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May 8, 2020What Steers Tamil Nadu’s Higher Trajectory of Economic Growth?
The two Dravidian political parties in Tamil Nadu are at constant war with each other on alleged use and misuse of Dravidian ideology in the name of the welfare of its people, Tamil language and delivery of various welfare schemes. Hindi hate speech and appeasement of minorities for votes are the two most contested politics of Tamil Nadu for the last half of the century. Unlike other states in the south and west, the politics of Tamil Nadu has been studied by too many, while its economy is not studied by many for no good reasons.
However, despite their divisive polity, a competitive spirit can be seen among the leaders across the political spectrum towards inclusive development and growth of Tamil Nadu. At times, it is astonishing to see a sustained progress of the Tamil Nadu economy compared to other states in India. What drives Tamil Nadu is its core competence and capacities of sectors like healthcare and nutrition, education and entrepreneurship which are the main ingredients of the State’s sustained high growth trajectory. The average growth rate in the two decades following liberalisation was 7 per cent per annum.
Trajectory of Growth
In recent years, the State has been continuously facing calamities such as Chennai Floods in 2015, Vardah cyclone in 2016, a severe drought followed by Ockhi cyclone in 2017, Gaja cyclone in 2018, drought and water crises in 2019 and now the COVID-19 pandemic has hit the State badly. The government still gets lesser allocation under the State Disaster Relief Fund from the Union Government.
Nevertheless, the Tamil Nadu economy has been showing a stable trajectory of growth during the last few years, even though the current political establishments are often caught up in corruption and scandals. During the period from 2011–12 to 2015–16, the AIADMK government had managed to secure an average growth rate of 6.7 percent as against the national average growth rate of 6.9 percent. The second term of the AIADMK, i.e., the last three years (2016–17 to 2018–19) witnessed an average GSDP (Gross State Domestic Product) growth rate of 7.7 percent which is impressive and 0.23 percent higher compared to the Indian economy (7.4 per cent). The projected GSDP growth rate for 2019–2020 is 7.3 percent compared to the 5 percent growth rate for the Indian economy, which shows a significant difference of 2.3 percent. Tamil Nadu is ranked first among the states in terms of the highest number of factories and industrial workers. Also, the State is ranked second in terms of employment generation in the organised sector.
Sector-wise Contribution to GSDP
The State’s primary sector which includes agriculture and allied activities contributes 11.8 percent to the GSDP. Also, Tamil Nadu has a dynamic manufacturing sector, comprising textiles, leather products, automobiles, pharmaceuticals, chemicals, engineering, agro-based products and food processing, etc, significantly contributing to the national economy. The State’s secondary sector’s GSDP share is 36.0 percent. During the last two decades, Tamil Nadu has been witnessing thriving trends in the services sector by value addition as well as employment generation with IT and ITeS, electronic hardware, banking, financial services, healthcare, tourism, etc. growing dynamically. The tertiary sector’s GSDP share in the State economy is 52.2 percent.
The State is capable of financing the targeted welfare schemes for improving the living standards of people as the treasury yields higher revenue from a higher trajectory of economic growth. One of the sources of higher income for the State is the sale of liquor, which also creates social disruptions in terms of loss of income and health hazards to millions of poor families. Still, the State spends beyond its income keeping a revenue deficit of Rs 25,071 crore.
Strong Foundation of Infrastructure
The key strengths of the State are premised on its strong foundation of both social and physical infrastructure which paves for diversification of sectors by taking advantage of human resource capital for continuous progress and revenue generation to improve social development. Tamil Nadu has a well-developed infrastructure with good road and rail network connectivity. The State has three major ports, fifteen minor ports and seven airports for moving goods and services as well as people from one point to another within a matter of a few hours.
Trichy, a tier-two city, is emerging as the fastest growth centre with transformations including a massive expansion of its airport with Rs 950 crore investments, which is a first of its kind in the country. Moreover, the State has leading higher and technical education and research institutions which strive for the next generation of industrial growth. Tamil Nadu has also been building robust industrial training and technical institutions with multi-skill development centres collaborating with industries for a sustainable industrial growth and to achieve productivity having the right mix of skilled and competent human resources.
State’s Policy Initiatives
The State machinery is continuously working closely with subject experts in the industry across the sectors to take advantage of the emerging trends at the national and international levels for reaping the benefits of markets without a loss in employment generation. The policy initiatives in sectors such as Business Facilitation for ease of doing business, New Information and Communication Technology, Aerospace, Defence, Solar Energy, New Integrated Textiles, Promotion of Farmer Producer Organisations and Treated Waste Water Reuse intending to reduce dependence on freshwater and to prevent pollution of water bodies, Electric Vehicles, etc are aimed at sustainable approaches to achieve inclusive growth and development. Tamil Nadu is also working to introduce a new industrial policy to provide incentives to the MSME sector which is facing critical challenges after the implementation of GST.
Out of the 68 working PSUs (Public Sector Undertakings) in the State, only 39 are making profit and 25 are loss-making units with an incurred loss of Rs 9,366.31 crore for the year 2016–17 alone, as per the CAG report released in 2018. The remaining PSUs were either non-working or under liquidation by the state government. The State PSUs have accumulated a loss of Rs 78,854.25 crore so far. The PSUs are contributing around 10 per cent to the State’s growth share but the government is not concerned about reviving the loss making units.
In recent years, the political blame game resulted in closing down of Thoothukudi Sterlite industry which not only ended up in loss of employment opportunities but also caused an increase in copper price in the country due to imports from other countries like Japan.
Despite these challenges, the State economy continues to clock a higher trajectory of growth because of the improvement in governance and service delivery systems. Except for the first quarter, the current financial year (2020–21) may not witness a huge downslide of the State economic growth but may manage to sustain a reasonable growth rate much higher than the national level.
Views expressed by the author are personal and need not reflect or represent the views of Centre for Public Policy Research
Chandrasekaran Balakrishnan is Research Fellow (Urban Eco-system and Skill Development) with CPPR. His areas of research interest are economics of education, vocational education and skills development, economic reforms, liberal vision for India, water management, regional development, and city development. Chandrasekaran has an MA in Economics (University of Madras) and an MPhil in Social Sciences (Devi Ahilya Vishwavidyalaya University, Indore).
