When the country opened up 20 years ago, South India was seen as a region which was lagging behind the West and the North. Distance from Delhi had made it a rather boring and sluggish place. When the many restrictions for growth were removed, the South discovered itself. Having built up a solid base for ten years after the reforms, it has been growing at a scorching pace compared to many parts of India in the last decade.
The region, comprising of Andhra, Karnataka, Kerala, Pondicherry and Tamil Nadu, has scored higher than the national average on several social and economic indicators. As a McKinsey report prepared for the CII (Southern Region) points out, the South has been a major driver of growth for India from 2000 to 2010, contributing to over 22% of India?s GDP and 28% of its employment. However, there are now visible signs of a slowdown. As other states are beginning to catch up, the South is beginning to lag behind national growth. ?We cannot explain this away by saying that other states have lower base points. It is time to work on an action plan to sustain the growth momentum,? says TT Ashok, chairman CII (Southern Region). He shares his concerns with Sushila Ravindranath.
How serious is the slowdown that is visible in the South at present?
It is not that the South has stopped growing. It is, however, showing a slower growth. There is a slowdown in many sectors. You can see this in consumer durables where sales are dropping compared to last year. One cannot attribute this just to fiscal policy and to climbing interest rates. We face a serious manpower shortage. This, coupled with a lack of skills, has pushed up wages. There are units lying idle in Tamil Nadu due to lack of labour availability. Physical infrastructure has not kept pace with the demand either. There is a shortage of power, proper roads, cargo handlingcapacity at ports, and logistics infrastructure.
Coping with fast growth is not easy.
Land prices have shot up. Chennai, Bangalore and Hyderabad are highly congested cities.
Chennai is now more congested than Mumbai.
So housing becomes a big issue. We must also remember that there have been concerted efforts by other states to attract investment, which has also put roadblocks in our way.
And what propelled the South?s progress in the last decade?
Although South India?s GDP growth rate over the last ten years has been at par with the all-India average, its growth in skill-intensive industries such as automobile, IT & ITeS and biotech have surpassed the all-India average. Over 63% of the country?s IT exports and around 40% of its biotech industry are from the South. Tamil Nadu is truly the Detroit of India. The already existing automotive industry ecosystem, high quality engineering talent, investor-friendly policies made this happen. Karnataka and Andhra, too, came out with policies to attract investment.
Over the past five years, the South has attracted investments of around $75 billion. South India?s current GDP of $300 billion is more than that of most countries in the world. In fact, only the top 30 economies of the world exceed this figure. The South also leads in most social parameters. The state governments have certainly played a role in these achievements.
But how does the South now compare with the other Indian states?
Take Gujarat as an example. It is now the leader in the chemicals industry, getting 35% of all investments in this sector over the past five years. It has used its long coastline to its advantage and has announced India?s first state policy on the development of minor ports. These ports are equipped with the necessary infrastructure which includes power, water and sewerage so that companies can just move in and start operations. Investors have been promised uninterrupted power supply and also a single window clearance system. States that have traditionally been poor performers, like Bihar and Uttarakhand, have in the last three years impressed everybody with growth rates of 16% and 14%, respectively. It is time for us to start arresting our declining growth rates.
Is it possible to put this region back on track once again?
The state governments? initiatives have helped, to a large extent, to build strong fundamentals.
Now they have to move further forward, and strengthen and tighten execution. Industry is worried about cumbersome and time-consuming business processes.
Land acquisition remains a problem. In Tamil Nadu, hardly any land is available. It is time to set up state land banking corporations. We must follow the best models for resettlement, rehabilitation and compensation. Registering businesses, applying for regulatory clearances and managing complicated tax and duty structures are all difficult. It is time to simplify all these elements. In a survey by the World Bank on the ease of doing business, Bangalore and Chennai ranked 13th and 15th among 17 Indian cities. The slow pace of policy execution and project implementation has led to time and cost overruns for a lot of large projects. The slow pace of implementing power projects in Tamil Nadu and the metro rail project in Bangalore are two obvious examples.
As I said, it is not a dire situation. Rapid urbanisation and rising consumer spending can again put the South on a high growth trajectory. We must also build on our strengths and start going up in the value chain. Government and industry should work together in building business clusters and focus on specific industries based on each state?s starting position.
Tamil Nadu, with its preeminent position in the automotive and auto component manufacturing sectors, should aim to become a global hub in these industries. The state should also build upon its advantages in textiles and medical tourism. Andhra can become a global hub for biotechnology and pharmaceuticals. As a predominantly agricultural state, it should invest in agro products and processing. It has the advantage of having considerable natural gas reserves. Karnataka should now start emphasising on IT products and innovation. Kerala has the potential to become the regional hub for tourism and hospitality. So does Pondicherry, which can leverage its French connection. All is certainly not lost.