Tamil Nadu has been among the leading electronics manufacturers in India, and is poised to lead the next wave of growth. Last week, when the state assembly met to debate a new development policy for the nation’s most populous state, it was unable to get very far. It has built many a road and bridge, but remains locked in a battle with the BJP-led central government over wealth-tax issues, among other disagreements. A crippling drought looms over Kerala, and hasn’t relented, even though Prime Minister Narendra Modi has declared it a natural disaster. Puducherry, meanwhile, remains hamstrung by a constitutional agreement that has insisted that it borrow at market rates and tax illegal immigrants at generous rates. Last week, Tamil Nadu was able to craft a development strategy of its own, which was adopted by the assembly. It established a Manufacturing Development Corporation, started by the state government, to promote electronic manufacturing. The target was to boost electronics production to $100 billion by 2025. There are multiple reasons for the striking optimism of this proposal. First, it looks to me like an excellent opportunity for India to take advantage of China’s advanced manufacturing experience and start replicating it at lower costs. Many of China’s products now have reasonable Indian equivalents, and tech companies are even doing some research in India. China is a natural benefactor of a thriving Indian electronics manufacturing industry, so it will be more than happy to do its bit.
Second, the company at the centre of the policy, the Tamil Nadu Manufacturing Corporation, is led by Mahendra Singh, a former minister, and previous chief of the All India Techie Association. That has the potential to guarantee good industry governance. Third, the policy has a reasonable number of goals. It establishes targets for the production of “standard-compliant” laptops, tablets, and high-speed internet connections, and demands that all new or renovated buildings include a rooftop solar panel. It also demands that buyers, dealers, warehouses, warehouses for mobile devices, and retailers carry at least 10 percent of electronics products. The building of high-speed broadband networks, meanwhile, involves a consortium of state and central governments, which, I expect, will enjoy enormous goodwill. Finally, there’s some significant accommodation of regional interests. One of the concerns of regional politicians is that they lose their jobs when new industries come to their areas. The arrangement enshrines investment cap rates that favour the poorest areas, allowing them to maintain decent wages, but at the expense of maximising economic activity in the most economically productive locations. This may sound reasonable, but in fact it’s going to create a lot of additional controversy, because nationalities in India are asymmetrical — Indian citizens can depend on policies to benefit their interests, but migrants from southern states like Tamil Nadu lack that support.
Policymakers need to understand that they are looking at problems here not just from a national point of view, but from the point of view of regional states. That means they will have to develop incentives that sustain high wages, but reward mobility and exposure to new ideas. That’s what a policy like this helps them do. The idea also has potential as a model for other regions of India, where many people have been sidelined by unbalanced development. They can have better luck if they step up to the plate, too. As did Tamil Nadu’s telegram industry, the region faces a ripe opportunity to revive itself. That requires doing precisely what state governments in India have always done: innovating and competing. New technology provides the opportunity to achieve as much progress as possible, but with weaker oversight than in the past. To succeed, the job of state policymakers has to be to figure out how to effectively harness this potential.