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Tamil Nadu's buzzworthy MoUs with UAE investors might just be the kickstart needed to counter the slowdown of FDI in India.
At a time when foreign investment in India has slowed down to a decade low, the southernmost state of Tamil Nadu grabbed headlines last week when it secured investments worth Rs 42 billion ($591 million) from UAE based corporates. At the end of his three-nation tour that included the UK and the US, the state chief minister struck gold in the middle eastern nation where six memorandums of undertaking (MoU) were signed across sectors like warehousing and logistics, healthcare, mobility, skill development and agriculture.
"This visit is to seek tangible investment for Tamil Nadu that is mutually rewarding for both the state and the investors,” said Edappadi K. Palaniswami, chief minister of Tamil Nadu. “I am happy that the business community in the UAE and the investors here are very keen to know more about our offerings for investment."
The MoUs include DP World's interest to invest Rs 10 billion ($140 million) to set up a Free Trade Warehousing Zone that will employ more than 1,000 skilled manpower. It also includes ITEC ME's decision to establish a multi-trade export facilitation from the state to promote small and medium enterprises (SMEs), and another MoU to facilitate placement of skilled manpower. This is expected to generate employment opportunities for another 1,000 people.
Giant Industries has also signed an MoU for a biodiesel project that will engage farmers in the state while Mulk Holdings, signed an MoU worth Rs 5 billion ($70 million) for setting up industries that will generate employment of about 500 skilled manpower. An MoU worth Rs 1.5 billion ($21 million) was signed by Pro-Global Logistics for supply chain logistics in Agri produce. In the healthcare sector, Prime Medical Centre signed an MoU aimed at generating employment directly and indirectly for thousands and Mauto Electric Mobility signed a contract to invest Rs 1 billion ($14 million).
As one of the most industrialised states in the country, Tamil Nadu has been actively scouting for additional foreign investments, something that it has been quite successful at in the past. The trip to UAE was preceded by 16 companies from the US committing to invest Rs 2,780 crore ($391 million) in the state to generate employment for 20,000 people. Overall, the 14-day three-nation tour yielded 41 memorandums of understanding worth a total investment commitment of Rs 8,835 crore ($1.24 billion) that is expected to generate employment opportunities for 35,520 people in the state.
"Facts and figures speak for itself for Tamil Nadu. Frost and Sullivan has ranked Tamil Nadu the second in their overall ranking and first in investment potential among other Indian states,” Palaniswami said. “We have the second largest economy in India among the states with a GDP of $250 billion. Between April 2000 and March 2019, we have attracted FDI worth $29.848 billion, which makes us the fourth largest FDI destination region in the country,” said K. Shanmugam, chief secretary of the state. "We have taken up a series of measures to simplify and rationalise the regulatory processes (registration and inspection processes) by deploying information technology to make governance simpler, responsive, transparent, accountable and efficient."
The investments come at a critical time for the country in general and the state in particular. India's economy that was at one time the fastest growing in the world, has slowed down to 5 per cent in the first quarter of fiscal 2020, the slowest in 6 years. The rate of flow of FDI in the country has also slowed down significantly. In fiscal 2019, there was a 1.1 per cent decline in FDI inflow in the country at $44,366 million. It was the first annual decline since 2012-13. Total foreign investments in the country declined 42.6 per cent last fiscal on the back of an even steeper decline in foreign portfolio investments in the country.
Tamil Nadu's enviable growth record and ability to manage crisis also makes it attractive for any investor. Despite a 24 per cent deficit in North East monsoon which gives the state 50 per cent of its annual average rainfall and the ill effects of the cyclone Gaja in November last year, the state's economy grew at a healthy 8.17 per cent that was well above the national average of 6.81 per cent in 2018-19.
Between 2011-12 and 2018-19, the state's Gross Domestic Product (GSDP) expanded at a Compound Annual Growth Rate (CAGR) of 11.46 per cent to Rs 16.06 trillion ($222.58 billion) while the Net Domestic Product (NSDP) expanded at a CAGR of 11.45 per cent to Rs 14.41 trillion ($199.69 billion).
“If one goes by the growth rate of the state since 2016-17, it seems to be absolutely immune to the macro-economic shock that the country's economy has faced in the light of demonetisation in November 2016 and the implementation of the Goods and Services Tax in July 2017,” said N.R., Bhanumurthy, a professor at National Institute of Public Finance and Policy, New Delhi. “In the last couple of years, there were concerns about industry and the State government's fiscal situation, apart from political uncertainty. Despite all these factors, the fact that the State has been doing well on the economic front suggests that its economy is resilient.”
There is a caveat though. Like in the case of any investors' summit where a lot is promised but not everything is delivered, the MoUs ought to be taken with a pinch of salt. Not all the investments promised in the state's investors summit in the past have fructified either, a point that its main opposition party DMK has been quick to point out. In the global investors meet organised in January earlier this year, 304 MoUs were signed with committed investments of nearly $43 billion.
“Have Rs 5.42-lakh crore (proposed) investments in the two editions of GIM been realised Not at all. The announcements regarding investments have become a mere mirage,” said M.K. Stalin, president, DMK. Perhaps Tamil Nadu can take the lead and break the illusion that most MoUs are merely paper investments. That would be the fitting response for critics and set a template for others to match.