If economists concur that skilling the workforce is imperative to compete with China in manufacturing, then micro, small and medium enterprises (MSMEs) should emerge as the central focus to catalyse Tamil Nadu’s ambitious goal of becoming a $1-trillion economy by 2030.

MSMEs are an integral part of the manufacturing sector. Not only do they account for 45 per cent of India’s manufactured goods, but also contribute to over 50 per cent of total exports, manufacturing over 8,000 products with added value.

Tamil Nadu has the third-largest number of MSMEs, with five million enterprises, contributing a noteworthy 8.6 per cent to the national total. What sets the State apart is its workforce engagement, with over 2.5 million individuals powering the factory sector — undeniably the highest figure across the country.

Boasting 37,987 factories, Tamil Nadu secures the fourth position in the nation for its industrial prowess. Furthermore, the State is third in both invested capital and total industrial output within the industrial sector. With a substantial investment of ₹2.73-lakh crore, the MSME sector becomes a formidable source of livelihood for 151.61 lakh people in Tamil Nadu. This robust foundation unequivocally establishes the State’s MSMEs as pivotal drivers propelling it toward the ambitious economic milestone set for 2030.

In the context of becoming a $1-trillion economy, it is imperative to discuss the Tamil Nadu Industrial Policy 2021-2025. This policy was crafted to attract investments exceeding ₹10-lakh crore ($135 billion) by 2025, fostering an annual growth rate of 15 per cent in the manufacturing sector during the policy period.

Another pivotal aim is to raise the share manufacturing sector to 30 per cent of the State’s economy by 2030, up from 25 per cent. The highest investment priority is assigned to the manufacturing sector, requiring $598 billion, reflecting the State’s intent to foster industrial growth.

FDI inflows not robust

Despite these efforts, Tamil Nadu’s foreign direct investment (FDI) inflow is less pronounced, amounting to $8.5 billion from October 2019 to March 2023. In stark contrast, Maharashtra and Gujarat attracted $53.97 billion and $31.9 billion, respectively, during the same period. The unavailability of a skilled workforce can significantly influence FDI decisions.

A study conducted by the Madras Institute of Development Studies (MIDS) found that Tamil Nadu’s share of FDI inflows into India declined from 12.4 per cent in 2000-01 to 5.8 per cent in 2015-16, citing a shortage of skilled labour as one of the contributing factors for this decline.

The significance of bridging the skill gap emerges as a linchpin for Tamil Nadu’s economic aspirations. The World Bank’s studies further underscore the impact, showing that companies with a higher percentage of skilled workers experience up to 20 per cent higher productivity. Further, as acknowledged by various reports, MSMEs stand at the forefront of driving economic growth and job creation, but their success hinges on access to a skilled workforce.

Disturbingly, a glaring skill gap is evident, with an estimated 50 per cent of MSME jobs requiring specialised skills, according to the Assocham Skill Development Summit in 2023. The challenges persist, as highlighted by the FICCI Survey of 2022, where 70 per cent of MSMEs reported difficulty in securing workers with the necessary skills, impacting productivity and growth.

In the context of Tamil Nadu’s economic ambitions, the demand for skilled human resources (13.5 million), as outlined in the Ministry of Skill Development and Entrepreneurship’s annual report (2022-23), places the State in a position of promise. The State needs to revisit its strategies, particularly within the MSME sector.

The writer is a Researcher at Alagappa University, Karaikudi. Views are personal