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TAMIL NADU STATE BUDGET FINANCIAL YEAR 2014-2015

                        To: The Rt. Hon. Chief Minister of Tamilnadu Dr. Jayalalitha Jayaram

From: Athinarayanan Sanjeevraja

Date: February 10, 2014

RE: Tamilnadu State Budget Financial Year 2014-2015

Suggestion: Tamilnadu State budget 2014-2015 should strong focus on manufacturing and energy sector which is vital to the State’s economic growth and a major generator of investment, exports and jobs.

The Hon. Chief Minister, India’s in economic bleeding. It will continue as toxic combination of rupee depreciation, swollen current account and budget deficit, capital flows declined and longer term interest rate high, persistently high inflation and Indian policy makers are professionally incompetence to address these problems. RBI policy may cause hyperinflation in the future, if RBI continues the same type of policy. India is in difficult place. It won’t recover. The United States of America, Europe, UK, other advanced economies and most emerging economies all got back their economy on track in 2013. Now the global risk has been vastly shifted to India, if I am not mistaken. China is still registering approximately 8 percent growth. As an Independent Research Analyst, I also downgraded Indian economy since January 2008 and said it on my research note India never achieve 9 percent growth in the future. Your desire is to see increase in the Manufacturing Sector’s share in GSDP to 23 percent by 2023 to make Tamilnadu is powerhouse for manufacturing in India. Also your desire is to make Chennai the world largest auto hub. Your intense effort is not just enough to achieve your desires as Indian economy never grows in the future as advanced economies encourage their business leaders invest or expand their businesses in their own country. This is one of the triumphant policy for advanced economies to got back their economy on track and reduced their unemployment. You need a mission-oriented approach to achieve your desires. However, please accept my heartiest felicitations on your Government Budget presentation on February 13, 2014.    

INCREASE IN INDUSTRIAL GROWTH NEEDS INCREASE IN ENERGY DEMAND

The Hon. Chief Minister, we keep energy prices low for socio and economic reasons. It is fine. Keeping the energy price low often reduced level of investment in energy sector as massive funding is required building energy infrastructure. In addition, outdated procedures unclear regulations, often changing the policy frameworks constrain deeper private investment in our state. Thus, the private sector was not building as much capacity as government necessitated. But we need to create more sustainable and secure energy system to increase in industrial growth and production. Our state’s energy supply will be able to match its our economic growth aspirations. We should not over-reliance on central government to get more grid power to our state. The central government is not going to integrate Tamilnadu with northern grid instantaneously as central government incompetence. Power shortages have crippling regular operation of Tamilnadu industries. Industries are forced to cut down production or use captive power generation which is three to four times more expensive than grid power. As a result, company’s operational expenses go high which affects company’s profitability. Companies won’t be able to further invest or expand their businesses. We need to find ways to attract more private investment in energy sector to save businesses money on fuel bills. For that we have to offer free land or financing with low interest or some subsidies for energy companies setting up their businesses in our state. In addition, government should promote investment in renewable energy through subsidies will further strengthen our state’s industrial and production for long-term growth. Subsidies to renewable energy can be provided in several ways. Subsidies should not be in the form of avoided taxes. Such subsidies lead to loss of government revenue. Subsidies can support to capital or guaranteed produce price (feed-in tariff scheme), R & D support is often provided in many countries. In my opinion, our government should take own initiatives install solar power capacity in wasteland, we can generate more than 14,000-15,000 MW. Why should we over-reliance on central government grid power? We are not using our resources effectively despite our state has around 300 sunny days a year.  

MAKE CHENNAI AS A GLOBAL AUTO CITY

The Hon. Chief Minister, manufacturing sector has contributed Tamilnadu’s overall economic growth but Tamilnadu manufacturing policy still vain. We are just producing the goods. We are not producing high technological machinery. We are number one in automotive market in Asia. Still we need to boost auto related R & D design, supply, manufacturing and assembly facilities and ensuring that the Chennai auto industry remains at the forefront of the global competition. We need to attract more international business leaders to Chennai as a business location. We need to provide international business leaders can take advantage of joint research activities with some of the world’s leading automotive technology research institutes and universities. Science and education in automotive related areas including mechatronics, micro electronics, mechanical engineering, manufacturing processes and material sciences and many more innovation clusters integrate auto industry. No other industry invests as much in R&D. So we need to revise R & D tax credit to encourage automotive industry. Moreover, we need to create auto manufacturers and suppliers located in Chennai are among the world’s leading patent applicants and make Chennai auto industry the world patent champion. We need to offer a competitive tax system providing attractive tax rates for manufacturing companies. Our corporate tax system one of the most competitive tax system among the other states. Last but not least, any investment projects to setting up production or service facilities in our state can receive financial assistance through your government funding programmes or Private Funding Programmes. Yes, we need to do lot to make Chennai the world’s largest auto hub.       

MANUFACTURING TAMILNADU’S MEANS IT IS NOT JUST PICKING ONE SECTOR OVER ANOTHER, BUT PRIMARILY ABOUT MANUFACTURING

The Hon. Chief Minister, manufacturing is an important part of Tamilnadu economy and several challenges that are confronting our state, for instance, lack of bank financing, transport network, power supply, technological change, global competition and trading conditions. Your budget has to address these issues and promotes manufacturing activities, R & D ventures by private enterprises, promotes the use of new technologies in both public and private sectors. Your budget has to support the R & D tax credit to boost manufacturing competitiveness. In addition, we need to create low cost manufacturing base among other states and tax incentives and various financial supports like cost effective tax-based financing for export products to make it Chennai export platform. Your budget has to encourage foreign companies to establish manufacturing plants in Tamilnadu producing goods specifically for export markets. We concentrate on FDI in the manufacturing sector, as FDI in manufacturing has its greatest impact of our state economy like Automotive, as manufacturing sector is capable of providing enough jobs. Export should be the driving force behind the investment of foreign–owned firms in Tamilnadu manufacturing because indigenous firms will be protected from direct competition with local FDI firms on the home market. In my opinion, manufacturing can develop a meaningful competitive advantage in attracting FDI.            

MAKE TAMILNADU’s MOST ATTRACTIVE INVESTMENT DESTINATION FOR MNC’s

The Hon. Chief Minister, we have enough MNC’s in Chennai and Tamilnadu but it is not enough. We need to attract more FDI to Tamilnadu that generates stable employment and growth. FDI is trade enhancing and will enhance the production and export capacity. We also get access to international markets as MNCs help us to overcome the significant barrier to entry based by quality products, the provision of capital, the inflow of technology, the inflow of managerial know-how and more importantly it creates the competitive market. We have to offer various investment incentives, grants, subsidies and fiscal incentives for MNCs and make their production cost efficient. We have to assist MNC’s small and medium-sized enterprises, free industrial land or industrial land at favourable rates, support research and development, the launching of company start-ups, as well as investment and technological promotion measures, development and innovation investment focusing on new products, services or processes, support with subsidies covering up to 50 percent of all training costs. The type of funding ranges from cash grants and interest subsidies to loan guarantees. MNC’s have the same legal obligations as domestic companies that has led to business-friendly environment. We need to create comparative advantages like low relative unit labour costs, corporate tax rates, relative endowments and skilled labour force to the implementation of innovative production technologies and to the adaptation to a western business culture helps to attract foreign investors to Tamilnadu. There are some uncertainties linked to Legal, political and economic environment is an important deterrent to FDI but uncertainties are not in our hand. I hope that our budget FY 2014-2015 will play a key role to make Tamilnadu, the most attractive location for both domestic and global manufacturing companies.   

The Hon. Chief Minister, prosperous and sustainable economy relies on manufacturing sector.
Once again, please accept my heartiest felicitations on your Government Budget presentation on February 13, 2014.   

Thank you for your attention.

Respectfully yours,
Athinarayanan Sanjeevraja.   
Athinarayanan Advisory Authority
Athinarayanan Twitter   

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