Come January 23, Tamil Nadu will roll out the red carpet for investors as its much publicised Global Investors Meet (GIM) gets under way. If senior government officials are to be believed, the second edition of this purportedly biennial event will see over 140 MoUs being signed, committing an aggregate investment in excess of ₹2.4 lakh crore (the amount the State claimed the maiden summit in 2015 attracted). In run-up to the event, investments to the tune of ₹50,000 crore have already been approved by the State Cabinet.
Tamil Nadu has been one of India’s most attractive investment destinations for a variety of reasons. It is the second largest economy State-wise, topping in industrial performance and housing the largest number of factories in the country. The State produces the highest number of skilled manpower and boasts of a workforce that is both productive and docile. Its infrastructure is enviable with four large and 22 minor ports, four international airports and a strong road network. Successive governments have been stable and industry-friendly. Most importantly, the law and order situation has been amongst the most benign in the country.
Not surprising that Tamil Nadu has been receiving a fair share of foreign direct investment coming into the country.
Some of the biggest names in global business have made the State their home, including Hyundai Motor Company, BMW, Ford Motor Company, Saint Gobain, Renault-Nissan, Michelin, FLSmidth, Daimler AG, Komatsu and Yamaha Motor Company, as also have scores of large domestic businesses.
Given the State’s inherent strengths, the loud and clear message from the GIM should ideally be: any one planning to invest in India cannot ignore Tamil Nadu. But some of the recent events have had a jarring effect on this narrative, raising serious issues of governance and leaving investors confused.
Sterlite bungling
The manner in which Sterlite Copper was shut down for alleged pollution without following proper procedures (the company was not even served a show-cause notice before the closure) simply because protests against the facility went out of hand culminating in the death of 13 people in police firing has not gone down well for the State.
Both the National Green Tribunal (NGT) and the Supreme Court have since absolved the company of any violation and held the State government at fault besides ordering the factory’s re-opening.
To make things worse the government, despite unambiguous legal orders from the highest court, is stalling and looking for ways to keep the copper smelter in Thoothukudi shut. This has effectively burned its industry-friendly credentials.
Pollution is non-negotiable and every State has the right to act firmly against violators. But that action should be based on data and after proper scrutiny. In the case of Sterlite, as the NGT and Supreme Court orders point out, both were lacking. A company that was allowed to operate for more than two decades and recently given permission to even double its capacity was suddenly found to be polluting and shut overnight. It was a case of a weak government pandering to its political compulsions rather than looking at the issue objectively.
Anti-development forces
On top of this, what is worrying investors is the rising anti-development forces in the State. Ever since the death of AIADMK supremo and the then sitting chief minister J Jayalalithaa a couple of years ago, the State has seen a surge in protests and strikes (Royal Enfield and Yamaha to name a few).
This is because the government headed by her successor Edappadi K Palaniswami is perceived as weak.
In a State that has not seen a weak government for decades, fringe parties who are essentially anti-development now see a rare opportunity to become relevant. They tested the waters by protesting the conduct of Indian Premier League matches in Chennai last year on the grounds that it would distract the State from the Cauvery water issue.
The State government, instead of ensuring that politics and sports do not get mixed up, buckled under pressure and the IPL matches had to be shifted to Pune. This has only emboldened these forces.
Toxic tax environment
The State, over the years, has also become complacent, taking investors for granted. What else will explain the hostile and toxic tax environment where many marquee multinational companies have been slapped with notices for tax violations which experts say, in most cases, were based on ridiculous assumptions.
For instance, a luxury car maker was given a ₹333 crore tax demand after all its inter-State sales were treated as local sales. Another international car maker has hauled the State to international arbitration for withholding promised investment incentives worth ₹1,460 crore.
Tamil Nadu should realise that it is not just competing with other States ( against whom its perceived edge is fast disappearing as they are catching up) but also other countries for investments.
Evidence is already on the ground. Sri City, an integrated business township located in Andhra Pradesh, just 55 km north of Chennai, would not have been such a resounding success but for the State government’s lackadaisical attitude.
A global cement machinery maker cancelled its expansion plan in Tamil Nadu and moved to Vietnam after its high sea sales were deemed as local sales and ordered to pay tax of ₹464 crore.
The Tamil Nadu Government can make tall promises at the GIM but its actions on the ground will carry more weight with investors. Existing investors should act as its ambassadors, promoting the State for investment. For that to happen the government has to change its attitude and approach.
When Chennai-based Sundram Fasteners chose to set up its manufacturing facility in China 14 years ago, the Chinese government went out of the way to help the first Indian investment into the country in the engineering space.
It appointed a fully empowered facilitator who ensured the plant was set up smoothly. Later, when it transpired that load shedding could happen in the area where the factory is located, the facilitator got the local government set up generators, at its cost, to deliver uninterrupted power supply that was promised while signing up the investment. This is being investor-friendly.