A Study of Tamilnadu's Economy and its contribution to India's GDP

2011
A Study of the Economy of Tamil
Nadu and its contribution to
India’s GDP

Navin Kumar (82)
Nisheeth Gupta (90)
Prateek Varma (99)
Rajesh Allam (107)
Rohit Deshpande (116)
Saket Mishra (124)
Saurav Gupta (133)
Siddharth Arora (139)
Subhiksha Sekhar (148)
Uttam Kumar Satapathy (157)

A Study of the Economy of Tamil Nadu and its contribution to India’s GDP

Contents

Aim of the Project ................................................................................................................................... 3
Introduction ............................................................................................................................................. 4
Tamil Nadu and the Four Largest Economies of India – A Comparison................................................ 5
NSDP .................................................................................................................................................. 5
Tax Revenues ...................................................................................................................................... 6
Human Development Indicator ........................................................................................................... 7
State Economy ........................................................................................................................................ 8
Tamil Nadu’s GSDP ........................................................................................................................... 8
Tamil Nadu’s NSDP ........................................................................................................................... 9
Per Capita GSDP................................................................................................................................. 9
GDP of India and GSDP of Tamil Nadu........................................................................................... 10
Data Analysis .................................................................................................................................... 11
GDP and Agricultural Growth in Tamil Nadu ...................................................................................... 11
Data Analysis .................................................................................................................................... 12
GDP and Industrial Growth in Tamil Nadu .......................................................................................... 13
Data Analysis .................................................................................................................................... 14
GDP and Services Growth in Tamil Nadu ............................................................................................ 14
Data Analysis .................................................................................................................................... 16
Per capita Income: Tamil Nadu vis-à-vis All India .............................................................................. 16
GSDP and Per capita Income – A Comparison with Major States ................................................... 17
References ............................................................................................................................................. 19

2


Aim of the Project
The aim of this paper is to analyze the trends of economic growth in Tamil Nadu over the
period 1999-2009. The relation between growth rate of National GDP and State GDP is
established through variation analysis. This has been used to determine the contribution of
Tamil Nadu’s GSDP towards the GDP of India. A parallel analysis has been performed to
discover the sectorwise contribution of agriculture and manufacturing towards the GSDP of
Tamil Nadu.

3


Introduction
Tamil Nadu covers an area of 130,058 sq km. It is the eleventh-largest state and the seventh-
most-populous state in India; it has 32 districts. Tamil Nadu is among the most industrialised
states in the country. It also has a rich tradition of literature, music and dance. Tamil is the
state language; English is also commonly used for communication and as a medium of
education. Chennai is the capital city. Coimbatore, Madurai, Thiruchirappalli, Salem,
Tirunelveli and Erode are some of the other key cities in the state.

The following is a snapshot of the economic environment of the state:

• Highly industrialised with greater level of urbanisation - Tamil Nadu has attracted
several industrial sectors that are a part of India s new economy sectors. In the last
three years, these industries have helped the state achieve over 13 per cent of GSDP
growth. The Census 2001 highlighted that Tamil Nadu has the highest level of
urbanisation rate (43.86 per cent) among all states.

• Among the states with larger FDI inflows - The state attracted cumulative FDI
inflows of US$ 5.7 billion between April 2000 and May 2010 and is amongst the
highest FDI attracting states. FDI inflows have helped achieve greater technological
advancement and more exportable products.

• Rich labourpool and low cost of manpower - The state comprises of well-qualified,
skilled, disciplined, productivity-oriented and English-speaking workforce. The
standard of education and educational institutions is highly rated in the country.
Average wages are also lower than similar workforce in the developed countries.

• Facilitating infrastructure - Infrastructure development of Chennai have been rated
better than other big cities by independent site evaluation studies of organisations
such as Ford, the World Bank, BMW, Foxconn, Standard Chartered, Nokia and
Flextronics.

• Good living standards and low crime rate - The state has largely peaceful living
conditions and has low crime rate, making it an attractive destination for industries.
There are several places for recreation and tourism.

• Political environment - The state has a stable political environment with a single-
party government. Successive state governments have been committed towards
creating a progressive business environment.

4


Tamil Nadu and the Four Largest Economies of India – A
Comparison

NSDP
The graph shown below is for the data using the Net State Domestic Product obtained from
RBI website for years 1980 – 2009 (29 years). It shows the NSDP of the top 5 states over the
years and its growth.

NSDP at current prices

900000

800000

700000

600000
Maharashtra
500000 UttarPradesh
400000 AndhraPradesh
TamilNadu
300000
Gujarat
200000

100000

0
198019821984198619881990199219941996199820002002200420062008

State Maharashtra Uttar Pradesh Andhra Pradesh Tamil Nadu Gujarat

CAGR 14.74 12.73 15.04 15.02 14.93

While Maharashtra contributes the most, Tamil Nadu has a CAGR of 15.02 % which is
greater than Maharashtra’s 14.74 % over 29 years. Uttar Pradesh, Andhra Pradesh are close
competitors with Tamil Nadu in NSDP, however having a higher growth rate Tamil Nadu
will overtake Uttar Pradesh in the near future.

In the period from 2000-2005, Tamil Nadu has shown a slightly more depleted growth
pattern than the other states, mostly because it was late on capitalizing on the information

5


technology boom than the other states. It has now, however picked up and has invited
investments from across all sectors of the economy.

Tax Revenues

Estimated Tax Revenues 2011
2011-15
Estimated Tax Revenues 2011-15

3033087

296417 323369 451777
179578 273424

All units are in Rs. Crores

As per the Planning commission predictions the tax revenues for the 13 planning period
2011-2015 are shown above.

Again, Maharashtra contributes the most to the Indian tax collections while Tamil Nadu ranks
4th which is consistent with its GSDP ranking. The point to be noted is that wh Uttar
while
Pradesh has a higher GSDP than Andhra Pradesh, it actually collects less taxes owing to more
unorganized businesses and agricultural sector there.

Tamil Nadu contributes to almost 9.01 % of tax collected in India.

6


0.8

0.7

0.6

0.5 TamilNadu
Maharashtra
0.4
UttarPradesh
0.3 AndhraPradesh
Gujarat
0.2

0.1

0
1981 1991 2001 2011

Human Development Indica
Indicator

Year TamilNadu Maharashtra UttarPradesh AndhraPradesh Gujarat

1981 0.343 0.363 0.255 0.298 0.36

1991 0.466 0.452 0.314 0.377 0.431

2001 0.531 0.523 0.388 0.416 0.479

2011 0.675 0.689 0.49 0.572 0.621

CAGR 2.36 2.23 2.27 2.27 1.89

Over 30 years from 1981-2011, the HDI of Tamil Nadu has increased from 0.343 to 0.675
2011,
which in trend with the other big states as can be seen from the CAGR of 2.36 %.

However, the HDI of 0.675 is still only in the medium range and very close to the national
average of 0.647.

7


State Economy
Tamil Nadu’s GSDP

At current prices, the Gross State Domestic Product (GSDP) of Tamil Nadu was about US$
73.7 billion in 2008-09. The average GSDP growth rate from 1999-2000 to 2008-09 was
about 11.0 per cent.

Tamil Nadu's GSDP (US$ billion)
2008-09
2007-08
2006-07
2005-06
2004-05
2003-04 Tamil Nadu's GSDP (US$
2002-03 billion)
2001-02
2000-01
1999-00

0 20 40 60 80

Sectoral Contribution in TN SDP
Agriculture, Forestry & Fishing Total Industry Total Services Total

69% 69% 68% 70% 71% 72%

19% 19% 20% 18% 17% 17%
12% 12% 13% 12% 12% 11%

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

Source: CMIE

8


Tamil Nadu’s NSDP

The Net State Domestic Product (NSDP) of Tamil Nadu was about US$ 65.0 billion in 2008-
09. The average NSDP growth rate from 1999-2000 to 2008-09 was about 10.9 per cent.

Tamil Nadu's NSDP (US$ billion)
2008-09
2007-08
2006-07
2005-06
2004-05
2003-04 Tamil Nadu's NSDP (US$
2002-03 billion)
2001-02
2000-01
1999-00

0 20 40 60 80

Source: CMIE

Per Capita GSDP

In 2008-09, the state s per capita GSDP was US$ 1,110.8. The per capita GSDP increased at
a CAGR of 10.1 per cent between 1999-2000 and 2008-09.

9


Tamil Nadu's Per Capita GSDP (US$ Billion)
Tamil Nadu's Per Capita GSDP
(US$ Billion)
1400
1200
1000
800
600 1150.9 1110.8
1007.6
400
695.1 803.7
467.4 488.8 493.9 547.6 628.2
200
0

Source: CMIE

GDP of India and GSDP of Tamil Nadu

State SDP has increased even though there is a slight decrease in the India GDP.
The increment in the GSDP was majorly due to few factors:

• Tamil Nadu is an important IT hub. It is the second-largest software exporter by value
in India, after Karnataka. Software exports from Tamil Nadu have increased from
US$ 3.0 billion in 2005-06 to US$ 8.9 billion in 2009-2010 at a CAGR of 31.2
percent.

• In the last two decades, Tamil Nadu has attracted investments in the automotive
industry, particularly, in cars, railway coaches, tractors, motorcycles, automobile
spare parts and accessories, tyres and heavy vehicles. The automotive industry has a
crucial role in driving the state s economy; it contributes about 8 per cent to GSDP,
providing direct employment opportunities to about 300,000 people.

• FDI inflows between April 2000 and May 2010 were at US$ 5.7 billion.

10


GDP growth rate and GSDP rate of
Tamilnadu
14
12 12.1 11.75
10 10.51
9.51 9.58 9.33
8 8.32 7.95
7.14 6.75 % growth GDP
6
% growth GSDP
4
2
0
2005-06 2006-07
07 2007-08 2008-09 2009-10

CAGR of GSDP
Tamilnadu India
11

7.3

1999-2009

Source: CMIE

Data Analysis
India’s GDP growth rate and Tamil Nadu’s growth rate for the period 20052005-06 to 2009-10
was compared and the correlation coefficient was calculated as 0.44. This shows that there is
a weak correlation between the two.

GDP and Agricultural Growth in Tamil Nadu

Tamil Nadu has historically been an agricultural state, while its advances in other fields
launched the state into competition with other areas. Even so, Tamil Nadu is a leading
producer of agricultural products in India. Tamil Nadu agriculture is heavily dependent on the
river water and Monsoon rains. The perennial rivers are Palar, Cheyyar, Ponnaiyar, Kaveri,
Palar,
Meyar, Bhavani, Amaravati, Vaigai, Chittar&Tamaraparani. Non perennial rivers include the
Non-perennial

11


Vellar, Noyal, Suruli, Gundar, Vaipar, Valparai and Varshali. Tamil Nadu is also the leading
producer of kambu, corn, rye, ground nuts, oil, seeds and sugar cane in India.
The principal food crops are rice, maize, jowar (cholam), bajra (cumbu), ragi, and pulses
(Bengalgram, Redgram, Greengram, Blackgram and Horsegram). The cash crops include
cotton, sugarcane, oilseeds, coffee, tea, rubber, coconut, gingelly and chillies. The important
horticultural products are bananas and mangoes. The state is the largest producer of bananas,
flowers, tapioca, the second largest producer of mangoes, natural rubber, coconut, groundnut
and the third largest producer of coffee, sapota, tea and sugarcane. Tamil Nadu's sugarcane
yield per hectare is the highest in India. The state has 17,000 hectares of land under oil palm
cultivation, the second highest in India. Paddy is grown in large excess because rice is the
main staple food of the state.

Tamil Nadu AgricuIture Growth vs.
SDP Growth
SDP Agricuture

23.52% 25.36%

12.99% 11.91%
17.81% 21.24% 8.92%
13.41% 15.21% 15.42%

2005-06 2006-07 2007-08 2008-09 2009-10

Tamil Nadu AgricuIture Growth vs.
India's GDP Growth
India GDP Growth TN Agriculture

23.52%
25.36%

12.99%
11.91%
8.92%
9.51% 9.58% 9.33%
6.75% 7.95%

2005-06 2006-07 2007-08 2008-09 2009-10

Data Analysis
India’s GDP growth rate, Tamil Nadu’s GSDP and Agricultural growth rate for the period
2005-06 to 2009-10 was compared. The correlation coefficient between India’s GDP growth

12


and Tamil Nadu’s agriculture sector was 0.71 and that of Tamil Nadu’s GDP and its
agriculture sector was calculated as 0.85. Thus the relation tends towards a strong correlation
in both cases.

GDP and Industrial Growth in Tamil Nadu
With a view to promote the industrial activities, Tamil Nadu is creating a favourable
industrial climate in the state by announcing pro-active industrial policies. During 2008-09,
the government has signed 12 memorandum of understandings with an investment of
Rs.25050 crore and issued structured package sanctioning orders for 7 other projects with an
investment of Rs.5462 crore.

The `Global Economic Slowdown’ had its impact in the State economy also. The
manufacturing sub-sectors of the State economy viz. textiles, wearing apparels, leather, wood
products, chemicals, non-metallic minerals, basic metals, software and hardware of IT
industries, transport equipments, automobiles have experienced lower production compared
to that of the previous year’s level due to lower demand and power shortages.

The income originated from the manufacturing sector to GSDP increased from Rs.43874
crore in 2007-08 to Rs.44758 crore in 2008-09 and thereby registered a growth of 1.77 per
cent but at a decelerated rate when compared to previous year.

At the national level, the industrial scenario of Tamil Nadu continues to retain its position as
in the previous year. As per the ASI data 2005-06, Tamil Nadu occupies the first position in
having the number of factories and the total number of persons engaged in the industrial
process. In respect of all the other principal characteristics, viz. Fixed capital, productive
capital, gross value of output and net value added, the State retains its third position as in the
previous year. At the national level, the State is sharing 15.17 per cent of factories, 9.94 per
cent in fixed capital, 14.88 per cent in persons engaged. 9.76 per cent in gross value of output
and 8.97 per cent in net value added. The Growth of Industrial Sector, measured by the Index
of Industrial production for the year 2008-09 showed a decelerated growth of 1.7 per cent
compared to 5.0 per cent in 2007-08. The manufacturing sub–group also achieved a sub-dued
growth of 2.4 per cent as against 5.0 per cent in the previous year. The other two sub-groups
viz. mining and electricity had registered a negative growth of 1.2 per cent and 2.3 per cent
respectively. At the national level also, the overall growth of industrial production
decelerated to 2.4 per cent in the review year from 8.5 per cent achieved in the previous year.

13


Tamil Nadu Industry Growth vs. SDP
Growth
SDP Industry

25.60%

17.81%
21.24% 15.21% 15.42%
13.41%
17.02%
14.22%
8.25%
4.23%

2005-06 2006-07 2007-08 2008-09 2009-10

Tamil Nadu Industry Growth vs.
India's GDP Growth
India GDP Growth TN Industry

25.60%

17.02%
14.22%
9.58% 9.33% 8.25%
9.51% 7.95%
4.23% 6.75%

2005-06 2006-07 2007-08 2008-09 2009-10

Data Analysis

India’s GDP growth rate, Tamil Nadu’s GSDP and Industrial growth rate for the period 2005-
06 to 2009-10 was compared. The correlation coefficient between India’s GDP growth and
Tamil Nadu’s industrial sector was 0.42 and that of Tamil Nadu’s GDP and its industrial
sector was calculated as 0.96. Thus the relation tends towards a strong correlation in the latter
case while there is a weak correlation in the former case.

GDP and Services Growth in Tamil Nadu
Chennai is the second largest software exporter in India, next to Bangalore. India's largest IT
park is housed at Chennai. Software exports from Tamil Nadu during 2008-09 rose 29 per
cent to touch 36,680 crore, involving a workforce of 2.8 lakh. Chennai is a hub for e-
publishing, as there are 47 e-publishing units registered with the STPI in Chennai and 25 in
Bangalore. Companies such as HCL, Wipro, TCS, Satyam, Infosys,Cognizant Technology

14


Solutions, Covansys, Ford Information Technology, Xansa, Verizon, iSoft, iNautix,
Electronic Data Systems, Bally and many others have offices in Chennai. Infosys
Technologies has set up India's largest software development centre to house 25,000 software
professionals at an estimated investment of 12,500 million ($270 million) in Chennai.[52]
India's largest IT park - SIPCOT is housed at Siruseri - Chennai, It has numerous IT
companies such as TCS, CTS, Syntel, Steria, Polaris, Patni, Hexaware etc. TCS alone has
acquired 70 acres (280,000 m2) of land at a cost of about Rs.13 crore with an employee force
of 25,000.

This is a chart of trend of software exports from Tamil Nadu published by ELCOT
(Electronics Corporation of Tamil Nadu Ltd.) with figures in millions of Indian Rupees.

Software Software
Year Exports Companies
1995 370 34
2000 31,160 766
2005 1,41,150 1,427
2007–
2008 2,84,900 -
2008–
2009 3,66,800 -
2009–
2010 3,67,660 -

Tamil Nadu Service Growth vs. SDP
Growth
SDP Service

21.24%
17.81% 17.60% 16.82%
16.14%
19.32%
17.07% 15.21% 15.42%
13.41%

2005-06 2006-07 2007-08 2008-09 2009-10

15


Tamil Nadu Service Growth vs. India's
GDP Growth
India GDP Growth TN Service

19.32% 17.60%
17.07% 16.82%
16.14%
9.58% 9.33%
9.51% 7.95%
6.75%

2005-06 2006-07 2007-08 2008-09 2009-10

Data Analysis

India’s GDP growth rate, Tamil Nadu’s GSDP and Services growth rate for the period 2005-
06 to 2009-10 was compared. The correlation coefficient between India’s GDP growth and
Tamil Nadu’s service sector was 0.11 and that of Tamil Nadu’s GDP and its service sector
was calculated as 0.89. Thus the relation tends towards a strong correlation in the latter case
while there is a weak correlation in the former case.

Per capita Income: Tamil Nadu vis-à-vis All India
The standard of living of the people is reflected through the per capita income earned by them
in the respective year. In the State, the per capita income in real terms increased from
Rs.29445/- in 2007-08 to Rs.30652/- in 2008-09 and registered a growth of 4.10 per cent,
which is marginally higher than 3.97 per cent recorded in the previous year. However, the
growth rate decelerated from 11.24 per cent achieved in 2005-06. It can be noted that at
National level, the per capita income both at current and constant prices is comparatively
lower than at the State level. All India per capita income increased from Rs.24295/- in 2007-
08 to Rs.25474/- in real terms and recorded a growth of 4.94 per cent which decelerated from
7.60 per cent achieved in 2007-08. However, it can be seen that during the first two years of
the Eleventh Plan period, in real terms, the Annual Average Growth Rate of State per capita
income is 4.04 per cent which is lower than 6.27 per cent at national level.

Per Capita Income (1999-2000 Series)
Tamil Nadu All India
At Current Prices At Constant Prices At Current Prices At Constant Prices
Income Growth Income Growth Income Growth Income Growth
(Rupees Rate (Rupees Rate (Rupees Rate (Rupees Rate
Year ) (%) ) (%) ) (%) ) (%)
2000-01 20972 7.93 20318 4.56 16688 5.08 16173 1.84
2002-02 20942 -0.14 19748 -2.81 17782 6.56 16769 3.69
2002-03 21830 4.24 19662 -0.44 18885 6.20 17109 2.03
16


2003-04 24087 10.34 20707 5.31 20871 10.52 18301 6.97
2004-05 27512 14.22 22975 10.95 23198 11.15 19331 5.63
2005-06 31663 15.09 25558 11.24 26003 12.09 20868 7.95
2006-07 37190 17.46 28320 10.81 29524 13.54 22580 8.20
2007-08 40757 9.59 29445 3.97 33283 12.73 24295 7.60
2008-09 45058 10.55 30652 4.10 37490 12.64 25494 4.94
Elevent
h Plan 10.07 4.04 12.69 6.27
Period
AAGR

Per Capita Income (1999-2000 Series) at Constant
Prices
60000
50000
40000
30000
20000 Tamil Nadu
10000 All India
0

GSDP and Per capita Income – A Comparison with Major States

Gross State Domestic Product and Per Capita Income –
Major States (At 1999-2000 Prices)
GSDP (Rs. Crore) Per Capita Income (Rupees)
State
1999-00 2008-09 CAGR 1999-00 2008-09 CAGR
Andhra Pradesh 128797 252318 7.76 15427 26983 6.41
Assam 34833 54477 5.09 12282 16597 3.40
Bihar 50174 98393 7.78 5786 9586 5.77
Gujarat* 109861 213674 8.67 18864 31780 6.74
Haryana 51391 112543 9.10 23229 42267 6.88
Karnataka 101247 181338 6.69 17502 27385 5.10
Kerala* 69168 126453 5.17 19461 32961 6.81
Madhya Pradesh * 80132 103503 3.25 12384 13299 0.90
Maharashtra 247830 416248 5.93 23011 33302 4.19
Orissa 42910 78410 6.93 10567 16945 5.39
Punjab 67162 103415 4.91 25631 33153 2.90

17


Rajasthan 82720 140523 6.06 13619 19079 3.82
Tamil Nadu 134185 228479 6.09 19432 30652 5.19
Uttar Pradesh 175159 270850 4.96 13516 25114 7.13
West Bengal * 135376 220198 6.27 15888 23229 4.86
All India 1786526 3339375 7.20 15881 25494 5.40
Note – * Up to 2007-08. Source: Central Statistical Organisation, New Delhi.

The highest per capita income is noticed in Haryana where it increased from Rs.23229/- in
1999-2000 to Rs.42267/- in 2008-09 with an Annual Compound Growth Rate of 6.88 per
cent. In Tamil Nadu, it increased from Rs.19432/- to Rs.30652/- which is higher than
that of all India but registered a lower annual compound growth rate of 5.19 per cent.
States like Gujarat (6.74%), Andhra Pradesh (6.41%), Kerala (6.81%), Orissa (5.39%) and
Uttar Pradesh (7.13%) had a higher growth rate in per capita income when compared to
Tamil Nadu and other States.

The disparity in the growth rate of per capita income between the States is due to differences
in private investment and public expenditure, differences in the distribution of State
Governments’ expenditure, State policies, implementation of welfare schemes, etc.

Per Capita Income (Rs.) 2008-09 ( at 1999-2000 prices)
45000
40000
35000
30000
25000
20000
15000
10000 Per Capita
5000 Income (Rs.)
0

The Compound Annual Growth Rates (CAGR) for the period from 1999-00 to 2007-08 in
real terms for 15 major States representing nearly 90 per cent of population in the country
was compared. The comparison showed that the Gross State Domestic Product at constant
prices in Tamil Nadu increased from Rs.134185 crore in 1999-2000 to Rs.228479 crore in
2008-09 which was fairly high in absolute value when compared to Haryana where it
increased from Rs.51391 crore to Rs.112543 crore for the respective period. However,
Haryana occupied the first position with an annual compound growth rate of 9.10 per cent
whereas Tamil Nadu was ranked seventh with 6.09 per cent whereas it was 7.20 per cent at
the national level. It is noted that the CAGR for Bihar (7.78%) and Orissa (6.93%) is higher
than Tamil Nadu (6.09%).

Three major reasons for these differences can be said to be fiscal, infrastructure and human
resources development.

18


GSDP (Rs. Crore) in 2008-09 ( at 1999-2000 prices)
450000
400000
350000
300000
250000
200000
150000
100000
50000 GSDP (Rs. Crore)
0

References
• Directorate of Economics and Statistics, Chennai – 6.
• Central Statistical Organisation, New Delhi.
• http://www.tn.gov.in/
• http://www.tn.gov.in/deptst/Stat.htm
• http://www.ait.com/
• http://www.rubberboard.org.in/RSN/RSNEWSOCT06.pdf
• http://nhm.nic.in/ActionPlan/ActionPlan_TamilNadu.pdf
• http://www.rbi.org.in/Scripts/PublicationReportDetails.aspx?fromdate=10/07/05&Sec
Id=21&SubSecId=0
• http://www.tn.gov.in/policynotes/agriculture.htmTN
• http://www.tn.gov.in/crop/areaproduction.htm
• www.cmie.com/

19

A Study of Tamilnadu's Economy and its contribution to India's GDP

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