Catching the Chennai Express

Tamil Nadu, our neighbour across the Palk Strait, is about to beat us in per capita GDP. Are there any lessons for us?

I spent my April New Year holidays in Chennai. To best benefit from the newly constructed Metro Rail, I reserved a hotel in Meenambakkam, close to the airport. It was one of my worst travel mistakes. Day and night, the sound of airplanes taking off and landing was unbearable.

Not that I was new to Chennai city or its airport. It was the first foreign airport I set foot in nearly 30 years ago – as an undergraduate selectee to the National Institute of Technology, Karnataka. For four years, as a university student, I travelled via this airport. But it was tiny then. Not even half the size of Katunayake airport. I cannot remember seeing any aircraft other than SriLankan Airlines (then Air Lanka) and Indian Airlines, and rarely an Air India flight. It never registered in my mind as a busy airport. I never viewed it as a hub like Singapore, Bangkok or Kuala Lumpur. Or even Delhi, for that matter. What I didn’t know was that, over time, Chennai has become Asia’s 52nd-busiest airport, handling more than 20 million passengers annually – about as many people as Sri Lanka’s population. (In comparison, Dubai International handles 88 million; London Heathrow 78 million and Changi International, Singapore 62 million). Bandaranaike International Airport (BIA) handles only half of that number a year. In 2017, Chennai handled about 400 aircraft movements daily, while BIA did 180. While I have no hard data, my experience was that this was the opposite 30 years back. The trend many accelerate over the next five years and BIA might lose whatever opportunity it now has to become the South Indian air hub forever.

Unnoticed by many, the same is happening in the economy. In June 2017, I wrote to Echelon: “On per capita GDP basis, Sri Lanka falls behind only one Indian state (Goa) and two union territories (Delhi and Chandigarh). Times are changing, but none of the bigger states is even close to Sri Lanka in per capita GDP terms.”

Eighteen months have since elapsed. Things have changed. While four large states – Haryana, Telangana, Maharashtra and Uttarakhand – have either passed or are on par with Sri Lanka in per capita GDP terms, Tamil Nadu (TN) isn’t far behind either. With an annual growth rate of 15%, it will take a maximum of three more years to beat us. In aggregate terms, we are nowhere. TN is a $300 billion economy, while we are at $87 billion – not even a third of the size.

Now, how did that happen? We have always known the state of Tamils beyond the Palk Strait as an undeveloped state known for its poverty. How has this changed suddenly?

A new book, A Tale of Two Countries, by Ajit Kanagasundram attempts to shed some light into this paradox. A former Central Banker and the Managing Director of DBS Bank, the largest commercial bank in South East Asia, Kanagasundram explains in detail how TN developed despite few advantages like we have. The British, he observes, didn’t lavish attention in building infrastructure nor institutions there as they did in then Ceylon, the model colony. Madras was not a strategic location that could attract foreign patrons with deep pockets like China. At independence, when Madras became TN, it lost 60% of its land and 80% of its water resources to the newly carved states, Andhra Pradesh and Karnataka. TN’s economic advancement wasn’t because their leaders were visionaries or corruption free as those in Singapore.

TN developed itself, says Kanagasundram, despite having corrupt and self-serving politicians at the helm. Even Karunanidhi and Jayalalitha, who took turns to govern TN for most of its post-independence history, lacked the power to undermine national institutions like civil service and judiciary or corporations like Indian Railways and elite engineering schools like IIT. Inherently sound fundamentals established at India’s independence, according to Kanagasundram, enabled states like Gujarat, TN and Punjab that had the right human resources to move ahead even in a corrupt sphere.

I partially agree with that observation, but not to the level of one who belongs to my parents’ generation. If it were Gandhi-Nehru fundamentals and human resources per se that made the difference, we would have seen the same development in Uttar Pradesh and Bihar too, which were richer in human resources. Also, TN’s development is a more recent phenomenon. Even at India’s 45th Independence celebrations in 1992, TN was as poor as it was in 1947. No, the exceptional development of Indian states was certainly a post-liberalisation phenomenon. In fact, it looks even more recent.

So bigger questions: What was behind it? And what is emulation-worthy?

A close look at the current TN economy brings an answer to the first question. There are multiple factors that contributed to the success. TN is the second-largest state economy in India. Over half of the state is urbanized, accounting for 9.6% of the country’s urban population. Both the goods and services sectors are well developed with a gamut of diversified industries. The world’s biggest bagassebased paper mills are located there, as well as the world’s sixth-largest manufacturer of watches under the ‘Titan’ brand, which has a manufacturing plant in Coimbatore. The state produces 40% of India’s wind power. Its capital Chennai is home to a large number of auto component manufacturers.

TN is also the textile hub of India. Coimbatore is often referred as the ‘Manchester of South India’ for its cotton production and textile industries, which constitute 4% of India’s GDP. The state is also known for electronics manufacturing, with companies like Flextronics, Motorola, Sony-Ericsson, Foxconn, Samsung, Cisco and Dell choosing Chennai as their South Asian manufacturing hub. It accounts for 60% of the leather tanning capacity in India. Chennai is also known as the ‘Hospital Capital of South Asia’, with a sizable proportion of its over 100 million domestic and foreign tourists visiting for medical purposes. A chain of over 500 engineering colleges supplies human resources for these industries. The second question is harder. Proximity does not mean that we share similar business conditions. TN is rich in cheap labour. It can attract human resources from neighboring states as well. Its political stability and tax framework are more immune to changes in local politics, as the center has control. The education and health sectors in Sri Lanka, which can be developed as easily done in TN or otherwise, are threatened by few with petty political interests. So replication is out of the question. That will not happen.

Perhaps the best we can do is to plug ourselves to TN’s (and South Indian) supply chains. Sri Lanka won’t economically suffer if we continue to keep South India out of the equation. Without South India, Sri Lanka’s isolation will become complete. If political differences prevent business between the two, it is sad. It is time both governments act more rationally. After all, we are not Israel and Palestine.