Tamil Nadu aims to emerge as electronics manufacturing hub

Popularly known as India's Detroit as it is home to several top automobile brands in the world, Tamil Nadu is now going all out to emerge as the No. 1 hub for electronics manufacturing in the country. The state aims to contribute 25% of India’s total electronic exports and increase the industry's output to $100 billion by 2025.

Besides the conducive ecosystem, “excellent work force”, easy access to sea ports and its “industry-friendly policies”, the Tamil Nadu government believes the Covid-19 outbreak has opened up abundant opportunities for it to attract investments in the sector as many firms are expected to move out of China and set up their units in countries like India.

Chief Minister Edappadi K Palaniswami took the initiative himself by writing to top companies, including those from the electronics sector, asking them to choose Tamil Nadu for setting up their units even as the state battles the Covid-19 pandemic. He also set up a task force to garner investments from firms that are planning to shift out of “certain countries” due to the pandemic, of course, without naming China.

Already home to top 16 electronics manufacturers, including Nokia, Samsung, Flex, Dell, Motorola, Salcomp, HP, and Foxconn, the state is now aiming to contribute 25% of India’s total electronic exports to the world by 2025. India's electronic exports stood at $11.28 billion in 2019-20. At present, Tamil Nadu is the second largest manufacturing hub in the country and accounts for 16% of the national production of electronics and hardware.

Displaying its intent to emerge as the leader in the sector, the state released its Electronics Hardware Manufacturing Policy 2020 in September offering wide range of subsidies for such companies investing in Tamil Nadu and is now aiming at training over 1 lakh people by 2024 to meet human resource requirement projected by NSDC for Tamil Nadu, in the sector.

The government will formulate a special package of incentives for ESDM units in the MSME sector that will include capital subsidy, interest subvention, low tension power tariff subsidy, generator subsidy, assistance for obtaining intellectual property and assistance in obtaining certifications. MSMEs will also be assisted to scale up their business to serve as a vendor base for large and mega investors in this sector, the policy said.

Tamil Nadu was home to Nokia, the first major mobile phone manufacturer to step onto the Indian soil way back in 2005, whose factory was a symbol of India's economic success story. But after the factory became defunct in 2014 – it has now been revived by another Finnish firm Salcomp – the state suffered a setback.

“The setback has now been reversed with not just the Nokia factory getting a new lease of life but also Tamil Nadu emerging the most favourite destination for several top electronic manufacturers. The state government's policies, infrastructure and the facilities offered by SIPCOT are irresistible to companies,” N Muruganandam, Principal Secretary, Industries, told DH. Three seaports in and around Chennai and an international airport is also an added advantage, he said.

Muruganandam added that the state government was in talks with several top companies in the sector for setting up their units without mentioning their names. “Many firms that are already in our state are also planning to expand their capacity by investing huge amounts of money. And the Centre's production-linked incentive (PLI) scheme is also helping us attract more investments,” he said.

The state wants the electronics industry to be on par with automobiles that accounts to 37.6% of the country's automobile and auto component exports, apparel (30.8%) and footwear (46.4%). The state has two exclusive Special Economic Zones (SEZs) for Electronics and Hardware manufacturing in Sriperumbudur, 50 km from here, and in Oragadam, 70 km from here, spread over 800 acres.

Destination for FDI

Tamil Nadu is also one of the leading destinations for Foreign Direct Investments (FDI) into the country, the state has attracted $31.2 billion in FDI from April 2000 to September 2019.

“The strong ecosystem for large-scale manufacturers, accessibility to sea ports and availability of disciplined and skillful workforce that has the appetite to make their lives better, governmental support and less government intervention are some of the factors that attracts people like us to the state,” Sasikumar Gendham, Managing Director, Salcomp India, told DH.

The state also got a shot in the arm when Foxconn, one of the major contract manufacturers for smartphone major Apple Inc, began assembling high-end iPhones at its facility in Sriperumbudur, 50 km from Chennai. The Taiwanese electronics manufacturer is also understood to have pledged an additional investment of Rs 7,000 crore ($1 billion) to expand capacity.

Also, the state is now vying with Karnataka to bag a major contract from Pegatron Corporation, another top contract manufacturer for Apple Inc., to set up its manufacturing unit near Chennai. Salcomp, which made its debut in Chennai in 2007, has also invested Rs 1,800 crore since 2019.

Since a lot of companies come to Tamil Nadu for setting up their units, the state should be more pro-active by keeping infrastructure ready for large companies to just move in and launch production, Gendham said.

“I think the aim is to meet standards that countries like China and South Korea have for their industries. Infrastructure needs to be ramped up and a lot of focus should be given to skill development to ensure people are industry-ready. The government should keep a few clusters ready for firms to start production in just three to four months after occupation. The life cycle of our products are very short and having a plug-n-play model will be a key point in attracting large companies,” Gendham added.

K E Raghunathan, Convenor, Consortium of Indian Associations (CIA), said the state government should concentrate more on augmenting infrastructure in industrial estates like ensuring smooth road connectivity, water and drainage system and decentralised housing schemes for employees. He also demanded easy process and time bound settlement of redressal of any issues faced and demand notices served.

“Time is the essence and cost is the consideration. We have to be flexible and innovative to seize the opportunity over other states. Though we might appear to lose in the short term, it will be a gain in the long terms and we can devise incentives based on production linked output rather than mere input-based investment,” he said.