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

Mr. Saranyan Krishnan Source: Guidance Tamil Nadu

A delegation from the government of India’s state of Tamil Nadu visited Taiwan at the end of October, following the expiration of quarantine requirements for travelers to Taiwan. The delegation held meetings with electronics manufacturer Foxconn, Pegatron, Taiwan Electrical and Electronics Manufacturers Association (TEEMA), Taiwan Shoe Manufacturers Association (TFMA) and many others during their visit to Taiwan.

The Tamil Nadu delegation included Mr. Saranyan Krishnan, Additional Secretary for Industries, Investment and Trade Promotion Department of the Government of Tamil Nadu, and Mrs. Pooja Kulkarni, CEO and Managing Director of Guidance Tamil Nadu, the Investment Promotion Agency Nodal 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 booming around the state capital, Chennai, and across other industrial locations in the state .

Foxconn’s iPhone production is primarily based on the edge of Chennai. Hyundai Motor has built its facilities near the capital as well. Pegatron, Delta Electronics, Dell, Flex, Daimler, Yamaha, Salcomp, Tata Electronics, Ola Electric and Taiwan’s largest shoe maker Feng Tay Enterprise also manufactures in Tamil Nadu.

The delegation visited Taiwan on a mission to attract more investment from electronics manufacturing, technical textiles, footwear and electric vehicle manufacturing to help the country achieve industrial diversification and grow into a trillion US dollar economy by 2030.

In addition to Taiwan, countries such as Japan, South Korea, Singapore, Germany, France and the United States are the focus countries of Tamil Nadu. The delegation’s goals include intensifying the state’s industrial growth and directing the “China plus one plus one” strategy for the post-epidemic period.

Due to the ongoing discord between the United States and China, like many other countries in the world, India, especially the state of Tamil Nadu, has seen a huge influx of foreign investment. India has also imposed strict restrictions on Chinese investments since the Pulwama attack in 2019, which further eroded the relationship between India and China.

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

Starting in 1992, the state government and Investment Promotion Agency Guidance Tamil Nadu have instituted sector-specific policies and made adjustments and adjustments to foreign manufacturers. Policy flexibility and political stability allowed the state government to maintain dynamic contacts with companies and help manufacturers solve problems.

Krishnan added that the state’s political parties share a common goal – a commitment to bring in more investment to drive economic growth, so whichever party is in power, there is stability in politics and continuity.

Industrial diversification ranging from electronics, textiles and footwear to electric vehicles

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

One way to diversify the economy, according to Krishnan, is to enhance the electronics value chain by preparing the manufacture of a wide range of products – from chips, components, cameras, peripherals and car electronics to electric car batteries and non-leather shoes and other ways to achieve industrial diversification include developing the manufacturing ecosystem electric vehicles. Tamil Nadu is also seeking geographic diversification 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 a dormitory and work around the clock; In contrast, textile mills are mostly set up in the countryside and workers can regularly work 9 to 5 shifts. In general, Krishnan said, workers employed by textile and footwear companies have seen improvements in quality of life. Therefore, the Tamil Nadu government wants to bring more textile and footwear manufacturers to India.

Feng Tay established its first facility in Tamil Nadu in 2006 and is now actually building the third factory. The shoemaker has created about 40,000 jobs, so the state government is eager to replicate this business model. Krishnan said the government’s plan is to build about 30 large factories across the state with at least one in each district.

During the visit to the TFMA in Taichung, Kulkarni noted that 50% of Indian footwear exports were made in Tamil Nadu and the country plans to stimulate new investment by offering varying amounts of subsidies on land tenure, protection of intellectual property, building environmental infrastructure and more. , based on investment size, location and number of job opportunities created.

Tim Bao, partner at international tax services PwC Taiwan, 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 bonuses granted to large manufacturers, the subsidies to small and medium-sized manufacturers appear much less attractive.

Bao said, in order to form a new industrial cluster and have a strong supply chain, the Government of India needs to increase subsidies for small and medium businesses.

The goal of a trillion dollar economy

Being the second largest contributor to India’s GDP, Tamil Nadu is looking to develop a complete electric vehicle manufacturing ecosystem from two-wheeled vehicles, automobiles and car electronics to electric vehicle batteries. Krishnan said Tamil Nadu already has a solid foundation for building electric vehicles, and currently, a third of electric vehicles manufactured in India are made in Tamil Nadu.

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“There is a large sector of production of two- and three-wheeled vehicles in Tamil Nadu, and automobile manufacturing is recovering. For example, Hyundai’s largest plant outside of South Korea is located in Tamil Nadu,” Krishnan said.

Over the past three years, the state has seen investment proposals of nearly US$50 billion, combing domestic and foreign investment. Even during the COVID years, Tamil Nadu received the highest investment offers among all the states – around 10-15 billion USD annually.

The ratio of college graduates to the population aged 17-23 in Tamil Nadu is over 50%, which is nearly double the national average of 27%.

Tamil Nadu is going towards a trillion dollar economy hopefully by 2030. Its economic size is now around 300 billion dollars.

According to PwC’s Bao, India’s SEZ was primarily export-oriented but restrictions on domestic selling have been relaxed.

Manufacturers in the SEZ are now able to find ways to access the domestic consumer market in India. Moreover, India’s new bill, the Enterprise and Services Development Bill, aims to modernize the special economic zone and open up the service sector, Bao said.

DESH is expected to be discussed in Parliament in the first quarter of 2023.

Krishnan concluded the interview by noting that Tamil Nadu offers a diversified and profitable place to do business and a large consumer base. With the rising level of income in India, consumer electronics and footwear are two commodities that India wants to produce at an affordable price for Indians.


Meeting of the Tamil Nadu delegation with TEEMA; Source: ITA


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