The five years of DMK rule led by visionary and far-sighted Kalaignar between 2006 and 2011, was acknowledgedly, the golden period in the industrial history of Tamil Nadu. In the last 15 years between 1996 and 2011, but for a break for five years from 2001-06, Tamil Nadu emerged as an attractive destination for Foreign Direct Investment (FDI). Particularly, Industry-friendly government policies, proximity to the port, a traditional engineering base were factors that had made Chennai the ‘Auto Hub’ of India.
As the Indian automobile industry was making its achievements felt in the global arena through exports of small cars to Europe, Tamil Nadu, the most industrialised state in South India was at the forefront of this movememt.
And right in this southern port town within a radius of 50 to 60 km, an automobile hub had quietly emerged in Tamil Nadu which traditionally boasts of a strong engineering and auto-parts industry.
Ford Motor Company’s major foray in the beginning (initially it was a 50:50 joint venture with Mahindra & Mahindra until Ford picked up majority stake in 1998 to be renamed Ford India) with its first passenger car facility in India at Maraimalainagar, 45 km South of Chennai, was the big trigger point. This was soon followed by another big ticket investment by Korean car maker Hyundai in 1996, setting up its plant near Sriperumbudur (near Chennai). Today, seven of the 20 top global auto makers had moved into Chennai’s vicinity to earn it the sobriquet of ‘Detroit of India’.
These major vehicle manufacturers included, besides Ford and Hyundai, the German luxury car maker BMW, Daimler, Mitsubishi and last but not least, the more recent grand Renault-Nissan alliance plant at Oragadam near Sriperumbudur. The French car maker Peugeot had also shortlisted a place near Chennai, among locations in other states, for its car plant.
With these giants’ entry, the growth in the automobile and auto-ancillary sector had been phenomenal. This prompted the then Deputy Chief Minister, M K Stalin to sum up at a Industry interaction in Chennai that: “Today, Tamil Nadu has become the largest manufacturing hub, both for electronic hardware, consumer durables and automobiles.” He quoted a study by mobile phone maker Nokia, which also had a large plant at Sriperumbudur, that “the total cost of manufacturing in Chennai in India is much cheaper than even in China, by over 11 per cent in net productivity value (NPV) terms.”
Four Tamil Nadu-based car companies together manufactured 5,71,136 cars in the April-December 2010 period accounting for 42 per cent of the country’s car production. Exports had also grown many fold as Hyundai exported 1,76,951 cars and Nissan exported 21,283 cars in the April-December 2010 period. But, Rome was not built in a day.
What made this dramatically new profile for Chennai — once a sleepy fishing village until the British made it its base on the East coast-possible? Historically, manufacturing in this region started in 1840, with Simpsons pioneering India’s automobile industry including making rail coaches and diesel engines.
In 1948, came Ashok Leyland to first assemble ‘Austin cars’. But today, a flagship of the Hinduja Group, Ashok Leyland with three plants in Tamil Nadu itself is one of the largest makers of trucks, buses and off-road vehicles. The TVS Group had burst into a robust phase in the 1960s’, setting up a number of auto-components manufacturing plants. Thus a sound engineering base ably supported by a skilled workforce took shape.
Since 1967, the DMK Governments continued that industry friendly proactive trend in industrialisation. Since the economic liberalisation in 1991, Ford invested in the state amid stiff competition. The government under Kalaignar continued and consolidated the industry-friendly trend.
It was thus a cluster of factors – investment-friendly regimes, good infrastructure, proximity to a large port in Chennai, a structure of flexible and supportive industrial policies and incentives, particularly for mega integrated automobile projects investing over Rs 4,000 crores in 5 years — had pitch-forked Chennai to a new orbit, point out sources both in industry and in the government.
The DMK government had also steadily accumulated land bank through state industrial promotional agencies over the years that avoided the conflict with farmers like the one happened in Singur in West Bengal. Added to it was the good supply of trained manpower with engineering background.
In the last 15 years but for the break from 2001-06, Chennai had become an attractive destination of Foreign Direct Investments (FDI). Government officials estimated that since May 2006, automobiles and auto-components industry is a huge Rs 21, 900 Crores. It is almost five times the investments attracted by the State during the previous 15 years, they pointed out, adding, the total employment potential in the new projects alone was 1.20 lakh.
For the automobile sector alone, these FDI outcomes translated into, Chennai: “now emerging as one of the top 10 global manufacturing centres,” officials said. By the end of the fiscal 2010-11, trends showed that the automobile hub in Chennai would have an installed capacity to produce 12.80 lakhs cars and 3.50 lakh commercial vehicles per year. This was huge for an area already accounting for 42 per cent of India’s passenger car production. In addition, FDI into electronic hardware manufacturing in this belt including Dell, Nokia and Samsung’s is a significant Rs 12,000 crore.
On top of this, while USA’s Caterpillar, Japan’s Komatsu and South Korea’s Doosan had chosen Chennai to establish large earth moving equipment manufacturing plants, the State accounted for 35 per cent of India’s $18 billion worth auto-components production. From, TVS, Rane and Amalgamations to Robert Bosch, it was a mixed bag.
Added to these was a very critical infrastructure – a world-class Rs 450 crores ‘National Automotive Testing R &D Centre’ at Oragadam. It gave vehicle manufacturers a range of facilities including to test design, safety emissions and performance standards. Hitherto, they had to go all the way to Pune for validating such parameters and this was one factor that will be crucial to place India on the global auto map, vehicle tyre majors were also pitching in to ride this bull run.
“It (Chennai-Sriperumbudur-Oragadam) is already an automobile hub with so many companies. Its location and access to a sea port is a big plus,” said a spokes person for Hyundai Motors, which with a production of 6 lakhs passenger cars per annum last year exported 48 per cent of its cars. Nearly 50 per cent of the Korean firm’s small cars are exported to European Union.
The Renault-Nissan Alliance, was adopting a similar strategy with its new car ‘Micra’, destined for both the domestic market and exports to over 100 countries in Europe, the Middle East and Africa. “Our Chennai plant thus represents a key milestone for the alliance in India,” reasoned Nissan Motors global chief Carlos Ghosn, when their Oragadam plant with annual production capacity of 4 lakh units went into stream in March last year.
Early bird Ford India too recently expanded its manufacturing capacity to two lakh passenger cars per annum, besides setting up a separate engine plant making 2.50 lakh units per year (mainly low displacement engines). It was all set to export its compact car ‘Ford Figo’ to 50 markets in the world. A spokesperson of the company said that Ford is ramping up India operations to create an export hub for small cars and engines.
However, since last March when the process for State Assembly elections set in, and with the advent of the ADMK regime, there was a lacuna in the state promotion of automobile sector. Neither in the Governor’s Address in the State Assembly or in the first budget presented by the ADMK regime, there was any announcement cheering the industrial sector, particularly the automobile sector, that not a single body of the trade and industry like CII, FICCI or Assocham or associations of various manufacturers and traders reacted leave alone welcoming. Utilising the discontinuity in Tamil Nadu to it advantage, Narendra Modi’s Gujarat seems to have seized the initiative of wooing international manufacturers.
France’s leading car maker and the second largest in Europe, PSA Peugeot Citroën set eye on India for setting up their plant after China, late in February last. The company had shortlisted Tamil Nadu, Gujarat and Andhra Pradesh for setting up the plant in one of them. But given the state of turmoil in Andhra Pradesh following Telangana agitation, the race was only between Tamil Nadu and Gujarat. Tamil Nadu and Gujarat are vying to become the car manufacturing centre of India, which is to become the world’s third-largest car market by 2020, after China and the US. Peugeot Citroën is the only global car maker to not yet have a presence in India. The company was forced to leave the Indian market in the late 1990s following a drawn-out legal dispute with its Indian partner, Premier Automobiles. The rapid growth in India’s car market, though, has become impossible to ignore. Last year, Indians bought more than 2.7 million cars compared with 7,00,000 about 10 years ago.
A high level delegation from PSA, including PSA Peugeot Citroën CEO, China (Asian Operations) Gregoire Olivier, Managing Director of PSA Peugeot Citroen Indian project Frederic Fabre called on Chief Minister Jayalalitha at the Secretariat on June 28. Following this meeting, the Tamil Nadu government on the same day issued an official press release stating, that ‘the PSA identified land at Sriperumpudur to set up a plant with an initial capacity of three lakh cars per year. After evaluating sites in various states, PSA has selected a site near Sriperumpudur. The company would provide direct and indirect employment to 20,000 people at the facility, besides also attracting a large number of auto-component manufacturers from France.” Based on this official release of the government, all the dailies carried reports on June 29.
Two days after Tamil Nadu government released the official release, ‘The Wall Street Journal’ reported on July 1 that, “the PSA Peugeot Citroën was forced to issue a clarification after the State government of Tamil Nadu independently issued a press release stating that the French company had already chosen a site for its facility at Sriperumpudur.” The company in a statement said it was yet to take a decision on the matter. “The decision related to the location of a future plant in India is not taken at this stage”.
On June 30, the top delegation of the company met Gujarat Chief Minister Narendra Modi. According to an official statement by the Gujarat government, a delegation of Peugeot Group of Companies led by Gregoire Olivier, chief executive officer, of Asian Operations for PSA Peugeot Citroen, China, Frederic Fabre, managing director of PSA Peugeot Citroen India project, and Jitesh Gadhia, senior managing director, The Blackstone Group, among others met Chief Minister Narendra Modi and expressed their desire to set up a manufacturing plant.
The statement quoted Peugeot officials as saying that Gujarat is rapidly emerging as a hub for automobile industry. The company is impressed with the fast-paced development of Gujarat and is in talk with the state government regarding a suitable place for the plant. "The company is in talks with three states for setting up its first plant in India and that Gujarat is one of the favourite places of the company. However, the company has not taken any decision yet and the Board of Directors will finalise the matter," the statement quoted Olivier as saying.
According to Gadhia, whose The Blackstone Group is one of the financial advisors to PSA Peugeot, active discussions are on with three states including Gujarat. "The company is actively considering Gujarat as one of the states. Though it was a private meeting with the Chief Minister, the same was open and constructive. Gujarat is an impressive state," said Gadhia. When asked about the reports on the company's plans for setting up a plant in Tamil Nadu, Gadhia said, "No decisions have been taken so far. We are still in talks with the governments. A final decision will be taken in the next few months."
PSA Peugeot's visit to Gujarat comes hardly a month after Maruti Suzuki India Ltd's (MSIL) Chairman R C Bhargava and managing director Shinzo Nakanishi met Modi and had expressed intent to set up a plant in Gujarat on a 500-acre plot, with a capacity to produce a million cars per annum.
Unlike the clarification issued by the company after the claim made by the ADMK regime, no clarification or denial was issued after the Gujarat government released as press statement.
Set to step into the big league of India’s auto hubs, Gujarat recently attracted number of car manufacturers keen to set up production facilities in the State. At present, Gurgaon, Chennai and Pune are the country’s top vehicle producing centres. Latest entrants are Ford Motors and Maruti Suzuki. Peugeot, Hero Honda, Bajaj Auto are in talks with the State that saw momentum picking up after Tata Motors chose Sanand to house its Nano project shifting from West Bengal.
But Jayalalitha seems to be unbothered about the development. Industry circles feel that unstable bureaucracy due to frequent shifting of higher officials at the whims and fancies of the rulers, unimpressive ministers who could not converse with authority etc., of this regime could put off prospective investors, more so in respect of FDIs. Similar situation existed during Jayalalitha’s regime 2001-06 when number of investors went to neighbouring states.
Now the most prospective French car manufacturer PSA Peugeot Citroën which proposed to invest Rs.4,000 crore is being lost by Jayalalitha for Tamil Nadu and driven out to Gujarat’s Narendra Modi. Becoming a ‘Detroit’ has taken so many years, but staying there seems equally challenging for the state. It requires enormous patience, perseverance and far-sightedness on the part of rulers of the state to meet this challenge and preserve its prestige. But with Jayalalitha at the helm it is unlikely!
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