The absence of Jayalalithaa’s leadership is a blessing and a curse for Tamil Nadu’s industry

Holding up.
Holding up.
Image: Reuters/Danish Siddiqui
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Chennai, India

A year ago, on this day, Jayalalithaa Jayaraman, the charismatic film star-turned politician, passed away, marking the end of a remarkable political career that saw her becoming Tamil Nadu’s chief minister six times. Given the power she held over the state, her authoritarian leadership style, and the absence of a clear successor, there was uncertainty over how the southern Indian state’s much-vaunted industrial base would cope after her death.

After all, in her time as chief minister, Jayalalithaa had helped transform Tamil Nadu into a manufacturing powerhouse—be it getting car maker Ford to set up shop there and eventually turning the state into India’s automotive hub, developing industrial regions such as Sriperumbudur, or setting up the Mahindra World City, an integrated business and residential township jointly owned by the Mahindra Group and the Tamil Nadu Industrial Development Corporation.

During her second term as chief minister, the state’s economy peaked, growing 13.9% between 2005 and 2006, around the time when India’s GDP was expanding by around 9%. During the same period, the state’s manufacturing sector—with the largest number of factories in the country—grew 15.1%.

During her fourth and fifth terms, the tide turned, as Jayalalithaa began to fall out of favour among investors. On a nationwide assessment of implementation of business reforms in 2016, the state’s ranking slipped from 12 to 18. It touched a nadir in the 2016 financial year when Tamil Nadu’s manufacturing sector grew by a mere 1.65%, compared to 7.11% a year ago, according to data from the Reserve Bank of India (pdf). When she took ill in September 2016, there were fears that an already slowing state economy could worsen with the leader out of action.

But the state seems to have gotten the better of the naysayers. While Tamil Nadu and the ruling All India Anna Dravida Munnetra Kazhagam (AIADMK) party went through political turmoil in the six months after Jayalalithaa’s death, industrialists say things are gradually beginning to improve.

Ivory tower no more

For one, there is a palpable difference in the government’s attitude towards the industry, and the current Edappadi K Palaniswami-run government is more approachable than Jayalalithaa’s administration. Earlier, meeting the chief minister was nearly impossible, sometimes taking years to set up an appointment. Few had access to even other state ministers and the government rarely spoke to the media.

“Accessibility has improved,” M Ponnuswami, vice-chairman of the Confederation of Indian Industry’s Tamil Nadu state council, told Quartz, emphasising that ministers and bureaucrats are now making an effort to meet with businessmen and industrialists.

“During Ms Jayalalithaa’s time, we were not even given permission to meet her…we were totally not in sight at all,” said S Sampath, chief executive of operations of Velmurgan Industries, a manufacturer of heavy engineering equipment in the town of Trichy, a manufacturing hub 320 kilometres south of state capital Chennai. “Today one positive thing is all the ministers, including the CM (chief minister) and deputy (chief minister), are approachable.”

Industrialists also say that ministers and bureaucrats, who earlier shied away from industry events, now make it a point to honour invitations to events like the World Food India conference held in November 2017 or other conferences by industry or trade bodies. Such interactions are important as the industry often uses these opportunities to send feedback on government regulations and policies. “(Earlier) ministers were handicapped because they were not coming into public contact…particularly on (the) investment side. Now, I think they’ve started interacting,” Ponnuswami added.

Over the last few years, Tamil Nadu has been losing out to other states such as Gujarat in terms of investments. The current government is now working to make amends, industrialists say. For instance, it has introduced a business facilitation law to help speed up the process of issuing clearances for projects, and plans a second edition of the Global Investors Meet (GIM) in 2018. The first GIM in 2015 attracted investment proposals of around Rs2.42 lakh crore, of which projects worth Rs62,738 crore are reportedly in various stages of implementation.

“They are encouraging, they are talking, but what has got transferred into business we have to wait and see,” Sampath cautioned.

Email questionnaires sent to the Tamil Nadu government’s information and public relations department, and the AIADMK, remained unanswered.

Old habits die hard

Still, the lack of expansion in Tamil Nadu’s manufacturing base has impacted revenues and employment.

The state thrives on manufacturing textiles, automotive components, and leather for exports and domestic consumption. “How these sectors will behave will have a higher bearing on how the overall state industrial activity, economic growth, employment, consumption, and finances will behave,” Devendra Kumar Pant, the chief economist at rating agency India Ratings and Research, told Quartz.

The sectors Pant mentioned haven’t been doing well over the last year. Leather exports have fallen due to tepid global demand, affecting the state’s tanning and manufacturing units, Rafeeuqe Ahmed, the chairman of the Chennai-based leather products manufacturer Farida Group, told Quartz. He added that no new company had entered the sector in the state over the last year.

Similarly, several textile units were forced to cut down production following the demonetisation of two high-value notes in 2016 and the introduction of the goods and services tax (GST) in July 2017 as these resulted in a shortfall of working capital, said A Sakthivel, the chairman of Poppys Knitwear. Based in Tiruppur, a knitwear manufacturing hub in western Tamil Nadu, the company produces and exports textiles.

The absence of a “visionary” like Jayalalithaa at the helm has also affected the growth of the industry, Ahmed said. “That was totally missing (over the last year). That has affected the industry’s progress.”

This stagnation has, meanwhile, hit the state exchequer. Tamil Nadu’s revenue deficit (the excess of revenue expenditure over revenue receipts) was estimated at Rs15,459.2 crore (around $23.2 billion) in the last financial year and is projected to reach Rs15,930 crore this year. Its fiscal deficit (excess of expenditure over income) is projected to reach Rs41,976.7 crore in 2017-18, around 31% lower than last year.

“In the last budget they showed huge deficits because of the 7th pay commission implementation. Also, there has been a fall in the revenue from liquor…so, we expected that there would be deficits. The second major issue is the GST implementation from August,” K R Shanmugam, an economist and the director of the Madras School of Economics, told Quartz.

He explained that in order to remedy the financial health of the state, the government will have to focus on non-tax revenues. Tamil Nadu has, for long, been a welfare state, focusing on providing facilities at low costs. “The financial situation will definitely improve provided they take some action. They have to concentrate on the non-tax side…because for many years…they never increased government fees etc.,” he added.

Moreover, issues with corruption and slow clearance of projects remain. “The officers are still the same, and it takes time to get clearances for projects,” an industrialist told Quartz, requesting anonymity. “They still spend weeks travelling around and celebrating MGR’s (the ruling AIADMK party’s founder) centenary and all of the state machinery is occupied with that.”