Explained: Tamil Nadu’s decentralised industrialisation model (2024)

Sector-wise shares of GVA and workforce for the year 2022-23

Gujarat is more industrialised than TN, with the factory sector generating 43.4% of the state’s GVA and engaging 24.6% of its workforce (as against the latter’s 22.7% and 17.9% respectively). But Gujarat also has agriculture accounting for a higher share of its GVA (15.9%) and workforce (41.8%) than the corresponding 12.6% and 28.9% for TN. That makes its economy less diversified and balanced vis-à-vis TN.

Another indicator of economic complexity is agriculture itself. About 45.3% of TN’s farm GVA comes from the livestock subsector, the highest for any state and way above the 30.2% all-India average. Not surprisingly, TN is home to India’s largest private dairy company (Hatsun Agro Product), broiler enterprise (Suguna Foods), egg processor (SKM Group) and also “egg capital” (Namakkal).

Cluster-based industrialisation

TN has just a handful of large business houses with annual revenues in excess of Rs 15,000 crore: TVS, Murugappa, MRF, Amalgamations and Apollo Hospitals. Even they are not in the league of Tata, Reliance, Aditya Birla, Adani, Mahindra, JSW, Vedanta, Bharti, Infosys, HCL or Wipro, as far as turnover goes.

TN’s economic transformation has been brought about not by so-called Big Capital as much as medium-scale businesses with turnover range from Rs 100 crore to Rs 5,000 crore (some, like Hatsun and Suguna, have graduated to the next Rs 5,000-10,000 crore level). Its industrialisation has also been more spread out and decentralised, via the development of clusters.

Some of the clusters – agglomerations of firms specialising in particular industries – are well known: Tirupur for cotton knitwear (the units there clocked exports of Rs 34,350 crore and Rs 27,000 crore of domestic sales in 2022-23); Coimbatore for spinning mills and engineering goods (from castings, textile machinery and auto components to pumpsets and wet grinders); Sivakasi for safety matches, fire crackers and printing; Salem, Erode, Karur and Somanur for powerlooms and home textiles; and Vaniyambadi, Ambur and Ranipet for leather.

Many cluster towns are hubs for multiple industries. Thus, Karur has powerlooms, bus body builders and even makers of mosquito and fishing nets (one of them, V.K.A. Polymers, is a major exporter of insecticide-treated bed nets). Dindigul has spinning mills and leather tanneries. Namakkal is as famous for layer poultry farms as its large lorry fleet/bulk cargo logistics operators and tapioca-based sago (sabudana) factories. Salem has powerlooms and tapioca starch-cum-sago producers, while Erode is a textile and “turmeric city”.

In contrast to them are the more sub-specialised clusters. Chatrapatti, in Virudhunagar district’s Rajapalayam taluka, is “bandage city” not for nothing: It is a manufacturing centre for bandages, gauze pads/rolls/swabs and other surgical cotton products and woven dressings.

Tiruchengode is India’s “borewell rigs capital”. The borewell drilling services contractors of this town near Namakkal take their truck-mounted rigs all over the country to dig up to 1,400 feet. Dhalavaipuram, hardly 10 km from Rajapalayam, specialises in production of nighties and ladies innerwear, just as Natham, next to Dindigul, does in low-priced men’s formal shirts.

Most of these clusters have come up in small urban/peri-urban centres, providing employment to people from surrounding villages who may otherwise have migrated to big cities for work. They have, moreover, created diversification options outside of agriculture, reducing the proportion of TN’s workforce dependent on farming.

Tirupur’s knitwear industry alone today employs some 800,000 people, including migrants from Uttar Pradesh, Bihar, Jharkhand, Odisha, Assam and other states. Take K.P.R. Mill Ltd. This company, with Rs 4,740 crore sales in 2022-23, has 21,819 permanent employees – over 84% women – at its garmenting, knitting, spinning and processing facilities in Tirupur and nearby areas of Coimbatore and Erode districts.

Entrepreneurship from below

TN’s early industrialists were mainly Nattukottai Chettiars and Brahmins.

A traditional banking-cum-trading community, the Chettiars had extensive operations in Southeast Asia and Sri Lanka. The disruptions from World War II and the Burmese nationalist movement led many to redirect their investments back home.

Prominent among them were Annamalai Chettiar (the M.A. Chidambaram and Chettinad groups descended from him), A.M.M. Murugappa Chettiar (Murugappa Group), Karumuttu Thiagaraja Chettiar (textile magnate) and Alagappa Chettiar (textiles, insurance, hotels and education).

The big Tamil Brahmin-owned houses included TVS, TTK, Amalgamations, Seshasayee, Rane, India Cements, Sanmar, Enfield India, Standard Motors and Shriram. A more recent name is the business software solutions company Zoho Corporation of Sridhar Vembu.

The drivers of TN’s more recent decentralised industrialisation have, however, been entrepreneurs from more ordinary peasant stock and provincial mercantile castes.

Coimbatore’s spinning mills, foundries, machining and pumps & valves, textile equipment and compressor making units were mostly started by Kammavar Naidus. The promoters of Suguna Foods, CRI Pumps, Elgi Equipment and Lakshmi Machine Works, too, are from this community.

The cluster capitalists of Tirupur, Erode, Salem, Namakkal, Karur and Dindigul are mainly Kongu Vellalar or Gounders. This is a community to which the owners of the Coimbatore-based Sakthi and Bannari Amman groups – plus politicians, from former chief minister Edappadi Palaniswami to the Bharatiya Janata Party’s state president K. Annamalai – also belong.

Sivasaki’s fireworks, match and printing industries have been built largely by Nadars. But this belt in southern TN – also covering Virudhunagar, Srivilliputhur, Watrap and Rajapalayam – has produced entrepreneurs from other communities as well: Raju (Ramco Group and Adyar Ananda Bhavan) and Udayar (Pothys).

Many from here have also gone on to create successful product brands: Hatsun (‘Arun’ ice-cream and ‘Arokya’ milk), V.V.V. & Sons (‘Idhayam’ sesame oil) and Kaleesuwari Refinery (‘Gold Winner’ sunflower oil).

The remarkable thing about TN’s entrepreneurial culture is its percolation among diverse communities and in a range of industries. That includes Christians (MRF, Johnson Lifts and Aachi Masala Foods) and Muslims (Farida Group).

CavinKare’s C.K. Ranganathan, a Mudaliar, was selling ‘Chik’ shampoo (taken from his father Chinni Krishnan’s name) in single-use sachets well before the likes of Hindustan Unilever latched on to the idea. Ranganathan’s brother, C.K. Kumaravel, runs Naturals Salon & Spa that has nearly 700 hair and beauty care outlets across India.

The above “entrepreneurship from below” – combined with its high social progress indices from public health and education investments – probably explains TN’s relative success in achieving industrialisation and diversification beyond agriculture.