Chief Minister Palaniswami has been taking special efforts to attract investments. The state policy should be on the development of the manufacturing and services sectors.
The TN Assembly has passed the TN Protected Agricultural Zone Bill. This bans setting up of projects inimical to the environment and ecology of three Cauvery delta districts – Thanjavur, Tiruvarur, Nagapattinam and a few blocks of Cuddalore and Pudukkottai districts. The banned projects are zinc smelters, iron and steel industries, copper and aluminium smelter, tanneries, bone meal and processing of animal parts and exploration, drilling and extraction of hydrocarbons.
Agriculturists of this region have been agitating for years opposing the location of industrial projects and exploration and production of hydrocarbons. The issue assumed urgency due to two recent developments: the first one related to the efforts of the Centre to relax environmental impact assessment and to exempt hydrocarbon projects from mandatory consultations with the public of the concerned region. Second is of greater political impact, the elections to the state assembly due in 2021. The AIADMK in power has been adroitly managing its survival with a thin majority since the demise of J Jayalalithaa. The AIADMK is understandably concerned over winning the support of the large constituency of agriculturists.
Large Trade Deficit, Imports of crude…
While the electoral calculations occupy centre-stage, such decisions adversely impact weighty economic gains. Look at the following factors:
India suffers from a substantial trade deficit. During 2018-19, for instance, India’s imports were US$ 507 billion and exports $ 331 billion. And these are largely inelastic. For instance, there has been a large expenditure on import of crude oil and natural gas essential for meeting our energy and transport needs. Last year the import bill on these items of $ 111.9 billion formed over a fifth of total imports. During the 1980s, thanks to the big step up in exploration and production efforts, indigenous production of crude shot up over 30 million tonnes and met nearly 30 per cent of domestic demand. With a vast increase in the consumption of petroleum products not matched by an increase in domestic production of crude, today there is only 20 per cent self-sufficiency.
This underscores the importance of stepping up investments on exploration and indigenous production of oil.
Oil not available everywhere
Oil resources aren’t spread across geographies. Reserves can be explored and exploited only in the regions containing oil or gas. The Krishna-Godavari Basin or the Cauvery Basin, the Bombay High and the Northeast, for instance, have been explored for oil for decades and the prospects have been established. The states have left the burden for balancing trade to the Centre.
This indifference can be addressed by encouraging and incentivising states on trade gains, such as expanding exports and reducing imports. With the import bill on oil and gas ballooning, there is an urgent necessity to step up exploration and speed up production. In this context, the ban on oil and gas exploration projects in the delta region is a matter for national concern.
TN not a big producer of foodgrains
TN was amongst the large producers of food grains till the mid 1960s.
The Green Revolution that shot up food production, combined with the government’s promise of procurement of surplus through remunerative prices, helped bring about large areas under paddy cultivation as a the summer kharif crop in states like Punjab. Coupled with productivity improvements through scientific practices, this resulted in huge jumps in food production, especially in states with rich water resources.
TN recorded much less increases in the rate of growth of foodgrains over the last 50 years. While Punjab recorded an annual average growth in food production of 9.3 per cent, TN’s was just 2.7. The state also suffered from the fragmentation of landholdings, making agriculture operations less remunerative. The state has been experiencing continuous and steep fall in the share of agriculture to its GDP presently estimated around 8 per cent, around half the nation’s. In the highly urbanised state, land prices have been increasing, impacting the economics of farming. Today, there is a dearth of male labour in farming. In the absence of productivity increases and in the light of wild fluctuations in the market prices of agricultural produce, the sector stagnates.
Go for a share in oil produced
In this background, it will make sense to focus on the remunerative oil and gas sector. Look at the enormous value of an acre of land identified for its potential for production of oil or gas. This should run into a few lakh rupees per acre against the few thousand rupees a farmer may get out of paddy cultivation. It will make for a lot of economic sense to build the case for sharing this bonanza with the land owner, with the community and with the state.
There is a disconnect between the Centre and the states on such issues. The portfolio of the Union Minister of Trade is tagged on to those of industry, railway and a host of other responsibilities. There is hardly the time on the part of Delhi to discuss trade issues with the state. I remember the past when senior bureaucrats and Central ministers frequenting state capitals to discuss policy matters. Today, these visits are rare and even when they do take place, the VIP visitor is besieged with several crowded engagements.
Focus on chemicals and petrochemicals
Years ago, the Nagapattinam-Cuddalore corridor was designated as a Petroleum, Chemicals and Petrochemicals Investment Region (PCPIR). With the Chennai Petroleum Corporation Ltd planning to set up a 15-million tonne oil refinery at Nagapattinam, there is a huge opportunity to develop the corridor as a thriving petrochemical complex. If a gas pipeline could be extended to Cuddalore, a large fertilizer plant with a capacity of 5000 tonnes per day could also be set up in this coastal town.
The focus on chemicals and petrochemicals will help widen the industrial base. Like Gujarat and Maharashtra, such a focus will witness quantum jumps in investments in industrial projects. The infrastructure is readily available at Cuddalore: for over a decade, the Nagarjuna Oil Refinery Ltd had been battling with the setting up of an oil refinery. It did not progress, came under the IBC and was closed. The rich infrastructure along with the large land area and all clearances lend for the early execution of the large petrochemical unit by HPL.
TN can emerge as a large player in a fast-growing market for chemicals and petrochemicals.
TN has excelled in textiles, leather, cement, automobile, auto components, and IT industries. With the cyclical fortunes of these industries, diversification into chemicals and petrochemicals will contribute to greater stability for industrial growth.
TN’s share in the high growth petrochemical sector is just six per cent of the nation’s. With its long coastline and rich infrastructure, the state should tap the potential for the high-investment petrochemical sector. In particular, this offers huge scope for downstream units with large employment potential with wages much higher than in the farm sector. This will also help the central districts of the state catch up with the northern and western regions on industrial development.
Chief Minister Palaniswami has been taking special efforts to attract investments. I remember the several meetings he addressed and the initiatives he and his team of policymakers took while conducting the Global Investors’ Meet in January 2019, which contributed to a lot of visibility on the investment prospects in TN. He also undertook a successful three-nation visit to UK, USA, and UAE. Unlike his predecessors, he interacts frequently and closely with business leaders. He is thus aware of the value of investments in the industry through the creation of jobs and remunerative occupations. With scarce natural resources but the copious supply of an educated workforce, the state policy should be to develop the manufacturing and services sectors. The state should also opt for agglomeration of land permitting long-term lease and enforceable contracts that would transform agriculture into profitable agri-businesses.
