The political upheaval in Tamil Nadu could have a reflection on the southern state’s economy, which has a GDP of $150 billion or more than Rs 10 lakh crore, equivalent of oil nation Iraq.
Industrialists and economists are following keenly the fast-changing power struggle between caretaker chief minister O Panneerselvam and AIADMK general secretary VK Sasikala, who is seeking to take over the reins and claims to have the support of party legislators.
Tamil Nadu’s economic mainstay is agriculture, but it is also a leading industrial state with automobile, textile, electronics and heavy industries, and has a robust information technology business.
Major carmakers such as Ashok Leyland, Ford, Nissan, and Hyundai have factories outside Chennai, known as India’s Detroit for its concentration of automakers.
Over the past five years, the state’s per capita domestic product has been one of the highest in the country with an average growth rate of 7.68%.
But the state needs economic reforms, economists said. It attracted Rs 22,582.6 crore of foreign direct investment — third highest in the country between 1991 and 2002 — but failed to attract foreign investors, or new industries, of late.
“Tamil Nadu has reached a middle-income trap, exactly what has been happening in Latin America for the past three decades. To get out of that it requires a different kind of governance, but that will not happen with any of the DMK parties. They are addicted to the rent-collection regime,” said Rajiv Kumar, a senior fellow at Centre for Policy Research, an independent think-tank.
Kumar, however, held out hope the state could dodge a slowdown from the political uncertainty because of its well-oiled bureaucracy.
“Except for something like the water dispute where two parties can be at loggerheads, the political battle is a fight in a glass bowl … The robust bureaucratic system, subsidies and transfer incomes are well in place,” he said.
A political impact of a different kind could hit business, though. Especially, the manufacturing and services sectors.
The state has been opposed to the goods and services tax (GST), aimed at creating a unified tax regime and a uniform market.
“The state is heavily industrialised, and governance needs to be there. The big ticket reform is GST ... and Tamil Nadu has not been supporting that. It’s been an on-and-off thing,” said Vinnie Mehta, director general of Automotive Component Manufacturers Association of India.
Policy decisions are expected to roll only after the fight for the chief minister’s post ends.
The 59-year-old Sasikala was the closest aide of J Jayalalithaa, the charismatic AIADMK leader and chief minister. She took over the party’s top post within days of her mentor’s death last December.
The ruling AIADMK has been a single-leader show under Jayalalithaa, and industry experts said no project and file was approved without her nod.
But behind the scenes, at Jayalalithaa’s Poes Garden bungalow in Chennai, Sasikala is said to have played her hand in helping the former chief minister clear some of the files.
Industry sources are also wary of allegations that Sasikala has loyalists — mostly from her extended family — in important positions of companies and the state administration.