The legendary journalist and author Harish Damodaran (he of ‘India’s New Capitalists’ fame), has written an outstanding piece that would be of interest to anyone who has been trying to understand why over the past two decades peninsular Indian has surged ahead of the rest of the country. In cities like Chennai, Hyderabad and Bangalore, the schools are better, the conversation is richer, the income levels are higher, and the social discourse is at a different level altogether compared to much of the rest of India. Even Tier 2 cities in the south like Coimbatore and Trichy are more industrialised, more literate, more law abiding and wealthier than their counterparts in the rest of India. Focusing specifically on Tamilnadu, Mr Damodaran explains that the state’s success lies in building an economy which is more complex and more diversified than other states in India:

“Tamil Nadu…is India’s No.1 state in terms of economic complexity, measured by the diversity of its gross domestic product (GDP) and employment profile.

The table below shows the farm sector’s share in TN’s gross value added (GVA; i.e. GDP net of product taxes and subsidies) and also in its employed labour force to be well below the national average [TN GVA share from agri is 12.6% vs all India’s 18.2%]. The lower dependence on agriculture is matched by the higher shares of industry, services and construction in its economy relative to all-India.

Another indicator of economic complexity is agriculture itself. About 45.3% of TN’s farm GVA comes from the livestock subsector, the highest for any state and way above the 30.2% all-India average. Not surprisingly, TN is home to India’s largest private dairy company (Hatsun Agro Product), broiler enterprise (Suguna Foods), egg processor (SKM Group) and also “egg capital” (Namakkal).”

Tamilnadu’s seond strength, Mr Damodaran says, is that its industrial success is not led by “big capitalists”. In fact, the state has just a handful of big business houses like TVS and Murugappa. Instead the state’s industrial success has been driven by mid-sized businesses:

“TN’s economic transformation has been brought about not by so-called Big Capital as much as medium-scale businesses with turnover range from Rs 100 crore to Rs 5,000 crore (some, like Hatsun and Suguna, have graduated to the next Rs 5,000-10,000 crore level). Its industrialisation has also been more spread out and decentralised, via the development of clusters.

Some of the clusters – agglomerations of firms specialising in particular industries – are well known: Tirupur for cotton knitwear (the units there clocked exports of Rs 34,350 crore and Rs 27,000 crore of domestic sales in 2022-23); Coimbatore for spinning mills and engineering goods (from castings, textile machinery and auto components to pumpsets and wet grinders); Sivakasi for safety matches, fire crackers and printing; Salem, Erode, Karur and Somanur for powerlooms and home textiles; and Vaniyambadi, Ambur and Ranipet for leather.

Many cluster towns are hubs for multiple industries. Thus, Karur has powerlooms, bus body builders and even makers of mosquito and fishing nets (one of them, V.K.A. Polymers, is a major exporter of insecticide-treated bed nets). Dindigul has spinning mills and leather tanneries. Namakkal is as famous for layer poultry farms as its large lorry fleet/bulk cargo logistics operators and tapioca-based sago (sabudana) factories. Salem has powerlooms and tapioca starch-cum-sago producers, while Erode is a textile and “turmeric city”.

In contrast to them are the more sub-specialised clusters. Chatrapatti, in Virudhunagar district’s Rajapalayam taluka, is “bandage city” not for nothing: It is a manufacturing centre for bandages, gauze pads/rolls/swabs and other surgical cotton products and woven dressings.

Tiruchengode is India’s “borewell rigs capital”. The borewell drilling services contractors of this town near Namakkal take their truck-mounted rigs all over the country to dig up to 1,400 feet. Dhalavaipuram, hardly 10 km from Rajapalayam, specialises in production of nighties and ladies innerwear, just as Natham, next to Dindigul, does in low-priced men’s formal shirts.”

Mr Damodaran’s article ends on a brilliant note as he explains why this mode of industrialisation (driven by lots of mid-sized firms rather than a handful of big groups) generates more employment and greater economic resilience:

“Most of these clusters have come up in small urban/peri-urban centres, providing employment to people from surrounding villages who may otherwise have migrated to big cities for work. They have, moreover, created diversification options outside of agriculture, reducing the proportion of TN’s workforce dependent on farming.”

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