INDIAN STATESEconomy and Business

Tamil Nadu

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INDIAN STATESEconomy and Business

Tamil Nadu

www.ibef.org

TAMIL NADU PAGE 3

CONTENTS

Executive Summary 5

Economic Snapshot 7

The State Economy 9

Infrastructure 11Social infrastructure 11Access infrastructure 11Communications infrastructure 12Financial infrastructure 12Industrial infrastructure 12

State Policy 13Infrastructure policy 13e-Governance 14IT policy 14Biotech policy 14

Business Opportunities 15Key industries 16Exports 17Investment 18Potential hubs for investment 19

Key Players 21

Doing Business in Tamil Nadu 26Indicative list of approvals and clearances 26Cost of setting up business 27Contact for information 28

A report by KPMG for IBEF

TAMIL NADU PAGE 5

Executive Summary

by government agencies and a continuous drive to upgrade its infrastructure to world-class standards.A number of proactive policy measures such as singlewindow clearances and easing entry barriers forinvestors have made it a chosen destination forForeign Direct Investment. Interestingly,Tamil Nadu is one of the first states to formulate an ITES andBiotech Policy.The state is vigorously highlighting thebusiness opportunities it has to offer in the Biotechand IT sectors; funds have been created towardsactively promoting the state at national andinternational trade conferences.

Tamil Nadu has undertaken mega projects in conjunction with the private sector to upgrade the existing infrastructure to world-class standards.A six-lane IT corridor (IT expressway) betweenChennai and Sirueri (IT Bay area) has beencommissioned, P&O Ports’ investment have made the turnaround time at Chennai port among the leastin the country.The state now boasts of one of thelowest power tariffs in the country.Two submarinecables connecting Chennai and Singapore willsubstantially increase the existing bandwidth forcommunication, making Chennai the “ConnectivityGateway of India”.

The state has consistently proven to be a leader onseveral economic fronts. All round development hasbeen the cornerstone of economic progress in thestate, with equal attention being paid to all sectors of the economy, ensuring that each sector in theeconomy achieves a high growth rate.

Tamil Nadu is one of the most developed states in the country.The state has succeeded in reducingpoverty levels and raising the standard of living of its people. Literacy levels in the state are amongthe highest in the country, with almost the entirepopulation having access to primary education.

Riding on this economic development and spurring it further is a rapid wave of industrialisation.Tamil Nadu has grown to become one of themanufacturing powerhouses in the country,especially in the textile and automobile sector.The textile-manufacturing units have met withtremendous success, both nationally andinternationally.The state is home to one of the largest automotive component industry in India.A number of international auto giants including Ford and Hyundai have set up manufacturing units in the state.Their investment in the state are to thetune of US$ 1 billion. Chennai has now earned thelabel, ”Detroit of India”.

Tamil Nadu has recorded the fastest growth rate in software exports, 700 per cent from 1998 to 2001.It now has the largest medical transcription facility in Asia; BPO outfits for a number of multinationalsnow operate from Chennai. Chennai is ranked firstamong Indian cities in terms of technology exposureand responsiveness and is rated as the ideal locationfor software projects in India.

The principal reasons for its rapid industrial andservices growth are the proactive policies formulated

Industrial Centres in Tamil Nadu

TAMIL NADU PAGE 7

An Economic Snapshot

Capital Chennai

Area (sq km) 1,30,000

Population (Million) 62.1

Literacy rate (%) 73.5

Sex ratio (per 1000 males) 986

Length of coastline (km) 1,076 (2nd longest in India)

National highway length (km) 2,002

Domestic airports Chennai,Tiruchirapalli, Coimbatore,Madurai,Tuticorin

International airport Chennai

Major ports Chennai, Ennore and Tuticorin with combined tonnage capacity of 73 MT (24 per cent share in India)

Key industries TextilesLeatherInformation Technology,AutomotiveAuto componentsEngineeringMineral-basedAgro-based

Monthly per capita consumptionexpenditure (US$) 14.7 (4th highest in India)

Market potential value (MPV)* 9 per cent share in India (2nd highest in India)

*Source: MPV is a measure of Means or Prosperity of consumer,Consumption pattern,Awareness, Market support and the size of the market.

Advantage Tamil Nadu

n Highest value addition in the industries

n Fastest growth rate of 700 per cent in software exports

n One of the leading states in the production of automotive components

n Largest capacity for Engineering and Polytechnic education

n Largest IT park in the country

n Highest number of factories and export oriented units

n Landing point for two submarine cables with a total bandwidth of 13 tbps

n Uninterrupted quality power supply to industries at low tariff rates (between US cents 5.9 to US cents 8.0 per kWh)

n Single window policy for all approvals

n One of the first states to articulate an ITES and Biotech policy

further. Tamil Nadu attracts the second largestnumber of foreign tourists; additionally the state hasregistered a compounded annual growth rate (CAGR)of 16 per cent during 1997-2002.

Tamil Nadu is one of the most industrialised states in the country, accounting for 16 per cent of the totalfactories in the country.The factories in Tamil Nadu

TAMIL NADU PAGE 9

THE STATE ECONOMY

Tamil Nadu is one of the most industrialised statesand is the third largest economy in the country.TheState Domestic Product is about US$ 27.4 billion andthe current economic growth rate is 6.1 per cent.Thecurrent exports are around US$ 6,450 million withCAGR of 9 per cent in the past decade.

The growth in manufacturing and services sectors has fed and in turn benefited from the rise in thestandard of living of people in the state.The state is ranked third in the country in per capita stateincome. Per capita state income has grown at an annual compounded growth of 5 per cent perannum*.Tamil Nadu also has a share of 9.1 per centMarket Potential Value in the country, which reflects a high buying power and capacity of the market to absorb new products and services.There has beena significant increase in the proportion of populationin the middle-income group.

The services sector is the dominant contributor tothe Net State Domestic Income. Given 700 per centgrowth in the IT sector in the state, the contributionof the services sector is only going to increase

*At constant prices (1993-94) from 1993-94 to 2000-01(www.indiastat.com)

Per Capita Gross Output in Industries (US$) (P) 2000-01

Tamil Nadu India

346

188

Tamil Nadu - Sectoral Contribution to Net State Domestic Income (at constant prices 1993-94)

2004

56.2% 29.6%

Services

Manufacturing

Agriculture Source: Department of economics and statistics,Tamil Nadu

14.2%

Growth of contribution of Services sector to state income at constant prices of 1993-94

61.1%56.2%58.1%

1993-94 1995-96 2001-02 2003-041998-99

Source: www.tn.gov.in

50.5%48.4%

grown in the state are rice, sugarcane and groundnut.The crop yield is substantially higher than the countryand world average.

Tamil Nadu - Yield per hectare (Kg/Ha) in 2003-04

Sugarcane Groundnut Rice

9,192 Kg/Ha 1,552 Kg/Ha 2,308 Kg/Ha

also enjoy a reputation of being extremely efficient.Tamil Nadu has a well-developed manufacturingsector with a high value addition in the factory sector.The state industry has a dominant market share in many manufactured goods.

A significant portion (56 per cent) of the populationcontinues to live in villages and relies on agricultureas their principal source of income.The key crops

Source: www.tidco.com

Tamil Nadu’s Share in India’s Output in various industires(in per cent)

90

70

50 49

35 33 32

2114

Safe

ty m

atch

es

Leat

her

prod

ucts

Pow

er d

rive

n pu

mps

Rai

lway

coa

ches

Aut

o co

mpo

nent

s

HC

Vs

Cot

ton

Yarn

Car

s

Soft

war

e

Source: Economic Survey of Tamil Nadu

Per Capita Value Added in industries (US$) (P)

Tamil Nadu India

54.8

29.3

TAMIL NADU PAGE 11

INFRASTRUCTURE

such as those in Singapore and Colombo.The projectwill also help in the development of the proposed 13 minor ports in Tamil Nadu.

The state is endowed with a large water storagecapacity and efficient canal system.A desalinationplant, to be set up in Chennai, is expected to augmentexisting availability.Water harvesting facilities arebeing developed in and around Chennai to checkleakage of fresh water to the sea and replenish the existing groundwater levels.

Tamil Nadu has made progress on the social andeconomic infrastructure front. Education andhealthcare levels in the state have risen considerably.The state government encouraged private sectorparticipation in the process of infrastructuredevelopment.This policy has resulted in rapidexpansion of roadways, railways and capacityenhancement of the ports.

Social infrastructure

The state has successfully straddled investment in primary and higher education. Its focus on primaryeducation has ensured that as high as 99 per cent of state population has access to primary education.

Access infrastructure

Tamil Nadu has a long coastline with many ports;additionally it is well connected through the airwaysto major trade centres.The inland transportation isprincipally through road and rail.The Sethu Samudramproject has been revived to provide a continuousnavigable sea route around the Indian Peninsula.Thiswill transform Tuticorin port into a transhipment hub

Towards uninterrupted power supply

n The state has one of the lowest power tariffs

for industrial and domestic use. Over

US$ 1,240 billion has been invested in the

power sector from 1996-01.This is the

second highest among all the states.

n Total installed capacity of 11,383 MW

n The state is targeting a 30 per cent enhancement

in its capacity by March 2007.

n One of the few states to articulate a policy

towards non-renewable energy generation

State-wise Relative Index of Infrastructure in India (1980-81 & 1996-97)

Tamil Nadu India

139

100

Source: www.indiastat.com

Growth of power generated (Utilities) (in kWh)

299633082127578

1999-00 2000-01 2001-02 2002-03

24000

12000

0

26155

Source: www.tn.gov.in

up to boost industrial investment.Tamil Nadu is in the top quartile in the country in terms of bankcredit flow.The per capita bank credit flow in thestate is 54 per cent higher than the average Indian per capita credit flow.

Industrial infrastructure

Tamil Nadu Industrial Development Corporation Ltdhas taken the lead to set up a SEZ at Nanguneri in Tirunelveli district that will be geared towardsexport production.Three agro-export zones arebeing set up in the state to boost exports. MadrasExport Processing Zone (MEPZ) is one of the sevenexport processing zones set up by the Indiangovernment.The state has approximately 15 per centof the 100 per cent export oriented units (EOUs)present in the country (2003).

To provide an impetus to growth in the IT / ITES,biotech and industrial sectors the state has createdindustrial complexes and parks.The state has createdin total 26 industrial parks; five of these have biotechas their focus and are located in regions withconsiderable biodiversity. IT parks such as TIDEL Parkin Chennai have proved to be highly successful,providing office space to a number of internationalsoftware giants.Automobile giants such as Ford and Hyundai have established operations at theIrungattukottai industrial park.A number of privateentities such as Mahindras have developed industrialparks.The Mahindra Industrial Township providesfacilities that are at par with the best in the world.

Communications infrastructure

Tamil Nadu offers state-of-the-art telecominfrastructure for high-speed large volume datatransfer, video conferencing, etc.The infrastructureincludes 2138 telephone exchanges with an installedcapacity of 4.6 million lines.

Highlights:n The world’s biggest and India’s first private

submarine Optical Fibre Cable project i2i networkwith a bandwidth of 8.4 tbps will make Chennaithe “Connectivity Gateway of India

n A US$ 100 million project connecting Chennai and Singapore via submarine cable will cause a bandwidth increase of 320 giga bits per second (gbps)

n Among the top three states in the country in terms of the total number of mobile phoneconnections in 2003 (1.06 million viz 8.4 per centof the total connections in the country) with a growth of 91.7 per cent over the previous year

n Tamil Nadu’s tele-density is 8 against the countryaverage of 5.1

n With 0.33 million subscribers, the state standsthird in terms of total number of internetconnections

Financial infrastructureChennai is the financial capital of South India.The financial services sector offers tremendousopportunities. All national and international bankshave offices in Tamil Nadu and are geared

TAMIL NADU PAGE 13

STATE POLICY

portion of the Foreign Direct Investment flowing into the country.The state attracted US$ 281 millionin the year 2002, which is 8.3 per cent of the totalinvestment flowing into the country.

The state has taken a number of measures toenhance its image as a destination favourable forinvestment.The state has taken a number of steps to ease the entry of an investor in the state. Some of these key steps are:

n Tailor made packages are available for investmentover US$ 62 million in fixed assets

n Exemption on entry and sales tax offered onimports of manufacturing units

n Capital subsidies and exemption in Electricity Taxoffered to companies investing in fixed assets.Subsidies are increased to 150 per cent if the location of the new industrial unit is in a government industrial park

n Incentives for patent registration through a one-time reimbursement for the process

n Infrastructure subsidy, particularly to attractinvestment in water treatment

Government of Tamil Nadu has established singlewindow system to accord all pre-project clearancesat the state level.The investor is only expected to file an application to a ‘guidance’ unit thatsubsequently takes care of state approvals fromvarious agencies.The Single Window system is two tiered with:

n State Level Investment Promotion Board (SIPB) to monitor and expedite all mega projectsexceeding investment of US$ 20.5 million.

n Project Approvals Authority (PAA) to monitor the projects with investment less than US$ 20.5 million.

Tamil Nadu has a strong and stable government withpro-active policies.The state policy aims to facilitatethe creation of foreign and local ventures throughinvestor friendly and transparent decision-makingprocesses, harmonious industry relations andproviding one of the best incentive packages in the country.The state is keen to consolidate its existing manufacturing strength and tap thebusiness opportunities emerging in the IT / ITES and biotech sectors.

The objectives of the policy framework are broadlyunderlined below:

n Target a growth rate of the order of 8 per centover the tenth plan (2002-07)

n Actively encourage new manufacturing capacitybased on improved competitiveness also plays a proactive role in promoting foreign directinvestment towards the manufacturing sector

n Consolidate existing industrial base and promotetheir growth

n Increased focus on infrastructure construction by establishing strategic public private partnerships(PPP) in this area

Infrastructure policy

Tamil Nadu has sought private participation in theprocess of infrastructure building. An “InfrastructureFund” has been set up in order to facilitate privatepublic partnerships in the same.The Fund has beenendowed with an initial corpus of US$ 4.1 million.The fund will finance a number of infrastructuredevelopment initiatives.

Investment Climate: Reaching out by facilitating businessTamil Nadu has been able to attract a significant

first states in the country to bring out an ITES andbiotech policy. A number of measures have beenundertaken to attract investment in these areas:

n “Destination of Choice Fund” to highlight theadvantages of investing in these sectors

n Relaxation of the Floor Space Index regulation for IT parks

n 50 per cent exemption on Stamp Duty and theRegistration Fee for purchase of land/building

n A scheme of cash per job created for ITEScompanies

Biotech policy

The other thrust area for growth is the biotechsector.The government has envisioned the creation of Biotechnology Enterprise Zones (Bio-Valleys alongthe lines of Silicon Valley).The state proposes to help forge alliances between industry and centresof research to enhance and consolidate existingknowledge.The state is setting up an “EmergingTechnology Fund”, which would target both biotechcompanies within and outside the park.

e-Governance

A “Special Working Group” (SWG) on e-governance,under Tamil Nadu Information Technology Council(TNITC) has been set up to streamline governmentfunctioning and make it more transparent.Transparency is to be sought by linking governmentdatabases to public domains. A significant move hasbeen the legislation making inter operability betweengovernments mandatory.

IT policy

The Tamil Nadu government is keen to tap theopportunities in IT / ITES.Tamil Nadu is one of the

Subsidies on offer as per the Tamil Nadu state policy

Women Employment

subsidy

Generator substay

BackwardArea Subsidy

Special Capital Subsidy

Mega ProjectSubsidy

Tamil Nadu State Capital

Subsidies

Tourism subsidy

TAMIL NADU PAGE 15

BUSINESS OPPORTUNITIES

part of Tamil Nadu have resulted in the regionbecoming a major agriculture hub.

n Capability: Availability of good qualitymanpower is a must for all industries to flourish.High literacy rates and presence of goodeducation and vocational training institutionshave ensured that Tamil Nadu has well qualifiedmanpower.This has been a major factor enablingthe success of Tamil Nadu in sectors likeEngineering,Automotive, IT and ITES. Given its strong base of technical work force,knowledge-intensive industries are graduallytaking a lead position in the state.

Based on an assessment of the above factors, some of the industries with potential for investment andgrowth in the state of Tamil Nadu are illustrated below:

There are several factors that affect evolution of an industry in a particular region.The major factors impacting evolution are:

n Policy proactiveness: The policy that a stategovernment adopts towards a sector directlyaffects its attractiveness for further investment.For example, for the IT Sector, the Tamil NaduState Government has given many concessions.This has prompted many IT majors, both domesticlike Infosys and Wipro as well as multi nationalslike Cognizant, to set up software developmentoperations in Tamil Nadu.

n Availability of natural resources: Certainindustries like agro-based industries have a highdependence on availability of natural resources.The suitable climatic conditions in the western

Natural ResourcesDriven

Capability Driven

Sector Attractiveness Drivers

Proactiven Exclusive Policy

n Special Incentives

n Special Infrastructure

(SEZ, STPI, AEZ etc.)

Reactiven No specific mention

in State Policy

n Exemptions given on request

Polic

y Pr

oact

iven

ess

The assessment is based on KPMG analysis. It is relative, subjective and not meant for statistical analysis.

Biotech Infrastructure IT & ITES

Auto

Textile, knitwear& Leather

Agro-based

Engineering

Chemicals/Pharma

Moderaten Generic policy incentives

Information Technology The state of Tamil Nadu with exports of around US$ 2.3 billion (2004-05), over 1,200 software exportcompanies, more than 90,000 IT professionals is among the leading states in the IT sector in India.To give an impetus to this industry,the Government of Tamil Nadu has announced an attractive Information Technology Policy, offeringadded incentives and infrastructure support to investors.The state, through TIDCO and ELCOThas promoted TIDEL Park, a state-of-the-art facilityfor IT Industry*.

Automotive and Auto components The state has a well-developed auto and autocomponent industry.The state has manufacturingfacilities across the automotive spectrum fromtractors to battle tanks. Fortune 500 automotivegroups like Hyundai and Ford have establishedmanufacturing facilities in Tamil Nadu because of the presence of a vibrant auto component industry.The auto component industry is estimated to have an output of US$ 1.2 billion.

Leather The state has 70 per cent of the total installedcapacity of hide and skin.Tamil Nadu has a dominant

Key industries

In the post liberalisation era,Tamil Nadu has emergedas one of the front-runners in attracting investmentproposals.Tamil Nadu is in the top quartile in thetotal number of enterprises in the country.The state has been consistently showing a growthrate of around 19 per cent in the total number of new enterprises.

Cotton textiles, Hosiery and Ready-made garmentsTamil Nadu is one of the world’s leading cotton textile centres.The state contributes to more than 25 per cent of the country's exports of cotton yarnand fabrics.Tamil Nadu continues to maintain itsleading position in this industry and manymultinational companies and brands like Wal-Mart,Tommy Hilfiger, GAP, Diesel etc. have made TamilNadu a global sourcing point for ready-madegarments eyeing on the comparatively low productioncosts and high quality of output offered.With thephase out of the Agreement on Textile and Clothing(ATC) last December,Tamil Nadu is well positionedto significantly increase its textile exports in the short to medium term.

*TIDCO & ELCOT have promoted TIDEL Park, the state-of-art facility with a built up area of 12.8 million sq ft.This Park achieved 100 per cent occupancy within 4 months of its commissioning.MNCs like Computer Associates, Cognizant, EDS etc. have taken space in this. Enthused by the success of TIDEL I, the state governmentis embarking on TIDEL II.Apart from this, currently the Government of Tamil Nadu is in the process of setting up Information TechnologyParks with state-of-the art facilities at Coimbatore,Trichy, Madurai etc.To improve communication, state government is part-funding earthstations at Trichy, Madurai and Thirunelveli. Chennai is the landingstation for 2 submarine cables from Singapore with bandwidth of 13 Tbps.

Tirupur Textile Cluster

Tirupur is an important trade centre of India,

which is famous for its knitted garment wears.

It is situated near Coimbatore, which is known

as “The Manchester of South India”.Tirupur

textiles cluster has units all along the value

chain of hosiery garments starting from spinning,

knitting, wet processing, printing, garment

manufacturing and export. In addition, there are

ancillary units supplying buttons, laces, embroidery,

cones and yarn processing.

Tirupur has a significant presence at the lower

end of the international hosiery and knitwear

market. Most Tirupur entrepreneurs cater to the

lower end of the hosiery market on a contract-

manufacturing basis.The cluster accounts for

90 per cent of India’s cotton knitwear exports.

With 300,000 employees, it has recorded total

exports of about US$ 900 million.

TAMIL NADU PAGE 17

has India’s biggest opencast mechanised lignite mines,mining 24 million tonnes of lignite annually andgenerating 2490 MW of power.The state’s limestonereserves are about 1,473 million tonnes.There are 12 major cement plants functioning in the State.The major players are Tamil Nadu Cements(TANCEM), Dalmia Cements, Madras Cements,India Cements, Grasim Industries,Associated Cement Companies and Chettinad Cements.

Engineering The strong engineering industry in Tamil Naduconsists of a network of nearly 3,000 units,employing a skilled work force of more than 250,000 making high quality inputs such as castingsand forgings and a wide variety of ancillary products. Efforts are being made to boost furtherdevelopment of this industry by enabling formationof industry clusters.

Agro-based An ideal climatic condition for growth of fruits andvegetables has given rise to a strong agro-based food industry in the state.The state is a world leader in agricultural production with yield perhectare of sugarcane, rice and groundnut, amongst the best in the world.The Madurai-Dindigal belt in Tamil Nadu has favourable climatic conditions forthe cultivation of a variety of fruits and vegetables.The floriculture industry is likely to get a thrust with the area around Coimbatore, Dharmapuri,and the Nilgiris being earmarked as places ideal for the cultivation of flowers like Rose andChrysanthemum. Of these Coimbatore has beenidentified as an intensive floriculture zone.

Exports

Tamil Nadu has been doing well in most of the focusindustries discussed earlier. Most of the industrieshave shown a healthy-growth rate in exports. Exportsfrom sectors like agro-based industries and softwarehave shown CAGR of close to 60 per cent.

presence in the leather and leather-based industries.Tamil Nadu alone contributes 70 per cent of the total installed capacity of hide and skin.The stategovernment is geared to provide all possible capitalsubsidies and infrastructural support in the form of setting up industrial estates and common effluenttreatment plants.Tamil Nadu’s substantial share of theleather market in the years to come is ensured.

Chemicals and Petrochemicals The chemical industry has grown at a rapid pace worldwide and in India as well.The state of Tamil Nadu traditionally has a strong base in the chemical industry. Manali, in the outskirts of Chennai has emerged as a major petrochemical complex.

Tourism In 2003, about 40 different tourism projects with a total investment of US$ 423.4 million havebeen sanctioned and are in progress. In terms of investment in the tourism sector, the state ranks among the top five in the country.

Mineral-based The main mineral wealth of the state is granite,limestone and lignite. Neyveli Lignite Corporation

Coimbatore Pumps and

Motors manufacturing cluster

With modernisation of agriculture and the rise

in the standard of living of the middle class,

the demand for pumps is growing at a fast pace.

Coimbatore Pumps and Motors manufacturing

cluster with units over 1000 are meeting almost

40 per cent of the country’s requirements

of pump-sets. Coimbatore pumps are being

exported for the past 25 years.The pumps industry

of Coimbatore has demonstrated tremendous

flexibility by incorporating design changes to suit

the site conditions. It has also been able to maintain

quality, reliability and performance.

The emergence of Tamil Nadu as a centre formanufacturing is in part due to the flow of foreigndirect investment in the state.The state hassuccessfully attracted a high quantum of investment in the manufacturing, IT and infrastructure sectors.The state has modelled itself as an attractivedestination on the basis of sound infrastructuresupport, a quality workforce and policy initiatives by the state government. Some of the major foreigndirect investment in the state are illustrated in thetable below.

Company Country Segment Investment of Origin (US$ million)

Hyundai South Korea Automotive 900Motors

Ford USA Automotive 380Motor India

P&O Ports UK Port Infrastructure 150

St.Gobain France Glass Manufacturing 125

Visteon USA Auto Component 120

Mitsubushi Japan Automotive 50

Xansa South Korea IT 47

Matsushita South Korea Electronics 12

Investment

Multinationals such as Hyundai and Saint Gobain are investing in capacity enhancement measures in the state. Likewise Honeywell International Inc.has invested US$ 65 million to set up a manufacturing centre.

Estimates of exports from Tamil Nadu by Public Companies in 2002-03

Source: CMIE Prowess Database (+) 4 year CAGR Size of circle indicates exports in US$ million

CA

GR

(pe

r ce

nt)

Share of Exports from Tamil Nadu (US$ million)

10265

45

25

5

-15 0 10 20 30

217326

346 (+)

420

Engineering/Machinery

Food and Beverages

Auto and Auto Ancillary

Chemical

Textiles

Estimate of likely invesment in Tamil Nadu (US$ million)

3356

2234

598

267192

Min

ing

and

Min

eral

s

Che

mic

als,

Petr

oche

mic

als

and

Phar

ma

Aut

omot

ive

and

Aut

o A

ncill

iari

es

Agr

o-ba

sed

Engi

neer

ing

and

Har

dwar

e

Source: Projects Today

Total software exports from Tamil Nadu (US$ million)

1094

1302

1814

2378

681

441

CAGR 65%

296106

1997

-98

1998

-99

1999

-00

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

Source: Electronic Corporation of Tamil Nadu (ELCOT)

0

800

1600

2400

TAMIL NADU PAGE 19

IIT Chennai and Anna University have furtheraugmented the state’s claim as a prominent centre for R&D activity.

Companies such as Temenos (world leaders in banking software) have investment to the tune of US$ 15 million in R&D facilities in the state.Kone, the Finnish elevator giant is now sourcing all its software development from Chennai. AirbeeWireless, a US based software company, has invested US$ 1 million to set up an R&D centre in Chennai.Software majors like Cognizant,TCS and Infosys haveset up software developmental centres in Chennai.

BPO outfits for a number of multinationals like ABN-AMRO, Standard Chartered,World Bank nowoperate from Chennai.The city also has the largestmedical transcription facility in Asia.

Investment abroad by Tamil Nadu based companiesSundaram Fasteners, the first ISO 9000 certifiedsubsidiary of the TVS Group has invested about US$ 5 million and plans to invest up to US$ 12.5 million. Sundaram Fasteners is the firstcompany in the engineering industry from India to set up a manufacturing unit in China.The initialcapacity of the plant is 6,000 tonnes and the companyaims to generate 25 per cent of the export revenuesfrom this plant.The company also plans to buy theUK-based forging company Dana Spicer.Another TVS Group Company, two-wheeler manufacturer TVS Motor Company, is planning a unit in Indonesia.

Potential hubs for investment

Manufacturing and sourcing baseSome of automotive multinationals that have set upoperations in Tamil Nadu are leveraging their plants as global sourcing hubs.

Hyundai Motors has made Chennai into a globalproduction base for the compact car segment.Banking on its successful Indian operations, Hyundaihas invested about US$ 220 million in its Chennaiplant in order to increase its production capacity andlaunch its C segment car Getz and Sports utilityvehicle Terracan. Hyundai has a global strategy to gradually shift the export base from South Koreato India so as to capitalise on lower shipping costs to Europe and Latin America and reduce deliverycycle times.

Ford Motor Company has made its plant in Tamil Nadu as a sourcing base for mid size car Ikon. Owing to the cost advantage and the highquality available in India, Ford is also sourcing autocomponents for its US, European and Chineseoperations from Tamil Nadu.

R&D, Software development and BPO hub The emergence of Chennai as the “IT hub” and theavailability of a quality workforce have enabled thecity in particular and the state in general to emergeas a centre for R&D in the country.The presence of a large number of engineering institutions, including

TAMIL NADU PAGE 21

PROFILE OF KEY PLAYERS IN TAMIL NADU

network.The sales turnover of Hinduja Group flagship Ashok Leyland grew 28 per cent to reach US$ 811.1 million in 2003-04.

Bharat Heavy Electricals Ltd (BHEL)Bharat Heavy Electricals Ltd is one of the largestengineering and manufacturing enterprises in Indiaand is ranked among the leading power plantmanufacturers in the world. BHEL has 14 manufacturing plants and a number of servicecentres spread all over the country and abroad.BHEL offers a wide spectrum of products andservices for sectors like power, transmission, industry,transportation, oil & gas, telecommunication,non-conventional energy systems etc. One of theforemost manufacturing facilities in BHEL is theTiruchirappalli (also known as Trichy/Tiruchi)Complex, located in South India. BHEL,Trichycomplex comprises of high-pressure boiler plant,seamless steel tube plant, boiler auxiliaries plant.

CaltexCaltex started operations in India in 1936 through a joint venture between Chevron Corporation andTexaco, Inc. Caltex’s manufacturing and refiningoperations in India are through its LPG bottling plantsat Chennai and Madurai, its import terminal withrefrigerated link at Tuticorin, and a 51 per cent stakein Caltex Spic India Ltd. Caltex Gas India Pvt Ltd has a turnover of US$ 43.5 million with investment of around US$ 100 million and employs 270 employees.

Caterpillar India Pvt Ltd (CIPL)Caterpillar Inc. USA is a global manufacturer of construction and mining equipment, diesel and natural gas engines, and industrial gas turbines, with105 plants, spread over 21 countries with a turnoverof US$ 20.15 billion. Caterpillar India Pvt Ltd is a wholly owned subsidiary of Caterpillar Inc.,

ABN AmroThe bank had set up its Business Process Outsourcing(BPO) division, global support centre (GSC) in Chennai in early 2002.The GSC now employs 275 people, who handle ABN Amro’s trade and cashmanagement transactions and is planning to expandto double the headcount to 500 employees.The bankwith BPO operations in India has been able to achievegrowth in the cases of cash lockbox (which has 700 clients at present) and international netting (10 clients).The Dutch-based ABN Amro Bankproposes to invest US$ 1 billion through selectiveacquisitions in India.

Amalgamations GroupThe Amalgamations Group is one of India’s largestlight engineering conglomerates with 34 plants,12,500 employees and revenue of US$ 475 million.The group incorporates 43 companies inmanufacturing, trading & distribution and services & plantations.The group is reputed for its well-equipped plants, world-class technologies.The Group has a major presence in diesel engines,agricultural tractors, automobile components,batteries, cutting tools and paints.The subsidiariesinclude TAFE, Higginbothams Pvt Ltd, India Pistons Ltdand Amco Batteries Ltd etc.

Ashok LeylandAshok Leyland, a company under Hinduja flagship hasbeen a major presence in India's commercial vehicleindustry with reputation for reliability and ruggedness.The 375,000 vehicles of the company have shared theadditional pressure placed on road transportation.The share of goods movement by road rose from 12 per cent in 1950 to 60 per cent in 1995.In passenger transportation, the jump is equallydramatic, from 25 per cent to 80 per cent.At 60 million passengers a day,Ashok Leyland buses carry more people than the entire Indian rail

services with 6 offices in all the major cities since its inception in 1997.The company recorded a totalturnover of about US$ 64 million during 2003-04.Computer Associates has set up its Global TechnicalSupport Center in Chennai in November 2000, whichis involved in providing technical support to globalclientele.The Centre currently operates with anemployee strength of over 200 skilled professionals.

EI DuPont India (EIDI)EI DuPont India is a 100 per cent subsidiary of DuPont India Ltd, USA, which in turn is a 100 per cent subsidiary of EI DuPont deNemours and Co., USA (DuPont, USA). It is engaged in formulation and trading of crop protectionproducts, engineering polymers, specialty fibres,and specialty chemicals and polymers.The companystarted its operations in November 1994 with aninvestment of US$ 80 million at Madurai,Tamil Nadu.

Electronic Data Systems (EDS)Electronic Data Systems was formed as a 100 per centsubsidiary of EDS Corporation in 1996.With a revenueof US$ 21.8 billion, EDS is ranked seventy-ninth on the Fortune 500 in 2003. EDS has established its Indianheadquarters at Chennai with three facilities in thestate. EDS has started its software developmentoperations in ‘Tidel Park’, an IT park developed by the state government and is one of the largest in the country.The company plans to expand its BPO operations to Chennai.

Ford Motor Company IndiaFord Motor Company India was established in Indiawith an investment of US$ 351.1 million under singlewindow policy at Maraimalai Nagar, near Chennai in 1995.With a total workforce around 900, thecompany is currently manufacturing three modelswith a number of variants and is one of the keyplayers in the Indian auto industry. Ford Endeavour,the latest model in the SUV segment has capturedover 40 per cent of the emerging SUV market within6 months from launch.The company plans to exportvehicles from the Chennai plant to various

formed after the acquisition of the EarthmovingEquipment Division of Hindustan Motors byCaterpillar in February 2001, for an estimated US$ 71 million.The company manufacturesconstruction and mining equipment.The company has its manufacturing facility in Thiruvally, about 50 kilometres from Chennai,Tamil Nadu.

Chennai Petroleum Corporation Ltd (CPCL)Chennai Petroleum Corporation Ltd, widely known as MRL (Madras Refineries Ltd), is one of the largestand most integrated refineries in south Indiaproducing fuel products, lubricants and additives.The company’s principal activity is to operaterefineries at Manali and Cauvery Basin.With totalemployee strength of over 1,650, the companyrecorded a total turnover of US$ 2,055 million (2003-04) as against US$ 1,782 million in the previousyear registering an increase of about 10 per cent in 2003-04. CPCL is honoured with the Green TechEnvironment Excellence Award for 2002-03 forEnvironment Management at Manali refinery.

Cognizant Technology Solutions India Pvt LtdCognizant Technology Solutions India Pvt Ltd,a subsidiary of Cognizant Technology SolutionsCorporation, is a leading provider of custom softwaredevelopment, integration and maintenance servicesthat links e-business with core information systemsfor companies worldwide.The company started itsoperations in India at Chennai in January 1994.With a workforce of over 2700, Cognizant operates undera high quality, high value onsite/offshore model thatenables better, faster and more cost effectivedevelopment and deployment of large-scale systemsacross a wide range of transaction intensive businessneeds.The company holds SEI CMM Level 5,ISO 9001, P-CMM Level 5 certification for itsperformance and quality.

Computer Associates (CA)Computer Associates is one of the leading providersof IT management solutions and services. CA in Indiais involved in providing software products and

TAMIL NADU PAGE 23

destinations, owing to the incentives offered by thestate government.The Ford Ikon is India’s largestexported car with every two out of three carsexported from India being Ford Ikons in the mid-size car segment.

Hyundai Motor India LtdHyundai Motor India Ltd is a subsidiary of HyundaiMotor Company, South Korea and was established in India at Irrunattukottia, near Chennai, in December1997 with an initial investment of US$ 614 million.The plant presently is the largest manufacturing facilityof Hyundai Motor Company outside Korea. Hyundai is the second largest and the fastest growing carmanufacturer in India. Hyundai presently markets over 18 variants of passenger cars across four models.The company emerged as the second largest exporterof passenger cars from the country.The companyintends to shift the manufacturing base to this plantand is planning to export to the rest of the world.Hyundai was awarded ISO 14001 and records sales of over 500,000 units in just over 5 years.

Lakshmi Machine Works (LMW)LMW, founded in the year 1962, is today a leadingmanufacturer of the entire range of textilemachinery. The LMW group has 60 per cent marketshare in the domestic textile spinning machineryindustry. It has diversified into CNC Machine Toolsand is a brand leader in manufacturing customisedproducts. LMW Foundry makes precision castings for industries the world over.The group’s globalpresence has grown over the years, with a marketpresence not only in developing countries, but also in Europe.The group has won the Top Export Awardin textile machine exports for the past seven years.

Madura Coats Ltd (MCL)Madura Coats Ltd (MCL), a subsidiary of Coats Viyella PLC, UK is the market leader in sewing and embroidery thread with 50 per centmarket share in the organised sector. MCL supplies its products to big-ticket clients like Clairborne,Lee, Levis, Gap, Nike,Adidas, and Tommy Hilfiger.

The company has an employee strength of about13,700 people.The company operates with threebusiness units Coats India, Madura Textiles and Intrad.MCL is involved in sourcing textile products fromhandloom and small-scale sectors of India for export markets.

Matsushita ElectricMatsushita Electric is Japan's leading consumerelectronic company and the owner of top brands like Panasonic and National.The company has two of its production plants in Chennai; Indo MatsushitaCarbon Company Ltd which manufacture carbon rod for Dry battery and Indo Matsushita AppliancesCompany Ltd (IMACO) which manufacture products like Rice Cooker and Mixer Grinder. Both the plants have been certified ISO14001 in 1998.The company has invested around US$ 12 millionunder single window policy of the government to expand the operations.

Muruguppa GroupThe Muruguppa Group is a diversified business group with interests in plantations, chemicals financialservices and abrasives.The group is organised into 27 Strategic Business Units (SBUs) with 38 manufacturing locations spread over 11 states in India. It has a focused interest in the agriculturalsector with business specifically in fertilisers,pesticides and sugar. Some of the subsidiaries withinthe group include Carborundum Universal Ltd,Cholamandalam Investment & Finance Co. Ltd,Coromandel Fertilisers Ltd, EID Parry (India) Ltd,Godavari Fertilisers & Chemicals Ltd, Parry AgroIndustries Ltd, and Tube Investment of India Ltd.The group is a pioneer in the Indian bicycle industry.The group is also a pioneer in developing a number of neem-based applications.The company is a leaderin ceramic sanitary products.

Neyveli Lignite Corporation (NLC)Neyveli Lignite Corporation is a public sectorenterprise situated at Neyveli in Tamil Nadu.The company, established in 1956, is involved

Saint-Gobain Glass IndiaSaint-Gobain Glass India is a subsidiary of Compagniede Saint-Gobain, France and is the second biggestproducer of laminated and toughened glass.With an initial investment of US$ 108.4 million, thecompany started operations at Sriperumbadur,Chennai in July 2000.The company has a capacity of 650 tonnes of clear, tinted and reflective glass per day and has the second largest market share in India.The company was certified ISO 9001 in 2000 for its Quality System and ISO 14001in 1996 for its Environmental Management System.It produces the widest range of products, many of them being made for the first time in India.The company began exports within 55 days of commencement of production, and by December2000, almost half the production was being exported.The company plans to export 30 per cent of its totalproduction, shipping more than 2,500 containersthrough the Chennai port annually.

Sanmar GroupThe Sanmar Group, with its corporate headquartersat Chennai, has set the benchmark for globalpartnerships in chlorochemicals, speciality chemicals,engineering and life insurance.The group also has a presence in shipping and software. It has significantholdings in all its businesses and is managed by over600 highly qualified managers.The group’s principallines of business are PVC/ chlorochemicals, specialitychemicals, shipping, engineering, and life insurance.The group entered into its first international jointventure back in the 1960s with B F Goodrich of theUSA when it started Chemicals and Plastics India Ltd.Today, it has a turnover of around US$ 206.5 millionand a presence in some 25 businesses, with 25 manufacturing units spread over ten locations in India.

Scope InternationalScope International, Chennai is a wholly ownedsubsidiary of Standard Chartered Bank, UKoperating in Shared Services Centres. Despite beinga relatively late entrant in the BPO business, Scope

in the production of lignite, urea, and the generation of power. It has got three open cast mines and three pithead thermal power generating stations.NLC serves as an important source of energy to State Electricity Boards of southern states.Nearly 90 per cent of the company’s sales revenuecomes from the sale of power.

Orchid Chemicals and Pharmaceuticals LtdOrchid Chemicals & Pharmaceuticals Ltd specialisesin the manufacture of bulk cephalosporin antibioticsfor the world market.The company is the largestcephalosporin producer in India and has alsoestablished itself as a leading cephalosporin producerin the world.

The company owns a bulk drug facility at Alathur, near Chennai, which has a manufacturingcapacity to produce over 500 tonnes of oral and sterile cephalosporins.The company hasdedicated plants for most products.The company is setting up US$ 10.3 million formulations facility at Irungattukottai in Tamil Nadu.The company closed the fiscal 2003-04 with a turnover andoperating income of US$ 147.3 million as compared to US$ 111.8 million logged the previous year.

Premier Instruments & Controls Ltd Premier Instruments & Controls Ltd was establishedin 1974 at Coimbatore,Tamil Nadu, India, andcommenced manufacturing operations in 1975 in the precision engineering field of AutomotiveInstruments.Today, it is the market leader enjoying 53 per cent of the Automotive Instruments marketshare. In 1997, Pricol exports were about 12 per centof its turnover to the USA, Canada, Mexico, SouthAmerica, Europe,Turkey, Egypt, Middle East,Asia,Australia, New Zealand. Pricol is an ISO 9001company since 1993 and certified for QS 9000 sinceDecember 2001. Pricol has initiated Total QualityManagement (TQM),Total Productive Manufacturing(TPM), Supply Chain Management (SCM), EnterpriseResource Planning (SAP R3 ERP) and CollaborativeProduct Commerce (CPC – Windchill).

TAMIL NADU PAGE 25

plastics; and Visteon Powertrain Control Systems India Pvt Ltd (VPCSI), an export oriented unit,manufacturing starter motors and alternators.With a total investment of over US$ 120 million undersingle window policy of the government, it currentlyhas a workforce of over 700 people.

World BankRealising the importance of Chennai as a BPO hub in India, the World Bank commenced its BPO as a primary processing work, including payroll-processing work in August 2001 with a team of 80.Today the team size has grown to 180 and aims at expanding its office in the city from “basicprocessing” to “value-added work considering theoption to moving some sections of its bond valuationwork from Washington to Chennai.The size of theBank’s commercial bonds portfolio is estimated atabout US$ 100 billion.World Bank plans to outsourceover US$ 10 million IT work to its Chennai centrethrough its Indian partners, Satyam Computers,HCL Technologies and MegaSoft.World Bank, whichhad already outsourced work worth US$ 10 million in the past, is also planning to increase IT outsourcing.

XansaXansa is an international business process and IT services company creating and deliveringprocess and technology solutions.The company’sservices include business and technology consulting,IT implementation, IT outsourcing and BusinessProcess Outsourcing. Xansa has recently started its BPO operations in Chennai situated at SIPCOT in Siruseri.The Chennai campus situatedover 27 acres, has the potential to house up to 6000 employees.The company made an initialinvestment of over US$ 47 million under singlewindow policy.

International has today emerged as one of the topfive back offices in India for international companies.The company has adopted Six Sigma as the Qualitymethodology in the organisation to create a highlyeffective metrics driven performance culture.To date, over 400 people have been trained in Six Sigma. Scope has grown to over 3000 employeesin a short span of about one year.

TVS GroupThe TV Sundaram Iyengar Group (TVS Group),established in 1911, has a turnover of over US$ 1 billion dollars and is the largest manufacturerof automotive components in India with a work forceof over 5,000. Some of the major subsidiaries withinthe group include TVS Motors, Brakes India, LucasTVS Ltd, Sundaram Fasteners and Wheels India.TheGroup produces auto-electricals, diesel fuel injectionsystems, braking systems, automotive wheels and axlefasteners, powder metal components, radiator caps,two wheelers and computer peripherals.The grouphas the largest distribution network for automotiveproducts in India.The Group has over 29 companiesunder its umbrella and holds diverse businessinterests.The Group companies,TVS Motor,Sundaram-Clayton Ltd (Brakes Division) andSundaram Brake Linings Ltd have bagged DemingAward for their performance.

VisteonVisteon Corporation, USA, a Fortune 500 company,is one of the largest automotive suppliers in theworld. It started its operations in two projects with50-acre facility at Maraimalai Nagar, near Chennai in February 1999.The Visteon, Chennai Operationscomprise Visteon Automotive Systems India Pvt Ltd(VASI), manufacturing climate control systems,instrument clusters and a range of automotive

DOING BUSINESS IN TAMIL NADUObtaining approvals

An indicative list of approvals with timeframe for setting up business in Tamil Nadu

List of approvals and clearances required

Incorporation of the company

Registration, IEM, Industrial licenses

Allotment of land

Permission for land use

Site environmental approval

No Objection Certificate and consentunder water and pollution control Acts

Approval of construction activity and building plan

Sanction of power

Registration under states sales tax Actand central and state excise Act

Departments to be consulted

Registrar of companies

District Industry Centre for SSI forlarge and medium industries

State Department of Industries / StateIndustrial Development Corporation /Infrastructure Corporation

State DI, Department of Town andCountry Planning

State pollution control board andMinistry of environment and forests

State pollution control board

Town and country planning Authority

State electricity board

Sales tax department, Central and stateexcise departments

Estimated timeTaken (days)

SINGLEWINDOWCLEARANCE

GUIDANCE (state’ssingle windowclearance facility)clears investmentproposals in 30 dayson an average.The single windowobtains all approvalsnecessary for theinvestment proposalwithin theaforementioned time*.

*Source: Guidance Export and Promotion Bureau

TAMIL NADU PAGE 27

Cost of setting up business

An indicative table on cost of setting up business in Tamil Nadu

ManufacturingLand (US$ / hectare)* 75,235Labour Cost (US$ / man year)** 1,362

ServicesOccupation Costs***

(US$ / sq ft / year) 14.68

Employee Cost (US$ / man year)****

Software Developers 6,383 Team Leads 14,893 Architects 21,276.5 Project Managers 32,209

Common HeadsCost of capital*****

(Prime lending rate, per cent) 10.6

Electricity (US cents/ kWh)******

Metropolitan Area 7.05Non Metro Area 6.85

Sales Tax exemptions: For large investment,on a case-to-case basis,Tamil Nadu State Govt givesSales Tax waiver/deferral for duration’s up to 7 years.Specific commodity sales tax rates are available atwww.tnsalestax.com/taxrates.htm

*Land cost has been estimated by computing the average cost of landat various Industrial Parks in Tamil Nadu. Land is allotted on 99-yearlease, which can be renewed later.**Source: Indiastat.com***Source: Report on occupancy costs in Chennai by real estateconsulting firm CB Richard Ellis****KPMG Analysis on costing for an IT venture in India *****Estimated by computing the average Prime Lending Rates of prominent public sector, private sector and foreign banks in India******Tariffs applicable to industries.Source: TIDCONote: Exchange rate used is INR 47 per US$

Confederation of Indian Industry (CII) Information on markets and opportunities forinvestment in Tamil Nadu can also be obtained fromConfederation of Indian Industry which works withthe objective of creating a symbiotic interfacebetween industry and government.

Confederation of Indian Industry Southern Region

98/1,Velacherry Main roadChennai 600 042Tel +91 44 52444555Fax +91 5244510Email cii.south@ciionline.org

Confederation of Indian Industry Zonal Office

6A Lawsons Road5th Floor, Ganesh ComplexOpp. to St. John’s Vestry High SchoolCantonmentTrichy 620 001Tel +91 431 2410641 / 2410655Fax +91 431 2410655Email s.venkataraman@ciionline.org /ciitry@sancharnet.inWeb www.ciionline.org

Contact for information

State Government websiteWeb www.tn.gov.in

Tamil Nadu Industrial Development Corporation Ltd(TIDCO)Tamil Nadu Industrial Development Corporation Ltd,the promotional agency for the establishment of large and medium scale industries hascommissioned seventy-two projects to date with a total equity investment of US$ 50.5 million.The industries cover a wide range of activities such as iron & steel, fertilizers, industrial parks,AEZs andSEZs. Currently,TIDCO focuses on infrastructurepromotion through equity participation in jointventures.TIDCO has been identifying and promotingprojects in various sectors viz. infrastructure,manufacturing and knowledge sectors

Tamil Nadu Industrial Development Corporation Ltd

19 A, Rukmani Lakshmipathy SalaiEgmoreChennai 600 008Tel +91 44 28554421Fax +91 44 28553729Web www.tidco.com

The India Brand Equity Foundation is a public-private partnershipbetween the Ministry of Commerce & Industry, Government of India andthe Confederation of Indian Industry.The Foundation’s primary objective

is to build positive economic perceptions of India globally.

India Brand Equity Foundationc/o Confederation of Indian Industry

249-F Sector 18Udyog Vihar Phase IV

Gurgaon 122015 HaryanaINDIA

Tel +91 124 501 4087, 4060 - 67 Fax +91 124 501 3873Email ajay.khanna@ciionline.org

Web www.ibef.org