BackWill Tamil Nadu deliver on its promise this time?
State govt struggles with legacy of poor infrastructure, approval delays even as it woos Rs1 trillion investments
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A troubled legacy of stalled ventures, infrastructure hurdles and a swanky new business district across the border threaten to cast a cloud over the Tamil Nadu government’s grand plans to corner investments worth as much as ₹ 1 trillion at the state’s first Global Investors Meet, starting Wednesday.
Bad roads, congested ports and delayed approvals have dented the image of the state where foreign investors once flocked to set up automobile factories and technology offices. C.V. Sankar, additional chief secretary of Tamil Nadu, said the meet will not be a “one-off event". He refused to share details of potential investors.
Firms are sceptical. “We are hearing stories of China building dams or bridges in a record time, but we have been struggling to finish the Porur Bridge (in Chennai) for more than a decade now," said T.N. Sivasubramanian, chief financial officer at Toshiba Machines Pvt. Ltd, which operates out of Chembarambakkam in Chennai.
Unease of doing business
Tamil Nadu, which drew US-based Ford Motor Co. and South Korea’s Hyundai Motor Co. Ltd to set up factories near Chennai 20 years ago, is now seeing large investments moving to Andhra Pradesh, Telangana, Maharashtra and Gujarat, as they woo firms with incentives like faster approvals and cheaper land.
Tax disputes with the central government kept Nokia India Ltd’s phone factory in Chennai out of Nokia Oyj’s sale of its mobile phone unit to Microsoft Corp., leading to its shutdown in 2014. This was followed by the shutdown of a phone component factory run by Foxconn.
In 2012, textile firm Indo Rama Synthetics said it would invest ₹ 4,500 crore to set up a new plant in Tamil Nadu, but there is no movement yet. A ₹ 4,100 crore fibre glass manufacturing facility planned by the US-based paint maker PPG Industries and India’s Harsha Exito Engineering in the same year is also yet to take off. “Indo Rama has still not bought the land and the PPG deal has not happened," Sankar said, without explaining the reasons.
Indo Rama did not want to comment while PPG Industries did not respond to Mint’s email.
The government’s own plan to open a 2,000-acre textile park in Coimbatore for ₹ 3,100 crore is yet to materialize.
Several rounds of talks held by state government officials with Foxconn executives in February failed to bear fruit, with the world’s largest contract manufacturer last month instead signing a $5 billion investment deal with Maharashtra to set up manufacturing, research and development facilities there over five years.
“Foxconn officials had clearly not forgotten the labour problems that happened in 2010 and we tried convincing them that it was one-off event," said a senior bureaucrat involved in the talks.
In September 2010, workers at Foxconn’s Sriperumbudur facility struck work for better wages, a hike in allowances and recognition of their trade union. They rejected the wage agreement reached by the management and Labour Progressive Federation, a trade union arm of the Dravida Munnetra Kazhagam, then the ruling party. The strike resulted in police intervention and the suspension of workers.
On 20 April, the government cancelled land allotted to Hindustan Coca Cola Beverages Pvt. Ltd at Perundurai in Erode district to set up a bottling facility, citing the company’s failure in addressing farmer concerns on water depletion.
However, the largest bottler of Coca-Cola India said it did not get mandatory approvals from the government despite follow-ups. “Without a draft copy of the water agreement to procure water, approval to lay water line and approval to lay effluent transfer line, we are unable to apply for ‘Consent to Establish’ and start construction work on the site," said the firm, which has now requested the state to refund the money paid so far.
The government defended its stance. “We are not desperate for investments—investments are considered on quantum of employment generation and their impact on the environment," said Sankar.
Japanese two-wheeler maker Yamaha Motor Co. Ltd’s ₹ 1,500 crore plant with an annual capacity of 450,000 units is among the recent manufacturing initiatives in the state. The plant, expected to be opened shortly, was initially scheduled to open by the end of 2014.
Political flux
The state went through a phase of policy paralysis from September 2014 to May 2015 when chief minister J. Jayalalithaa was jailed after being convicted in September 2014 in a disproportionate assets case that forced her resignation. Following this, the state pushed the investors’ meet from May to September.
O. Panneerselvam, a Jayalalithaa loyalist who replaced her as chief minister, stayed away from making any big policy decisions, according to a few company heads and two government officials who did not want to be identified.
After the Karnataka high court acquitted her, Jayalalithaa resumed charge as chief minister in May.
Competition
Tamil Nadu cannot afford to wait. Two hours from Chennai by road, across the border in Andhra Pradesh, lies Sri City, which is aggressively wooing businesses with better infrastructure facilities and single-window clearances granted in a month (mintne.ws/1HOn5dO).
In 2013, Cadbury chocolate maker Mondelez International Inc. announced plans to set up its largest chocolate manufacturing facility in the Asia Pacific at Sri City and PepsiCo India decided to open its largest Indian beverage manufacturing unit there. In January 2014, Japanese truck maker Isuzu Motors decided to build a ₹ 3,000-crore manufacturing unit in Sri City.
So far, Sri City has attracted over 100 firms and signed investment pacts worth ₹ 18,000 crore.
Tamil Nadu has set aside ₹ 100 crore for the investors’ meet. The government implemented a single-window clearance procedure for approvals, which will be given within a month, as against a couple of months earlier. Digital billboards promoting the state as an investment destination have been installed in airports from London to Hong Kong. The government has also invested in re-laying roads, sprucing up its airport and developing a mobile app to impress investors.
Auto firms Renault-Nissan, Mahindra and Mahindra and MRF Tyres have indicated plans to boost their investments in the state. The Adani Group has signed a deal worth ₹ 4,500 crore with the state to set up a 648 megawatt solar power plant.
Two consultants working with the government on the investors’ meet, who spoke on condition of anonymity, said they expect Indian firms to invest more than their overseas peers during the meet this week.
State of things
“There has been improvement in power availability in the state, but the weak financial position of the state power utility is a big concern," said Girish Kadam, vice-president for corporate sector ratings at Icra.
The state scores well on intellectual capital and an industrial ecosystem, but has a lot to do to catch up on the power, infrastructure and policy fronts, said D. Arulselvan, chief financial officer of Cholamandalam Investment and Finance Co. Ltd.
Critics such as former Union health minister Anbumani Ramadoss have termed the investors’ meet a farce and an attempt to curry favour with voters ahead of next year’s state elections.
“By putting together the memorandrums of understanding that were already signed in the past two or three years, the Tamil Nadu government is trying to project it as a new one and claims to make it a ₹ 1 lakh crore investment," said Ramadoss the chief ministerial candidate proposed by the Pattali Makkal Katchi.
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