Tamil Nadu to diversify manufacturing from consumer electronics and textile to EV

Mr. Saranyan Krishnan; Source: Guidance Tamil Nadu

Delegation of India’s Tamil Nadu state government visited Taiwan at the end of October, at the end of quarantine requirements for travelers to Taiwan. The delegation had meetings with electronics manufacturer Foxconn, Pegatron, Taiwan Electrical and Electronic Manufacturers’ Association (TEEMA), and Taiwan Footwear Manufacturers Association (TFMA) and many more during their visit to Taiwan.

Delegation from Tamil Nadu included Mr. Saranyan Krishnan, Additional Chief Secretary of Industries, Investment Promotion and Commerce Department of the Government of Tamil Nadu and Mrs. Pooja Kulkarni, CEO & MD at Guidance Tamil Nadu, the nodal investment promotion agency of the Government of Tamil Nadu.

Tamil Nadu accounted for 9%, or about US$300 billion, of India’s national GDP in 2021. The southern state plays a vital role in India’s manufacturing sector with industries flourishing around the state capital, Chennai, and across other industrial locations in the state. .

Foxconn’s iPhone production is based mainly on the belt of Chennai; Hyundai Motor Company has also built its facilities near the capital. Pegatron, Delta Electronics, Dell, Flex, Daimler, Yamaha, Salcomp, Tata Electronics, Ola Electric, and Taiwan’s largest shoe manufacturer Feng Tay Enterprise also manufacture in Tamil Nadu.

The delegation visited Taiwan with the mission of attracting more investment from electronics manufacturing, technical textiles and footwear, and electric vehicle (EV) manufacturing to help the state achieve industrial diversification and into a US$1 trillion economy to grow by 2030.

In addition to Taiwan, countries like Japan, South Korea, Singapore, Germany, France and USA are the focus countries for Tamil Nadu. The goals of the delegation include increasing the state’s industrial growth and navigating the post-pandemic “China plus one plus one” strategy.

Caught by the ongoing US-China dispute like many other countries in the world, India, especially Tamil Nadu state, has seen a large amount of foreign investment. 2019, which led to a dip in relations between India and China.

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Krishnan said the state government is providing flexible incentives and taking swift action to remove obstacles for foreign investors. He said, “Tamil Nadu offers a flexible and customized incentive structure to meet various industrial requirements”.

From 1992, the state government and the investment promotion agency Guidance Tamil Nadu drafted sector-specific policies and made tweaks and modifications for foreign manufacturers. Policy flexibility and political stability have allowed the state government to maintain dynamic communication with companies and help manufacturers resolve issues.

Krishnan added that the political parties of the state share a mutual goal – which is to commit to bring more investment to drive economic growth, so no matter which party comes to power, there will be political stability and continuity.

Industrial diversification ranges from electronics, textile, footwear to EV

The global pandemic was a lesson learned the hard way for the supply chain. In post-pandemic times, Tamil Nadu is trying to increase diversity in terms of economic growth and industrial development, realizing that the economy cannot depend on just a few sectors. This was evident during the first wave of the pandemic, when Tamil Nadu was among the few states in India that recorded positive growth.

One of the ways to diversify the economy, according to Krishnan, is to strengthen the electronics value chain by setting up manufacturing of a wider range of products – from chips, components, cameras, end devices, automotive electronics to EV batteries, non- Leather shoes and etc. Other ways to achieve industrial diversification include the development of the EV manufacturing ecosystem. Tamil Nadu is also trying to diversify geographically by building more industrial clusters across the state and spreading manufacturing activities evenly.

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Electronics assembly usually requires line workers to live in the dormitory and work around the clock; Textile factories, in contrast, are mostly set up in the countryside and workers may work regular 9-5 shifts. Workers for textile and shoe companies have generally seen improvements in quality of life, Krishnan said. The Tamil Nadu government therefore wants to bring more textile and shoe manufacturers to India.

Feng Tay set up its first facility in Tamil Nadu in 2006 and now they are already building the third factory. The shoemaker has created about 40,000 job opportunities, so the state government is able to replicate this business model. The government’s plan is to build about 30 such large factories across the state with at least one in every district, Krishnan said.

During the visit to the TFMA in Taichung, Kulkarni noted that 50% of India’s footwear exports were made in Tamil Nadu and the state plans to stimulate new investments by offering varying amounts of subsidies on land acquisition, IP protection, environmental infrastructure construction and more. , based on the investment scale, location, and the number of jobs created.

PwC Taiwan partner for international tax services Tim Pao added that India is not exempt from corporate income tax, but manufacturers entering production in India by March 2024 could opt for a 15% income tax subsidy. However, compared to the rewards for large manufacturers, subsidies for small- and medium-sized manufacturers seem much less attractive.

To form a new industrial cluster and have a strong supply chain, India’s government needs to increase subsidies for SMEs, Pao said.

Aiming for a ‘Trillion Dollar Economy’

As India’s second largest GDP contributor, Tamil Nadu is eyeing to develop a complete ecosystem of EV manufacturing from two-wheelers, cars, automotive electronics to EV batteries. Krishnan said that Tamil Nadu already has a strong foundation for building EVs, and currently, a third of the EVs manufactured in India were made in Tamil Nadu.

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“There is a large segment of two-wheeler and three-wheeler production in Tamil Nadu and car manufacturing is picking up.

For the last three years, the state has seen investment proposals of about US$ 50 billion, combining domestic and foreign investments. Even during the COVID years, Tamil Nadu received the highest investment proposals of any state – around US$10-15 billion annually.

The ratio of college graduates to collegiate population aged 17 to 23 in Tamil Nadu exceeds 50%, which is almost twice higher than the national average of 27%.

Tamil Nadu is marching towards a trillion dollar economy hopefully by 2030. Its economic size is now around US$300 billion.

According to PwC’s Pao, India’s special economic zone (SEZ) was mainly export-oriented but restrictions on domestic sales were relaxed.

Manufacturers in the SEZ are now able to find ways to access India’s domestic consumer market. In addition, India’s new draft law, the “DESH” (Development of Enterprise and Service Hubs Bill), is intended to open SEZs and open up the service sector, Pao said.

The DESH is expected to come through parliamentary discussion in the first quarter of 2023.

Krishnan concluded the interview by pointing out that Tamil Nadu offers a diversified, profitable place to do business and a large consumer base. As India’s income level rises, consumer electronics and footwear are the two goods that India wants to produce at a price that is affordable for Indians.

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Tamil Nadu delegation meeting with TEEMA; Source: ITA



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