Industrialisation in Tamil Nadu’s development

A closer look at the State’s manufacturing industry and its current challenges

Tamil Nadu, along with Kerala, is noted for its relatively inclusive development path. Both States have registered higher levels of development and lower levels of poverty compared to other major States. Unlike Kerala, Tamil Nadu’s development trajectory however draws upon a dynamic manufacturing and high-end services sector for its sustenance. As Kalaiyarasan and I argue in our book The Dravidian Model: Interpreting the Political Economy of Tamil Nadu, it is the State’s ability to combine dynamic industrialisation with effective investments in public health and education that has translated into better social and economic outcomes. Why is the process of industrialisation critical to the State’s developmental vision?

The Dravidian movement that shaped the political ethos in the State held that modernisation of the economic sphere is critical to secure social justice and address caste-based inequalities. The colonial regime fostered the emergence of new sites of power through expansion of the sphere of modern administration and economic activity that allowed caste elites to further strengthen their power by virtue of their access to education. Social justice therefore demanded democratising access to this sphere.

A caste-centric society also generated a range of economic unfreedoms for lower castes as it codified and structured a hierarchy of labourers with low caste labour confined to low status occupations requiring manual labour. Workers, as Periyar pointed out, were ‘born labourers’ with little scope for economic mobility. Addressing such unfreedoms therefore warranted a movement of lower castes into non-traditional sectors which can undermine such rigidities. Two sets of processes were therefore critical to this project. To enable labour to move out of inherited occupations, modern education had to be broad-based so as to help lower caste workers acquire skills that caste-based division of labour deny them. Investments in education along with incentives for the entry of children from lower caste households into education and affirmative action policies constitute one critical axis of intervention. Such interventions have to be backed by ensuring employment opportunities through an expansion of the modern economy. Industrialisation is therefore crucial to shift workers from traditional occupations, agriculture in particular, to the non-farm and urban economy. Interventions, therefore, sought to spur manufacturing along with democratisation of access to education and skills.

The State has indeed met with a degree of success in this regard. According to the State Human Development Report released in 2017, Tamil Nadu, along with Kerala, derives the least share of State income and employment from agriculture (both as wage labour and as cultivators) among major States. In fact, the latest Situation Assessment Survey of Agricultural Households and Land and Holdings of Households in Rural India, 2019 published by the National Statistics Office (NSO) indicates that only 26.3% of rural households in the State are agricultural households. These are households that derive a minimum of ₹4,000 per year from agricultural activities including livestock produce, and with at least one person reporting to be self-employed in agriculture either in principal or subsidiary status. Even by this generous definition, nearly 3/4 of rural households in Tamil Nadu are non-agricultural compared to the all-India average of just 53%. In fact, even among agricultural households in the State, a higher share of income from wage employment was derived from non-agriculture sectors than agriculture.

Three aspects of this process of diversification are noteworthy. Investments in education, technical education in particular, has been crucial. As per the All-India Survey of Higher Education for 2019-20, Gross Enrolment Ratio (GER) in tertiary education for those in the age group 18 to 23 was the highest in the State at 51.4%. The GER for Scheduled Caste (SC) youth was lower at 39.6%, but still the highest for SC youth among all major States. Tamil Nadu also has the highest number of students enrolled in polytechnics as well as the largest number of professional colleges in the country.

On the demand side, the State stands third in terms of manufacturing output after Maharashtra and Gujarat, but is home to the largest number of factories and workers employed in organised manufacturing in the country. Manufacturing is relatively more labour intensive in Tamil Nadu. Textiles, garments, auto components and leather goods sectors dominate the manufacturing landscape of the State. Importantly, the share of wages in the Tamil Nadu manufacturing sector has been relatively better than in other major manufacturing States. As per data furnished by the Annual Survey of Industries, the share paid as wages and salaries in gross value added by organised manufacturing in the State was 19% in 2018-19. This share was only 11.2% and 13.6% in Gujarat and Maharashtra respectively.

This higher wage share is true for specific sectors within manufacturing. In the apparel making sector, which is labour intensive and spread across the three States, the share accruing to labour in Tamil Nadu’s garment industry is again higher than the other two States. While it is 32.5% and 26.2% in Gujarat and Maharashtra respectively in 2018-19, the share of wages and salaries to workers in Tamil Nadu was 38.2%.