Kia Motors exit from Tamil Nadu shows state govt's failure to hold on to foreign investments

In Tamil Nadu, where fear is a constant, the note circulated over Facebook (shared 1530 times) and Whatsapp was like a bolt from the blue. Kannan Ramasamy, managing director of Infratech Infrastructure Services — local consultants for South Korea-based automobile manufacturer Kia Motors, a subsidiary company of Hyundai — wrote a blistering note on 29 April on why the manufacturing plant to make compact sedans and SUVs, that was to be set up in Tamil Nadu, flew away to Anantapur in Andhra Pradesh. The reason: "The TN politicians demanded 50 percent more than the official cost of the land as bribe.''

In this note, Ramasamy says that his team, after a detailed study, had recommended Tamil Nadu as first choice, Gujarat as the second and Sri City in Andhra Pradesh as the third. He reveals that when Kia demanded tax holiday and power tariff concessions and infrastructure like roads, water, drainage, fast track approvals, the politicians "wanted a very huge bribe for the same apart from the land.''

Ramasamy said he could not comment further on it as per a non-disclosure agreement that his firm has signed with its client.

The Kia investment was to be to the tune of $1.1 billion. To be up in 2019, the plant is expected to roll out 3 lakh vehicles every year. Undoubtedly, this is a huge loss for Tamil Nadu, which is home to several automobile and ancillary units in and around Sriperumbudur. In fact, arrangements had been made for 70-odd ancillary units who would have been tasked with supplying to Kia, to have their plants in the vicinity.

Ramasamy is surprised that Kia chose Anantapur, which is an extremely dry and desert-like area. He need not be because chief minister Chandrababu Naidu was micromanaging hijacking this project to Andhra, ticking all the boxes in the Kia wishlist, including roads to connect the plant to the Bengaluru-Hyderabad national highway.

Officials in the Tamil Nadu government admit that it was in talks with Kia but refuses to get drawn into why the company chose to invest in Anantapur.

Tamil Nadu was always and continues to be a contrast. Even when Jayalalithaa was in charge of the state, meeting her was next to impossible for investors who liked to be reassured of a green channel for government clearances by the top person in the administration. Naidu on the other hand, behaves more like Andhra's CEO, making it a point to lead the aggressive wooing game himself.

Representational image. Image Courtesy: Kia Motors website

Representational image. Image Courtesy: Kia Motors website

This was reflected in the Ease of Doing Business (EoDB) rankings. Tamil Nadu slipped in the EoDB ranking — from 12th rank in 2015 to 18th rank in 2016 whereas Andhra Pradesh shared the top spot with Telangana.

"Forget wooing new industry, even the existing units in Coimbatore and Tiruppur are suffering due to corruption, and lack of power and water,'' says MG Devasahayam, former IAS officer. "Tamil Nadu has taken a huge hit due to zero governance.''

In June last year, Union minister for Industry Nirmala Sitharaman had urged Hyundai Motors to send up its third plant in India. Hyundai is now likely to produce its cars at the Kia facility, which means a double blow for Tamil Nadu. In any case, the Kia experience would have been a rude wake-up call for the Korean major.

But the Kia story, as related by Ramasamy, is not the odd one out. A senior minister in the Edappadi Palaniswami cabinet could soon be in the dock for allegedly demanding a bribe from an European multinational that has its plant in Tamil Nadu. Sources say the company management has lodged a complaint with its Embassy in New Delhi which has in turn, passed it on to the Prime Minister's Office.

The Centre for Media Studies that released its survey findings on corruption last Friday, ranked Tamil Nadu as the third most corrupt state in India behind Karnataka and Andhra Pradesh. Incidentally, the three southern states also see high expenditure elections and bribing of voters is an integral part of the poll process.

Which is why when Ramasamy raises a stink, it is easy to make the connect to political corruption. Because it is essentially money taken as kickbacks that get routed to bribe the voters at election time. Ahead of the RK Nagar byelection that was to be held in April and was rescinded by the Election Commission, voters were reportedly being paid Rs 4000 for a vote. Income Tax raids at the Health minister's properties revealed documents that mentioned Rs 89 crore to be distributed among the 2.25 lakh voters of the constituency. The optics of money being distributed clandestinely at election time is enough to drive away potential investors.

It is as if over the years, corruption has been institutionalised at Fort St George, that houses the Tamil Nadu Secretariat in Chennai. Recently, when a leading exporter needed a pollution certificate for his firm in Tamil Nadu, its proprietor was unabashedly told by the concerned IAS officer to "meet the minister and fulfill his requirements first''.

"Corruption should not be a factor to keep industry away from Tamil Nadu,'' says Ramachandran Ganapathi, Senior Vice President, Southern India Chamber of Commerce and Industry. "If it is a factor, this has to be addressed immediately.''

What Tamil Nadu does not realise is that with Sri City SEZ close to the Tamil Nadu-Andhra border, flight of capital is now only a few kilometres away. And if the Kia story is anything to go by, the ruling elite seem determined to drive investment out of Tamil Nadu.


Published Date: May 04, 2017 05:20 pm | Updated Date: May 04, 2017 05:20 pm

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