How Tamil Nadu is pursuing its dream of a $1 trillion economy

A manufacturing powerhouse, the state is diversifying to embrace growing sectors

32-Athers-manufacturing-facility-in-Tamil-Nadu Building better: Ather’s manufacturing facility in Tamil Nadu | Courtesy Ather Energy

The year was 2015. Venkatachalam Viswanathan, 35, had just returned from the US after quitting his dream job there. An IT professional, Viswanathan wanted to launch an IT startup in Chennai. But, the environment in Tamil Nadu then was not conducive to such a firm. After a yearlong struggle, he returned to the US and found another job. In 2021, while visiting his parents, Viswanathan’s friends apprised him of the changes in the state’s industrial scenario. This reignited his dreams and now he is getting ready to launch his company―an AI-enhanced health platform and health care e-commerce startup.

The infrastructure, port connectivity and power sector are ideal factors and the quality of human capital is Tamil Nadu’s brahmastra making it ideal for investments. ― Anand Mahindra, chairman, Mahindra Group

Viswanathan’s experience illustrates the transformation the state underwent in less than 10 years. It is then no surprise that the third Tamil Nadu Global Investors Meet, held in Chennai on January 7-8, attracted investment proposals worth Rs6.64 lakh crore. These are expected to generate close to 27 lakh jobs, direct and indirect. The government set itself an ambitious target of becoming a $1 trillion economy by 2030. The state’s gross domestic product for 2022-2023 was Rs23.5 lakh crore; $1 trillion at the current conversion rate is around Rs83 lakh crore.

A manufacturing powerhouse known for its textile and automobile industries, Tamil Nadu has diversified to embrace growing sectors like sustainable mobility, electronics and medtech. It now hosts a range of industries from IT to health care and has a pool of skilled professionals.

Anand Mahindra, chairman of the Mahindra Group, who gave the keynote address at the event, told THE WEEK that Tamil Nadu had an outstanding bureaucracy which is supportive during times of trouble. “The infrastructure, port connectivity and power sector are ideal factors and the quality of human capital, driven by quality education, is the state’s brahmastra making it ideal for investments.”

Traditionally, Tamil Nadu has built systematically on its strengths. For instance, it was an automotive component hub long before it started automobile manufacturing.

This strength was leveraged to transform the state into an automobile manufacturing hub. And, now, from that platform, it is turning into an electric vehicle manufacturing hub. Similarly, in the electronics segment, it started as a component manufacturer and has now grown to be an electronics hub, housing the facilities of several majors.

PTI01_08_2024_000165B Leading change: (Left to right) Businessman and UK minister of state Tariq Ahmad, Chief Minister M.K. Stalin and Mahindra Group chairman Anand Mahindra at the Global Investors Meet | PTI

Industries Minister T.R.B. Raaja told THE WEEK that there is a focus on moving up the value chain and shifting from the current manufacturing jobs to more high-value jobs. “Our manufacturing ecosystem is becoming smarter and more efficient by embracing advanced manufacturing, and it is also moving into elite sectors like defence and aerospace,” said Raaja. “We are India’s electronics capital and we are gearing up to enter the semiconductor sector. We are also pushing for the textile sector to embrace technical textiles. Our health care ecosystem bolsters our medtech ambitions in a big way, too.” Notably, the recent investors meet saw the release of a semiconductor and advanced electronics policy.

While Tamil Nadu is third in the manufacturing sector in India, behind Maharashtra and Gujarat, it has the highest number of factories―employing more than 2.9 crore. As per the Centre for Monitoring Indian Economy, around 25 lakh people got jobs between January 2022 and April 2023. Significantly, at least 50 per cent of them got into high-value jobs, mostly in the electronics and EV sectors.

Moreover, the existing industries in the state were concentrated around a few regions, like the textile industry in and around Tiruppur and the automobile industry in/around Chennai and Coimbatore. But, the new industries are spreading out across the state.

“Our chief minister is very particular about taking development to all,” said Raaja. “Especially to zones like the southern districts and the delta region. These are regions which haven’t seen much industrialisation. Our chief minister has given me a mandate to take industries to the south and do something for the delta region. So you see a lot of agritech industries coming to the delta and a lot of new industries coming into the southern districts.”

36-Raaja T.R.B. Raaja | R.G. Sasthaa

The electronics sector in the state has been seeing massive investment. In 2019, Taiwanese contract manufacturer Foxconn repurposed a facility in Sriperumbudur, which earlier assembled Nokia mobile phones, for the assembly of Apple iPhones. This made other majors look towards Tamil Nadu. And the Taiwanese Pegatron Corporation set up its first manufacturing unit near Chennai in 2022 at a cost of Rs1,100 crore.

The government is committed to developing an efficient R&D ecosystem. The objective is to handle sophisticated technologies and arrive at solutions for complex problems, while creating a practical business model.” ―T.R.B. Raaja, Tamil Nadu industries minister

Tata Electronics has signed an MoU with the government expressing interest to invest Rs12,082 crore to set up an electronics manufacturing and mobile phone assembly unit at Krishnagiri near Hosur. This is expected to generate 40,500 jobs.

It is noteworthy that in the state’s electronics sector women employees outnumber men. These women, who are high school graduates or hold a diploma or a degree, have basic English knowledge. They are trained by electronics majors for three to five months. Foxconn employs about 35,000 to 40,000 women.

All this has resulted in the massive jump in the state’s electronics export―$5.37 billion (around Rs45,000 crore) in 2023, from $1.86 billion in 2022―making it the country’s biggest electronics exporter. Its share is now around 30 per cent of India’s exports. In 2020-2021, the state’s contribution was only around 12 per cent. And, things look likely to get even better for the state in the sector. For instance, at the investors meet, Pegatron inked a pact to invest Rs1,000 crore on a computing, communications and consumer electronics unit near Chennai. It is expected to generate more than 8,000 jobs.

Tamil Nadu is also emerging as one among the top 10 auto hubs in the world. It has emerged as the largest producer of EVs in India―40 per cent of all vehicles and 70 per cent of two-wheelers. Automobile majors operating in Bengaluru are looking at Hosur in Tamil Nadu as their next step to get into the EV market. Incidentally there is huge development happening in and around Hosur, which benefits the backward Dharmapuri region. EV players like Ola, Ather and Simple Energy chose Tamil Nadu over Karnataka because it is much cheaper. Ola alone has invested Rs10,000 crore in the Pochampally region in Hosur. Other investors include the EV arms of traditional Indian companies like TVS and Greaves Cotton. In response to the investments, the state government created an EV ecosystem, which included battery manufacturing units. This means that EV makers can get components from within Tamil Nadu.

On the first day of the investors meet, Vietnamese EV maker Vinfast signed an MoU with the government to set up its plant in Thoothukudi with a proposed investment of Rs16,000 crore. Hyundai Motor India committed to invest Rs6,180 crore to make internal combustion engines, EV passenger cars and EV batteries in Kanchipuram. It will also collaborate with IIT Madras on hydrogen energy research. Unsoo Kim, MD and CEO, Hyundai Motor India, said the collaboration with the state government goes beyond mere investment. “It is a catalyst for cultivating robust hydrogen technology ecosystem that mirrors our commitment to sustainability and a green future,” he said. “We are confident that this collective effort will propel Tamil Nadu towards achieving the milestone of becoming a $1 trillion economy.”

The state is also becoming home to several data centres and global capability centres. “The government is committed to developing a mature, efficient R&D ecosystem,” said Raaja. “The objective is to handle sophisticated technologies and arrive at solutions for complex problems, while also creating in the process a practical business model.” The R&D ecosystem has grown in the last two years to around 160 units, including global capability centres, creating more than 80,000 jobs. According to the NITI Aayog, the state now ranks second in expenditure on R&D. It is also emerging as a hub for medical technology.

Tamil Nadu has also diversified into renewables, green energy and solar power. A major solar power plant has been set up by Tata Power in Thoothukudi. Malaysian giant Petronas is looking to set up its green hydrogen plant in the same region. The investment in the solar power sector in the Thoothukudi region is close to Rs30,000 crore. During the investors meet, MoUs worth Rs1.35 lakh crore in the energy sector were signed. This will attract 14,609 jobs in the next few years. First Solar’s fully integrated solar manufacturing plant was also inaugurated during the event by Chief Minister M.K. Stalin. The company will further invest Rs2,500 crore to provide 350 jobs. JSW Energy is set to invest Rs10,000 crore to expand in Thoothukudi and Tirunelveli, providing employment to an additional 6,000 people.

On the semiconductor front, huge growth is expected in the next few years with the government planning to sign MoUs with majors like Samsung. Polymatech, the chip maker which has been manufacturing semiconductors from its unit in Chennai since 2019, plans to invest Rs8,000 crore over the next two years.

“Underlining all of this is Tamil Nadu’s transformation into a knowledge economy,” said Raaja. “The recent strides we have made in attracting R&D centres and global capability centres of several major global corporations and the establishment of world-class centres of excellence speak volumes about our concentrated efforts towards that goal.”