Tamil Nadu looks to consolidate

Tamil Nadu is defying the slowdown and continuing to attract investments, especially in the automotive industry. At the start of this year, the State government cleared Rs 15,000 crore of investment plans in the automotive, electronics and energy sectors. What's more, during the current fiscal, Tamil Nadu has also attracted investments worth Rs 38,000 crore thorough 29 projects with an employment potential for about 200,000 people. In comparison, during 1991-2006, the State had drawn a total investment of about Rs 9,000 crore. Clearly, there is much which is drawing investors to the State.

Vision 2015
The Confederation of Indian Industry’s (CII) ‘Vision for Tamil Nadu Automotive Industry 2015’ says that by 2015, Tamil Nadu will emerge among the top three destinations of choice in Asia for the manufacture of automobiles and automotive components. The output of the automotive sector in the State will be $18 billion by 2015, contributed by auto components, fully built vehicles, and engineering services provided to both the domestic and global markets.

Gayathri Sriram, chairperson, Chennai Zone – CII and managing director of Ucal Products Pvt Ltd and Ucal Auto Pvt Ltd, says: “Tamil Nadu is one of the three main automotive hubs in the country today, accounting for about 25 percent of India’s automotive output. The automotive industry has a history of more than 60 years in the State, and has deep roots and reach in many parts of the economy. This suggests that Vision 2015 for Tamil Nadu is to be built from a position of relative strength and can therefore afford to be bold in its sweep. Besides, the context of the vision has to be international as the automotive industry operates on a global platform and it is essential to be internationally competitive.”

Inherent strength
Tamil Nadu has several advantages such as availability of skilled manpower, more than a critical mass of automotive players, a good work ethic, manufacturing culture and a general reputation for quality in manufactured goods, all of which can help the State aim big in the automotive sector.

As per Vision 2015, Tamil Nadu should target a 30-35 percent share of the Indian automotive industry by 2015, which translates into $18-20 billion in net output terms. Exports of auto components would be about $6 -7 billion, and domestic sales of components and completely built units (CBUs) at $10-11 billion. Exports of CBUs and engineering design services could contribute around $1.5 -2 billion to the total output by 2015.

“Vision 2015 would need an incremental investment of the order of $5 billion to come into Tamil Nadu from 2006-2015. We anticipate the bulk of this investment (60-70 percent) to come from global multinational corporations seeking to make Tamil Nadu their manufacturing base and the remainder (30-40 percent) being contributed by existing Indian players, from within the State and also from outside,” Ms Sriram adds.

Growth opportunities
The CII official feels that there is tremendous scope in domestic growth as well as global outsourcing opportunities in component exports, CBU exports and engineering outsourcing. Tamil Nadu enjoys the presence of an established automotive cluster. There are many efficiency factors like labour (productivity and cost), capital productivity, resource availability and infrastructure. The State has the ability to attract investments and has liberal economic and trade policies. The government is also offering incentives for investment. What's more, its proximity and accessibility to both the Indian and ASEAN markets are advantages few other Indian States have.

However, the CII also sees certain barriers in the State and expects the government to address these issues — lower labour productivity compared to competing countries, lack of labour flexibility (a case in point is Hyundai Motor India, which recently suffered car production losses due to a five-day labour strike) and the quality of infrastructure. While the government is now addressing infrastructure development in a big way, other issues still need to be tackled.

Employment potential
The expected growth in Tamil Nadu’s automotive sector would create employment opportunities in the State. According to research conducted by the CII, an additional 600,000 direct jobs would be created in various parts of the automotive value chain in the State by 2015 if the envisaged investments and growth in output were to happen. The employment opportunities would span a wide range of skill sets — workmen with basic skills, technicians with knowledge of advanced manufacturing techniques, supervisory staff and support staff in other areas. In addition, employment opportunities would also be generated in Tamil Nadu in other parts of the automotive value chain such as servicing, repairs, sales and distribution chains.

Action plan
In order to attract new investments, the State should take a slew of measures including creating appropriate policies in Tamil Nadu that accord requisite primacy to the automotive sector to attract investments, creating world-class infrastructure facilities through public-private participation with emphasis on development of road and ports. Furthermore, the State should effectively market the potential of the automotive sector. The government should also create the requisite capacity in the State to absorb investments. The CII feels that the Government should create clusters to ensure that investments are reasonably distributed to create regional balance. This means a conducive business climate that enables organisations to carry out their business objectives efficiently, foster product development capabilities through creation of world-class test and development facilities, focusing on industry-wide R&D efforts and harnessing the manpower capabilities available in the State. These are some of the recommendations made by the CII.

Key policies
The industry body also recommends key policies to be undertaken by the State government. “The government should declare the automotive industry as a thrust sector for Tamil Nadu. It should articulate a plan to ensure homogeneous development of the automotive sector across the State. Specifically, the government should endeavour to create four hubs in Tamil Nadu around Chennai, Coimbatore, Hosur and Madurai. It should establish automotive parks in different parts of the State where automotive companies can set up operations and the STPL module should be used in automotive industry as well. The State should reinforce the ‘Made in Tamil Nadu’ brand and establish it globally, and should also facilitate product development capabilities for the automotive industries by establishing world-class testing facilities, preferably by way of Government-industry collaborations,” Ms Sriram points out.

The State government should further encourage SMEs in the State to become viable and sustainable and also focus on providing a world-class infrastructure including ports, airports, roads and rail connectivity and intensify government-industry collaboration to develop manpower capabilities.

Reforming labour laws and providing flexibility to manufacturers to manage their labour force and also provide flexibility to the manufacturers to optimise their manning levels through a mix of permanent workforce and outsourced labour are the other recommendations. The CII also recommends simplifying labour legislation in order to improve productivity. The government should also provide performance incentives to automotive companies.

Chennai — a model auto zone
Tamil Nadu's capital Chennai has plenty of advantages that make it a natural choice for further development into a Model Automotive Zone in the State. The metropolis has the presence of an existing automotive cluster — it is home to vehicle manufacturers like Ford India, Hyundai Motor India, BMW India, Ashok Leyland, TVS Motor Co, Hindustan Motors and a number of large automotive component manufacturers including the TVS Group, Rane Group, MRF and Amalgamations. The city also boasts of a good pool of skilled manpower, besides having easy connectivity to domestic and international destinations. Chennai is equally accessible to ports including the Chennai Port and Ennore Port.

Infrastructure
The Tamil Nadu government, which is aware that it needs to do more to draw investment, now aims to fast develop its infrastructure. The deputy chief minister M K Stalin has recently announced a number of initiatives on that score. It is learnt that the State government plans to come out with sector-specific policies to address the needs of various industries.

In industrial belts, the State government will work with private sector players to create housing facilities at ‘fair and affordable prices’ for workers. Also, with the growth of Chennai suburbs and the increased industrialisation across the State, there is a need to provide social infrastructure for the workers’ families. Industrial training facilities will be set up to develop skilled human resource with the participation of large industries in the industrial estates in Tirunelveli, Thiruvallur and Kanchipuram districts. In a major step, the Tamil Nadu government is setting up a State Manufacturing Competitiveness Council to improve the efficiency and competitiveness of industries. With representatives from industry, government and technical experts, the council will provide regular updates and efforts.

Investments galore
The good news is that foreign automotive majors like Hyundai, Nissan, Ford and BMW are gathering momentum, despite the global downturn. While Ford plans to invest Rs 2,000 crore in its Indian operations, Hyundai Motor India is going ahead with plans to set up a diesel engine manufacturing plant with an initial capacity of 50,000 units in Chennai, to be completed by end-December 2010.

Meanwhile, India’s second electric car is to roll out from Chennai. On July 10, Bavina Cars India received the allotment letter from the deputy chief minister to set up the manufacturing plant in Ranipet, near Chennai. It will come up in the Special Economic Zone promoted by SIPCOT.

Bavina Cars will be investing Rs 300 crore in the project. The plant will have a production capacity of 25,000 cars per annum and commercial production is slated to commence from early 2011. This will be the second battery-powered car production unit in the country after Bangalore’s Reva Electric Car Company.

Meanwhile, PSA Peugeot- Citroen is conducting a feasibility study to set up a manufacturing plant in India and establish a sourcing office for its global requirements. At the start of 2009, the company was scouting for a location in Tamil Nadu to set up a manufacturing facility and had even met government officials. The company had set up an office in Chennai last year and had even appointed a vice-president in charge of the projects for India. The final decision though is expected by the end of this year.

Commercial vehicle manufacturing is also a unique feature of the automotive landscape in Tamil Nadu, with Ashok Leyland setting up much of its 80,000 capacity in the State though production has falling due to the economic slowdown. Thanks to efforts from both the Centre as well as the State government to push the infrastructure agenda, the commercial vehicle segment should see some improvement. Speaking at the company's annual general meeting recently, Ashok Leyland's managing director R Seshasayee said that market demand is picking up and the economy is on the rise but the growth momentum needs to be sustained.

This could be a pointer to the fact that Tamil Nadu continues to draw investments. As early as January this year, Allison Transmission, Inc., the world’s leading supplier of commercial duty fully automatic transmissions and hybrid propulsion systems, broke ground on a new India facility near Chennai designed to meet the growing global demand for automatic transmissions. The construction of the 203,000-square-foot manufacturing plant is expected to be completed in early 2010.

Then in June, Bright Autoplast, a leading automotive component maker and part of the Sintex Group, has set up its second plant at Oragadam near Chennai at a cost of Rs 27 crore and will cater to major customers like Hyundai Motor and Visteon. Machino Polymers, the polypropylene material supplier, is also planning to set up a new Rs 50 crore manufacturing unit in Chennai and expects the plant to go on stream by the end of this year. Caterpillar has announced a four-year, $200 million investment to increase engine and machinery production in India. The expansion programme is a part of Caterpillar’s strategic plan to increase its manufacturing footprint in the rapidly growing Asia-Pacific region. The company is investing significantly to increase production for off-highway trucks made at its facility near Chennai.

Leading tyre manufacturer Apollo Tyres, in order to increase its presence in the radial tyres segment of commercial vehicles has made an investment of around Rs 1,300-crore in Chennai for a greenfield project, which will go on stream by the end of this year. The new facility will make radial tyres for both trucks and cars and will have a capacity of 180 tonnes per day.

The Chennai-based tyre major MRF Tyres is also planning capacity expansion with a Rs 500-600 crore investment this fiscal. Meanwhile, Dunlop India had made a rapprochement with the Dunlop Factory Employees Union, thus paving the way for re-opening of the Ambattur (Chennai) unit.

French tyre major Michelin is also setting up a facility in Chennai. Michelin’s greenfield plant at the SIPCOT Industrial Park in Chennai is expected to attract an investment of Rs 4,000 crore in the first phase running into 2016 and Rs 3,000 crore in the second phase.

From the infrastructure point of view, there is a Rs 800 crore project in the form of Toshiba-JSW's planned manufacturing unit for super critical power equipment in Tamil Nadu. This 75:25 joint venture between Toshiba Corporation and the JSW Group will make mid- to large-sized steam turbines and generators in the 500-1000 MW range for super-critical thermal power plants in the Indian market, which are found to be more fuel efficient and save 3-4 percent more of coal per unit. The plant is coming up at Ennore, near Chennai and will provide employment to 500 persons by 2014. This new JV will contribute to the development of local industry and further promote stable power supply, which will help industry substantially.

Considering that the State government is seized of the urgency to fast-forward development, Vision 2015 seems achievable. Over the years, the automotive industry in Tamil Nadu has matured and has acquired critical mass. Cluster development has also resulted in benefits in supply chain management. Meanwhile, the role of the automotive industry is to be an active partner in the implementation of Vision 2015 and act as a catalyst to the development of the sector in the State.