Tamil Nadu's Trade Prospects: Navigating Reforms and Global Opportunities
Trade dynamics are shifting favorably for Tamil Nadu, with easing tariff pressures and impending agreements with Western markets. New Delhi's strategic investments in manufacturing, industrial clusters, and MSMEs further bolster the state's position. However, to fully capitalize on trade deals with the EU and the US, Tamil Nadu must implement ambitious reforms and targeted incentives to enhance competitiveness.
Critical Challenges and Expert Insights
A Viswanathan, vice-president of the Madras Chamber of Commerce and Industry (MCCI), emphasizes that operationalizing labor codes, facilitating flexible fixed-term employment, and improving air connectivity are vital for export growth. He points out a major bottleneck: the lack of direct air connectivity compared to cities like Bengaluru or Hyderabad. "Electronic components often arrive by air, and finished goods are exported similarly. Current indirect flights lead to transshipment, adding costs and impacting timing, which is crucial for industrial competitiveness," he explains. Viswanathan also advocates for speeding up and simplifying environmental clearances, including deemed approvals.
Abhishek Anand, managing director of Insignia Policy Research, notes that Tamil Nadu's power costs are higher than those in exporting states like Gujarat. "The state lags in attracting data centers because it cannot commit to providing necessary renewable energy, as big corporations seek green power," he adds. Anand highlights issues with labor laws that incentivize companies to remain small and a shortage of mid- to high-skilled labor in emerging sectors. He criticizes ineffective industry-academia interactions for upskilling, stating, "Private companies are increasingly reluctant to invest in training. For Tamil Nadu to succeed in creating jobs, the state must ensure the workforce is job-ready for high-tech roles."
Vidya Mahambare, Union Bank chair professor of economics and director (research) at Great Lakes Institute of Management, Chennai, stresses prioritizing highly automated, higher value-addition employment and attracting global brands over labor-intensive traditional sectors. "Manufacturing companies must invest in AI training and integrate it into workflows. Existing MSMEs need support to modernize through smart factory and automation tools, backed by financial incentives and handholding," she asserts.
Prof N R Bhanumurthy, director of Madras School of Economics, advises looking beyond the successful Foxconn model for new economy industries. He calls for an integrated model for skill development and continuous assessment of production costs and ease-of-doing business relative to other key states. "Emerging industries require different talent and operational structures than traditional assembly lines. The state must develop specialized workforce pipelines, including training for high-value tasks through apprenticeships," he adds.
Sector-Specific Opportunities and Recommendations
Biopharma Manufacturing
Dr G S K Velu, chairman of Neuberg Diagnostics, highlights that biologics manufacturing and clinical trials demand global compliance standards. "Streamlined state-level approvals, clear SOPs, and alignment with central regulators are critical for investment. Talent development in bioprocess engineering, cell culture technology, regulatory science, and clinical data management is essential. Dedicated life sciences parks with plug-and-play infrastructure, testing labs, cold-chain logistics, and research facilities can accelerate scale," he says. Tamil Nadu's academic institutions and hospitals provide a platform for high-quality clinical research, potentially elevating the state to a life sciences innovation hub with regulatory clarity and research investment.
Rare Earth Corridor
The Union budget proposes a dedicated corridor for rare earth elements research, mining, and processing, critical for high-tech industries like EVs, wind turbines, electronics, and defense. P Ravichandran, president of Danfoss India, notes that such corridors can attract processing units and supply partners, enabling backward integration into magnet manufacturing and strengthening the Hosur–Coimbatore–Chennai industrial belt. However, experts warn that without a predictable pathway from exploration to extraction, private capital may stay away, necessitating a tightly supervised model with clear rules.
Capital Goods Making
The Union Budget's incentive scheme for domestic manufacturing of construction and infrastructure equipment offers Tamil Nadu an opportunity to leverage its auto-component, hydraulics, fabrication, and engineering clusters in Chennai, Hosur, and Coimbatore. Experts believe this push could attract manufacturers of engines, transmission systems, and undercarriage assemblies, currently import-dependent, and help MSMEs upgrade into precision manufacturing with state policy support.
Chip Equipment & Electronics Components
Tamil Nadu can leverage its engineering, automotive, electronics manufacturing, and industrial automation base for vacuum subsystems, wafer-handling automation, precision mechanics, and advanced packaging tools. The state has identified chip equipment and materials with targeted incentives and a semiconductor park in Coimbatore. Supporting MSMEs to upgrade to semiconductor grade is necessary for success.
MSMEs
Micro, small, and medium enterprises seek single-window clearances similar to large industries, along with logistic infrastructure, interest subvention programs for capital equipment, and marketing assistance to enter new markets.
Textiles
The textile industry is optimistic about demand and market share gains due to a level playing field with competing countries. However, leaders warn of tight workforce availability. Without housing, skilling pipelines, and worker mobility, Tamil Nadu risks losing momentum even if tariffs fall. Capital support for hostels and closer coordination with training institutions are central to sustaining competitiveness.
