As Tamil Nadu sets an ambitious target of becoming a trillion-dollar economy by 2030-2031, top economists Raghuram Rajan and Arvind Subramanian said the state needs to attract both — high-skilled manufacturing allied to services in the knowledge economy and low-skilled manufacturing which generates a high number of jobs.
This could help Tamil Nadu come close to achieving its trillion-dollar economy by the start of the next decade, they added, while speaking at the third edition of the two-day Tamil Nadu Global Investors Meet (TN GIM) in Chennai on January 7.
Notably, Tamil Nadu's target is considered to be ambitious, as the state needs to grow at 18 percent over the next 7-8 years to become a trillion-dollar economy. Even China had managed to grow only between 10-12 percent during its peak growth period, though it had managed to achieve the growth rate consistently over a long period of over three decades.
The economists disagreed on which was a better strategy as Rajan felt that high-end manufacturing would have more value addition and help the economy grow faster while Subramanian felt low-skilled factory jobs will help generate millions of jobs that India needed. Interestingly, both Rajan and Subramanian are part of the Tamil Nadu government's Economic Advisory Council to the chief minister.
"China is still an attractive place. We are still competing with other low-skilled manufacturing countries. We have more high-skilled engineers than Europe. We should move higher and be more ambitious. We should target specialised manufacturing," Rajan said.
He added that the quality of education and infrastructure could provide the impetus to achieve that. Rajan pointed out that Tesla has written more than four million codes for its cars. The Global Capability Centres (GCC) centres could add to the value addition and innovation for high-end design technology for manufacturing. "We can do both high-skilled and low-skilled, but we need to focus on getting the high-skilled manufacturing," Rajan said.
Meanwhile, Subramanian said that low-skilled manufacturing in textiles, footwear and others will bring millions of jobs to the low-skilled workforce of the country and is more important than attracting 2 percent of the manufacturing pie.
"China has a 40 percent market share in manufacturing and India has 4 percent. Even if we take our share to 15 percent, this is a huge opportunity. Earlier, our factories used to be small employing 2,000-3,000 people. Now, we have grown scale and some of the assembly factories employ 30,000 people," Subramanian added.
Both economists agreed that India needs to adequately skill the workforce to compete with China in manufacturing as most industries struggle with the lack of skilled workers. With the rising labour costs, this is the only way Tamil Nadu can stay competitive. "Despite Tamil Nadu being a relatively richer state, it has attracted manufacturing companies and it is an indication that the state has skilled and trained its workforce well," Subramanian added.
Rajan said that Tamil Nadu should be open to migrants from other parts of the country while Subramanian added that the state will need to rise above the political challenges that migration could cause.
Both economists said that the financial situation of Tamil Nadu's electricity distribution companies could exacerbate the public debt of the state government, and is a cause of concern as it contributes to one-third of all state debt.
Even as natural disasters have been recurring in the state, it continues to be reliant on carbon because of a lack of private investment in the power sector, they said, adding the discoms' financial condition is a big disincentive for private investment in renewables.
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