If we get the right incentives as mentioned in the industrial policy, we will continue to invest," says ITC Chairman YC Deveshwar, who has committed Rs 2,500 crore for setting up a food processing unit in the state.
