Amma gets down to business

Tamil Nadu chief minister J. Jayalalithaa signed accords worth Rs 20,925 crore with 12 companies that would provide direct employment to about 36,855 people and indirectly benefit nearly 100,000 more.
The chief minister also said the state would introduce a series of new policy reforms to strengthen the manufacturing sector with Rs 1 lakh crore worth new investments.
“Attracting investment is dependent on providing the right environment to run a business efficiently. While availability of power, water, connectivity, port are key drivers that attract investments, administrative and procedural issues also play an important role,” Jayalalithaa said.
The investment pledges have come even as the state faces a severe power shortage. Electricity demand in Tamil Nadu is touching 11,500 megawatts (MW) and generation remains only at 7,500MW. This is resulting in 8-to-18 hour power cuts in some parts of the state, including Madurai, Tirupur and Coimbatore.
“These challenges have eroded our competitiveness, making many investors shy away from Tamil Nadu,” Jayalalithaa said.
Companies that have invested in the state, believe the power situation is only a short term glitch.
“We plan to use a lot of solar and alternative energy, but we are confident the state will help meet our energy demands,” said Anshu Budhraja, CFO, Amway India, which is investing Rs 300 crore to set up its first manufacturing plant in India. Tamil Nadu is an attractive destination for this wellness company as 22% percent of its sales is from Tamil Nadu said the CFO.
For Hyundai Motor, which has invested Rs 4,000 crore into building a flexible engine plant at its existing facility in Sriperambudur, the project will not require any more additional power than what is consumed, said R. Sethuraman, director- finance and corporate affairs. He added that an additional 3 lakh engine capacity was being added to the existing 6 lakh capacity. “We should begin production in the third quarter or fourth quarter of 2013.”
TVS Group too has made a Rs 700 crore investment to increase capacity to 2 million units per annum from 1.35 million. The investment is across 3 companies – Sundaram Clayton, TVS Motor and Sundaram Auto Components, over a period of three years.
“With this investment, we will continue to get the benefits that we already get in the state-- like 80% of the investment is given as a soft loan over a period of 12 years. This will be the real cash flow benefit to the company,” explained SG Murali, CFO, TVS Motor.
Investments pledged include Rs 4,500 crore by Indo Rama Group of companies for setting up synthetic fibre and petrochemical manufacturing plants; a Rs 2,325 crore joint venture by BGR Energy Group and Hitachi Ltd to make turbines, generators and boilers; and a Rs 4,100 crore commitment by the US-based paint maker PPG Industries and Harsha group for setting up fibre glass and float glass units.
A 2,000-acre textile park with an investment of Rs 3,100 crore will also come up in Coimbatore.


Tamil Nadu ranks fifth among the states in terms of total debt burden. Only Maharashtra, Uttar Pradesh, West Bengal and Andhra Pradesh are worse off than Tamil Nadu, according to statistics released by the Reserve Bank of India recently. Tamil Nadu’s overall debt is 1.3 lakh crore, while Maharashtra has a total debt burden of 2.53 lakh crore and UP 2.44 lakh crore.
Though Tamil Nadu is saddled with a huge debt, economists feel it is no cause for alarm as much of the debt is long-term in nature and as long as there is surplus in the revenue account, the state will not fall into a debt trap.
Debt per se is not bad if the state has the economic activity to sustain it. Tamil Nadu’s debts, as a percentage of its Gross State Domestic Product (GSDP) is 21.6%, according to budget estimates for 2011-12. During the same period, Maharashtra had a debt-GSDP ratio of 21%, but West Bengal and Uttar Pradesh have 39.9% and 36.6% respectively.

The composition of debt also counts and according to a study by ICRA, an agency of Moody’s Investor Service, state is not burdened by any compulsion to repay these debts in the short term. A majority of the debts are longterm in nature, which means the state’s liquidity would remain strong in the medium term.