India’s Detroit struggles as new states become growth drivers
chennai/new delhi — It’s quiet as Ruchak Khanter walks across his factory in the southern Indian city of Chennai. Stacked piles of unsold stainless steel plates, trays and bowls cover the floor, industrial stamping machines lay idle and most of his workers have been sent home.
“There’s literally no work,” Khanter said, citing the new nationwide goods and services tax and the decline in his state’s competitiveness as others regions lure investment. He’s considering moving to Ahmedabad in Gujarat, some 1,850km to the north. “A lot of industries have already shifted.”
Nicknamed the “Detroit of India” for its auto industry, Chennai, the capital of Tamil Nadu, is at risk of taking on another characteristic of the American city — the demise of a manufacturing powerhouse. For India as a whole though, the ascent of less developed states could spell a future of more balanced, sustainable growth where regional rivalries fuel productivity gains, much as they have in the other giant economies of the US and China.
“For a host of reasons, parts of South India developed more rapidly than the northern states postindependence,” said Shailesh Kumar, senior Asia analyst at Eurasia Group, a political risk firm. “This trend may now be changing on account of the government’s push to have states compete for business and investments, with the goal that in the end all of India will benefit.”
Andhra Pradesh and the newlyformed state of Telangana are among the fiercest competitors for new industry. With huge tracts of rural land available, they can bid aggressively for new industry, said Venu Srinivasan, Chennai-based chairman of Sundaram Clayton, majority owner of TVS Motor. “The
South india developed more rapidly than the northern states postindependence... [but] this may now be changing
Shailesh Kumar, Senior Asia analyst at Eurasia Group
growth in Andhra and Telangana is amazing,” Srinivasan said.
Chief minister Chandrababu Naidu is tapping into Andhra Pradesh’s tech prowess to try and make their built-from-scratch capital Amaravati a Singapore-style fintech centre of India. “This is our strength,” said J.A. Chowdary, the state’s special chief secretary.
India’s states, particularly Andhra Pradesh and Telangana, are “engaged in a very healthy sort of competition, in terms of governance in general, in terms of attracting investment, in terms of building infrastructure,” said Viswanathan Raghunathan, a business professor and author based in Hyderabad.
For Prime Minister Narendra Modi, more balanced growth across the nation of 1.3 billion would help fulfill his 2014 campaign promise to bring economic development to all Indians — a pledge now under pressure from a lack of job creation. But as a former chief minister himself, Modi knows competition between states can lead to new investments and job creation, and he has tried to level the playing field by implementing national policies such as GST.
That’s little comfort to businesses in Tamil Nadu, India’s most industrialised state and long a destination for global manufacturers. Political shifts and policies such as the GST have dented the region’s momentum, while a drop in remittances from workers in the Gulf has been most notable here.
“The south was a powerhouse for industry,” said N.K. Ranganath, managing director of Grundfos Pumps India, a division of Denmark-based Grundfos. “But over a period of time, that is kind of diminishing.” — Bloomberg