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

Yusin Hu, DIGITIMES Asia, Taipei 0

Mr. Saranyan Krishnan; Source: Guidance Tamil Nadu

A delegation from India's Tamil Nadu state government visited Taiwan at the end of October, holding meetings with electronics manufacturer Foxconn, Pegatron, Taiwan Electrical and Electronic Manufacturers' Association (TEEMA), and the Taiwan Footwear Manufacturers Association (TFMA) and many more during their visit to Taiwan.

The delegation from Tamil Nadu included Saranyan Krishnan, additional chief secretary of industries, investment promotion and commerce department of the Tamil Nadu government and 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 around US$300 billion, of India's national GDP in 2021. The southern state plays a vital role in India's manufacturing sector with the industries thriving around the state capital, Chennai, and across other industrial locations in the state.

Foxconn's iPhone production is mainly based on the rim of Chennai; Hyundai Motor Company built its facilities close to the capital city as well. Pegatron, Delta Electronics, Dell, Flex, Daimler, Yamaha, Salcomp, Tata Electronics, Ola Electric, and Taiwan's largest shoemaker Feng Tay Enterprise are also manufacturing in Tamil Nadu.

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

In addition to Taiwan, countries such as Japan, South Korea, Singapore, Germany, France, and the US are the focus countries for Tamil Nadu. The delegation's purposes include ramping up the state's industrial growth and navigating the post-pandemic "China plus one plus one" strategy.

Caught up by the ongoing US-China contention like many other countries in the world, India, especially Tamil Nadu state, has seen a large amount of foreign investment pouring in. India, too, imposed strict restrictions on Chinese investments since the Pulwama attack in 2019, which has resulted in a relationship dip between India and China.

Krishnan said the state government offers flexible incentives and takes quick actions in clearing obstacles for foreign investors. He said, "Tamil Nadu offers a flexible and customized incentive structure to meet different industrial requirements".

Starting from 1992, the state government and the investment promotion agency Guidance Tamil Nadu have been devising sector-specific policies and making tweaks and modifications for foreign manufacturers. The policy flexibility and political stability have allowed the state government to maintain dynamic communication with companies and to help manufacturers resolve issues.

Krishnan added that the state's political parties share a mutual goal – that is to commit to bringing more investment to drive economic growth, so whichever party comes in power, there is policy stability and continuity.

Industrial diversification ranging from electronics, textile, footwear to EV

The global pandemic was a lesson learned in the hard way for the supply chain. In the post-pandemic times, Tamil Nadu is seeking to increase diversity in terms of economic growth and industrial development, realizing that the economy cannot be dependent on only a few sectors. This was evident during the first wave of the pandemic where Tamil Nadu was among the few states in India recording a 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, car electronics to EV batteries, non-leather footwear and etc. Other ways of achieving industrial diversification include developing the EV manufacturing ecosystem. Tamil Nadu also seeks to geographically diversify by constructing more industrial clusters across the state and evenly spread manufacturing activities.

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

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

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 incentivize new investment by providing varying amount of subsidies on land acquisition, IP protection, environmental infra construction, and more, based on the investment scale, location, and the number of job opportunities created.

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

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

A 'trillion-dollar economy' goal

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

"There is a large segment of two-wheeler and three-wheeler production in Tamil Nadu and car manufacturing is picking up. For example, Hyundai's largest factory outside of South Korea is in Tamil Nadu," said Krishnan.

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

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

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

According to PwC's Pao, India's special economic zone (SEZ) was primarily export-oriented but restrictions on domestic sale have relaxed.

Manufacturers in the SEZ are now able to find ways to access India's domestic consumer market. Moreover, India's new bill, the "DESH" (Development of Enterprise and Service Hubs Bill), is intended to upgrade the SEZ and open up to the service sector, said Pao.

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 goes up, consumer electronics and footwear are the two commodities that India wants to produce at a price that is affordable for Indians.


Tamil Nadu delegation meeting with TEEMA; Source: ITA