Tamil Nadu’s decentralised industrialisation model

The state’s cluster capitalists and ‘entrepreneurs from below’ explain in part its success in achieving industrialisation and diversification beyond agriculture

Tamil na du, which votes on april 19, is india’ s No. 1 state in terms of economic complexity, measured by the diversity of its gross domestic product (GDP) and employment profile.

The table shows that the farm sector’s share in TN’S gross value added (GVA) and in its employed labour force is well below the national average. Lower dependence on agriculture is matched by higher shares of industry, services, and construction in TN’S economy relative to all-india.

Gujarat is more industrialised than TN, with the factory sector generating 43.4% of the state’s GVA, and engaging 24.6% of its workforce (as against 22.7% and 17.9% respectively in TN). But in Gujarat, agriculture accounts for a higher share of GVA (15.9%) and workforce (41.8%) than in TN (12.6% and 28.9% respectively). That makes its economy less diversified and balanced vis-à-vis TN'S.

Another indicator of economic complexity is agriculture itself. About 45.3% of TN’S farm GVA comes from the livestock subsector, the highest for any state, and well above the 30.2% all-india average. TN has India’s largest private dairy company (Hatsun Agro Product), broiler enterprise (Suguna Foods), and egg processor (SKM Group), as well as the country’s “egg capital” (Namakkal).

Cluster-based industrialisation

TN has just a handful of large business houses with annual revenues in excess of Rs 15,000 crore — TVS, Murugappa, MRF, Amalgamations, and Apollo Hospitals. In turnover, they are not in the league of Tata, Reliance, Aditya Birla, Adani, Mahindra, JSW, Vedanta, Bharti, Infosys, HCL or Wipro.

The economic transformation of TN has been brought about by medium-scale businesses with turnover between Rs 100 crore and Rs 5,000 crore (some, like Hatsun and Suguna, have graduated to the Rs 5,00010,000 crore bracket). Its industrialisation has also been more spread out and decentralised, via the development of clusters.

Some of these clusters — agglomerations of firms specialising in particular industries — are well known: Tirupur for cotton knitwear (exports of Rs 34,350 crore and domestic sales of Rs 27,000 crore in 2022-23); Coimbatore for spinning mills and engineering goods (from castings, textile machinery, and auto components to pumpsets and wet grinders); Sivakasi for safety matches, fire crackers, and printing; Salem, Erode, Karur, and Somanur for powerlooms and home textiles; Vaniyambadi, Ambur, and Ranipet for leather.

Many cluster towns are hubs for multiple industries. Thus, Karur has powerlooms, bus body builders, and even makers of mosquito and fishing nets (one of them, VKA Polymers, is a major exporter of insecticide-treated bed nets). Dindigul has spinning mills and leather tanneries. Namakkal is as famous for layer poultryfarmsasitslargelorry fleet/ bulk cargo logistics operators and tapioca-based sago(sabudana)factories.salemhaspowerloomsandtapiocastarch-cum-sagoproducers,whileerodeisatextileand“turmericcity”.

There are also more sub-specialised clusters. Chatrapatti, in Virudhunagar district, is “bandage city” — a manufacturing centre for bandages, gauze pads/ rolls/ swabs and other surgical cotton products and woven dressings. Tiruchengode near Namakkal is the “borewell rigs capital” — whose borewell drilling services contractors take their truckmounted rigs all over the country to dig up to 1,400 feet. Dhalavaipuram, 10 km from Rajapalayam, specialises in nighties and ladies innerwear. Natham, next to Dindigul, produces low-priced men’s formal shirts.

Most of these clusters have come up in small urban/ peri-urban centres, providing employment to people from surrounding villages who might otherwise have migrated to big cities. They have also created diversification options outside of agriculture, reducing the proportion of the workforce that is dependent on farming.

Tirupur’sknitwearindustryemployssome 800,000people,includingmigrantsfromseveral states. KPR Mill Ltd, with Rs 4,740 crore sales in 2022-23, has 21,819 permanent employees—morethan84%ofwhomarewomen — at its garmenting, knitting, spinning, and processing facilities in Tirupur and nearby areas of Coimbatore and Erode districts.

Entrepreneurship from below

TN’S early industrialists were mainly Nattukottai Chettiars and Brahmins.

Prominent Chettiars included Annamalai Chettiar (from whom the MA Chidambaram and Chettinad groups descended), AMM Murugappa Chettiar (Murugappa Group), Karumuttu Thiagaraja Chettiar (textile magnate) and Alagappa Chettiar (textiles, insurance, hotels, and education).

Thebigtamilbrahmin-ownedhousesincluded TVS, TTK, Amalgamations, Seshasayee, Rane, India Cements, Sanmar, Enfield India, Standard Motors, and Shriram. A more recent name is the business software solutions company Zoho Corporation of Sridhar Vembu.

The drivers of TN’S more recent decentralised industrialisation have, however, been entrepreneurs from more ordinary peasant stock and provincial mercantile castes.

Coimbatore’s spinning mills, foundries, machining and pumps & valves, textile equipment, and compressor making units were mostly started by Kammavar Naidus. The promoters of Suguna Foods, CRI Pumps, Elgi Equipment, and Lakshmi Machine Works too, are from this community.

The cluster capitalists of Tirupur, Erode, Salem, Namakkal, Karur, and Dindigul are mainly Kongu Vellalar or Gounders. This is a community to which the owners of the Coimbatore-based Sakthi and Bannari Amman groups — and politicians such as former Chief Minister Edappadi Palaniswami and BJP state president K Annamalai — belong.

Sivasaki’sfireworks,matches,andprinting industries have been built largely by Nadars. But this belt in southern TN — also covering Virudhunagar, Srivilliputhur, Watrap and Rajapalayam — has produced entrepreneurs fromothercommunitiesaswell:raju(ramco Groupandadyaranandabhavan),andudayar (Pothys). Many from here have also gone on to create successful product brands: Hatsun (‘Arun’ ice-cream and ‘Arokya’ milk), VVV & Sons (‘Idhayam’ sesame oil), and Kaleesuwari Refinery (‘Gold Winner’ sunflower oil).

The remarkable thing about TN’S entrepreneurial culture is its percolation among diverse communities and in a range of industries. That includes Christians (MRF, Johnson Lifts, and Aachi Masala Foods) and Muslims (Farida Group). Cavinkare’s C K Ranganathan, a Mudaliar, was selling ‘Chik’ shampoo in single-use sachets well before the likes of Hindustan Unilever latched on to the idea. Ranganathan’s brother, C K Kumaravel, runs Naturals Salon & Spa that has nearly 700 hair and beauty care outlets across India.

This “entrepreneurship from below”, combined with high social progress indices from public health and education investments, probably explains TN’S relative success in achieving industrialisation and diversification beyond agriculture.