Of power cuts, strikes and 17 MoUs

Last Updated: Sun, Dec 30, 2012 20:20 hrs

With the economic crisis and infrastructure issues taking its toll, 2012 was not very exciting for the industry, especially for the small and medium enterprises (SMEs) in Tamil Nadu. While on the one hand, the year saw signing of 17 MoUs worth around Rs 27,000 crore, on the other, MSMEs – one of the largest employers – reported closure of a large number of units mainly due to lack of power.

The state is facing power shortage of 4,000 megawatt. While this has not impacted the big industries much, thanks to the government-assured power as part of the MoUs, it’s the MSMEs that are the worst hit. For instance, Coimbatore, the engineering hub of the state, reported around 3,000 units to have shut shops and jobs orders worth Rs 2,100 crore had been lost.

J James, district president, Tamil Nadu Association of Cottage and Micro Enterprises, says the power cut ranged from 10-14 hours. “Over 3,000 micro-units in the district running with one machine and 2-3 employees were forced to shut down due to the power cut,” he says.

The town is a major supplier of cylinder heads, aluminium die-castings, moulds, dashboard instruments, controls and door-locking mechanisms to automobile majors including Maruti, Hyundai and Tata and the TVS group.

“Giving power to the OEMs alone will not work. They need suppliers support for smooth production,” points out a representative from the Ambattur Industrial Estate, a major source for the OEMs in and around Chennai. These OEMs include Ford, Hyundai, Daimler and Ashok Leyland.

Traditional industries: The traditional industries in the state had a really bad year. The textile industry, which accounts for almost a third of the national production, expects a decline of 15 per cent in production this year on account of power outages.

According to the textile commissioner’s office, Tamil Nadu has seen 181 non-SSI textile units being closed in the year, till October, and this is the highest in the country. These 181 units had 28,60,512 spindles, 2,860 looms and 46,394 employees.

S Dinakaran, chairman of South India Mills Association, says this drop in production volumes is likely to translate into a revenue loss of around Rs 25,000 crore. “Around 50 units have shifted to Andhra Pradesh and many others are mulling moving to states like Gujarat and Maharashtra,” he points out.

Similarly, the leather trade in Vellore district that accounts for almost 30 per cent of the country’s $5 billion leather industry has been hit by the continuous power crisis. The units, which are mostly SMEs in Ambur, Vaniyambadi and Pernambut areas, have been forced to suspend operations and around 2,000 people have moved from this industry, says M Rafeeque Ahmed, chairman of Council for Leather Exports and president, Federation of Indian Export Organisations (FIEO).

The big industries, on the other hand, mainly set up on the outskirts of Chennai are able to tackle this power crisis without hitting operations. The government's guarantee for assured power to big industrial houses has helped and they also have their own gensets.

Social infrastructure: The other major hurdle is social infrastructure. Strike and labour unrest in factories of MNCs, apart from unskilled workers, are a major road block.

Moreover, issues related to land acquisition have also slowed down the growth of industry. Automobile major Mahindra & Mahindra got a taste of this when the company said its proposed Rs 1,800-crore testing facility, near Chennai, was getting delayed since the state government had not allotted land to it.

While the existing industrial areas have little space for new industries, creation of new industrial areas is also taking time due to various issues, according to industry sources.

Looking ahead: The state government has announced a few initiatives to make Tamil Nadu a preferred investment destination. February saw the unveiling of Vision 2023, which targets making Tamil Nadu one of the top three investment destinations in Asia by 2023. The Vision envisages that the state will be amongst India's most economically prosperous and progressive state with no poverty and estimates around Rs 15 lakh crore investment within 2023 to achieve it.

On the power front, it expects the New Year to be better and hopes to overcome the power crisis by mid 2013.

The government has also set a target for double digit growth in the 12th Five Year Plan (2012-17) and envisions Accelerated, Inclusive and Innovative Growth.

Riding on the back of the 17 MoUs, the state also expects to achieve an average growth rate of 10.5 per cent in the manufacturing sector. These projects alone would generate direct and indirect employment for 135,000 people in the coming year, says a senior government official. Investments in the pipeline stood at Rs 9,25,285 crore in September, as against Rs 7,50,579 crore at the end of March 2011.

A major chunk of the committed investments has come from the automobile sector, led by Hyundai Motor India Ltd that signed an MoU for Rs 4,000 crore, Ashok Leyland-Nissan Rs 4,150 crore, TVS Motors, Tube Investments and others. The other major investments are to come from power and telecom. The state also proposes to venture into sectors like aerospace and pharmaceuticals, said the chief minister.

Meanwhile, industry representatives say the state should not feel happy for the money it is to get. “Some of the backward states like Bihar and Orissa are attracting big ticket investments. The ingredients for the growth are social and physical infrastructures,” says Abdul Majeed, partner at PricewaterhouseCoopers.

Majeed suggests the government need to work on infrastructure and skill development. “The state has done reasonably well in the last 10 years, but in the last 1-2 years it started losing momentum because of infrastructure issues. The power situation too needs to be addressed as soon as possible,” he says.

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