Roadmap for next growth push

Trade winds are turning in Tamil Nadu's favour. Tariff pressures are easing, new agreements with Western markets are nearing completion and New Delhi is putting money behind strategic manufacturing, legacy industrial clusters and MSMEs. To benefit from the trade deals with the EU and the US, Tamil Nadu needs ambitious reforms and targeted incentives to improve competitiveness.Operationalising labour codes, facilitating flexible fixed-term employment and improving air connectivity are crucial for export competitiveness, says A Viswanathan, vice-president of Madras Chamber of Commerce and Industry (MCCI). "A major bottleneck is the lack of direct connectivity compared to cities such as Bengaluru or Hyderabad. A lot of the electronic components arrive by air and finished electronic goods are also largely exported by air. The current lack of direct flights often necessitates transshipment, which adds a little extra cost but more importantly impacts timing, which is a critical factor for industrial competitiveness," he says. He also suggests speeding up and simplifying environmental clearances including deemed to be cleared approvals.
Tamil Nadu's cost of power is higher than that of other exporting states such as Gujarat, says Abhishek Anand, managing director of Insignia Policy Research. "The state is lagging behind in attracting data centres because it cannot commit to providing the necessary renewable energy, as big corporate houses look for green power," he adds.The state also needs to address labour laws, which currently incentivise companies to remain small, and the shortage of mid- to high-skilled labour, especially in emerging sectors, says Anand. Industry-academia interaction has not worked effectively for upskilling, he adds."Private companies are increasingly reluctant to invest in training. For Tamil Nadu to succeed in creating these jobs, the state must ensure the workforce is job-ready for high-tech roles," says Vidya Mahambare, Union Bank chair professor of economics and director (research) at Great Lakes Institute of Management, Chennai.The priority should be highly automated, higher value-addition employment and attracting global brands, and not labour-intensive traditional sectors, says Prof Mahambare. "Manufacturing companies will have to increasingly invest in AI training and integrate it into their workflow. For Tamil Nadu to succeed, existing MSMEs need support to modernise through smart factory and automation tools, backed by financial incentives and handholding," she adds.Tamil Nadu needs to look beyond the now successful Foxconn model for new economy industries, says Prof N R Bhanumurthy, director of Madras School of Economics. He stresses on creating a new integrated model for skill development and continuous assessment of cost of production and ease-of-doing business vis-a-vis other key states. "Emerging industries require a different calibre of talent and operational structure than traditional assembly lines. The state must look at different models for developing a specialised workforce pipeline, including training specifically for high-value tasks through apprenticeships," he adds.Here's what industry experts say about the state's prospects across sectors: Biopharma Manufacturing: Biologics manufacturing and clinical trials demand global compliance standards, says Dr G S K Velu, chairman of Neuberg Diagnostics. "Streamlined state-level approvals, clear standard operating procedure and alignment with central regulators will be critical to attract serious investment. The state also needs to build talent in bioprocess engineering, cell culture technology, regulatory science and clinical data management. Dedicated life sciences parks with plug-and-play infrastructure, quality testing labs, cold-chain logistics, and research facilities can significantly accelerate scale," he says. Tamil Nadu's combination of academic institutions and hospitals provides a credible platform to scale high-quality clinical research. "If supported by regulatory clarity and investment in research infrastructure, this can elevate the state from being a manufacturing centre to a life sciences innovation hub," he adds. Rare Earth Corridor: The Union budget has proposed a dedicated corridor to promote research, mining, processing of rare earth elements. These are critical for high-tech industries where Tamil Nadu already has capabilities such as electric vehicles, wind turbines, electronics and defence applications. Dedicated rare earth corridors can attract processing units and permanent magnet and electronics supply partners to the state, says P Ravichandran, president of Danfoss India. This will enable backward integration into magnet manufacturing, attract tier-1 and tier-2 suppliers for EV powertrains and strengthen Hosur–Coimbatore–Chennai industrial belt. Other experts believe that without a predictable pathway from exploration to extraction, private capital will stay away. Tamil Nadu needs to design a tightly supervised model with clear participation and export rules. Capital goods making:The Union Budget has proposed an incentive scheme to strengthen domestic manufacturing of construction and infrastructure equipment. For Tamil Nadu, which already hosts auto-component, hydraulics, fabrication and engineering clusters across Chennai, Hosur and Coimbatore, this creates an opportunity to plug existing industrial capabilities into a new high-value segment.Experts say the push could help the state attract manufacturers of engines, transmission systems and undercarriage assemblies that are currently import-dependent. If supported by state policy, this can deepen vendor ecosystems, enable MSMEs to upgrade into precision manufacturing.Chip equipment & electronics components: For Tamil Nadu, the opportunity lies in leveraging its deep base in engineering, automotive, electronics manufacturing and industrial automation across Chennai, Coimbatore and Hosur. These capabilities can be used for vacuum subsystems, wafer-handling automation, precision mechanics and advanced packaging tools.Tamil Nadu has identified chip equipment and materials with targeted incentives and a semiconductor park in Coimbatore. Supporting existing MSMEs to upgrade to semiconductor grade is necessary. MSMEs:The micro, small, and medium enterprises want the state to provide single-window clearances similar to that of large industries. They also ask for logistic infrastructure and interest subvention programmes for buying capital equipment to scale and be more competitive. They also expect marketing assistance to enter into newer markets. Textiles: The textile industry is upbeat about demand and expects gains in market share due to a level playing field with competing countries. However, industry leaders warn that workforce availability is tight. Without housing, skilling pipelines and worker mobility, Tamil Nadu risks losing momentum even if tariffs fall. Capital support for hostels and closer coordination with training institutions are therefore emerging as central to sustaining competitiveness.