How is Tamil Nadu's Growth Model Similar to China's? | State of States Series Ep 01

Added: 2026-05-24

[00:00:00]What is the fundamental difference between a rich nation and a poor nation?

[00:00:04]Look at this graph. If you can understand the lines on this axis, you decode the secret of Tamil Nadu, the fastest growing [music] state in India.

[00:00:14]This single chart reveals how China transformed from a nation with a 90% poverty rate into a global economic superpower. It maps out exactly how an economy evolves from a traditional agricultural base into an unstoppable manufacturing engine.

[00:00:33]That's the story of Tamil Nadu. It is the same state that grows the most number of sugar canes and oilseeds and yet has the most number of factories in India. Makes one of the world's finest cotton fabrics and yet has the largest share of electronics exports. All with a population that is healthy, barely poor, and very educated. [music] This graph you see is the most textbook logic behind how China became a superpower.

[00:01:03]Although you might say, "How can we compare Tamil Nadu with China?" But it is true that both have a similar growth story. The graph shows that not everyone in farming is needed in farming. So, where do they go? Factories, better wages, more output, and hence more factories. So, what followed is textile and cotton industry in Tamil Nadu.

[00:01:25][music] Hyundai's first factory in India, Tamil Nadu. 25% of global iPhone production, you guessed it right, Tamil Nadu. 40% of all Japanese investments in India goes to Tamil Nadu. That says a lot because Japanese companies only put money into places where bureaucracy is smooth and systems actually work. And not just that, majority of the state enrolls in higher education, majority of the state owns more than average Indians, and hence, a headline like this is hands-down inevitable. So, let's understand how Tamil Nadu did it again, and what lessons do we have for other Indian states?

[00:02:17]Welcome back to Angel One Economics. My name is Utkarsh. Before I start today's topic, thank you for watching everyone, engaging, and also waiting for our videos on every Sunday. This is the first episode of the series State of States. We've been working on the series on Indian state economies for a while now. Many of you have seen our videos comparing India with other nations. This series takes that same idea further. We won't just cover the history, policy, and economy of each state. We will also draw parallels with other countries, too. Because India's states are so large, so complex, that many of them function like independent European nations. And what better place to begin than the state that is topping all the charts? Tamil Nadu.

[00:03:06]In this video, we will cover where Tamil Nadu stands today as compared to other Indian states, how it became an industrial superstate without any planning, but just experimentation, what the demographic paradox tells us about Tamil Nadu, and throughout this video, we will give you tidbits of simple economic theories that played out from a textbook to a real-world example about developed countries that followed a similar trajectory, and interesting facts that will make you realize why we chose Tamil Nadu as the first state in the series. So, let's get started. Tamil Nadu's economic size is as big as Pakistan's. It is the second largest economy in the nation right after Maharashtra, contributing around 9% share to GDP, surpassing other states like UP, which is inching closer with the surge in recent increase in industry output, and Karnataka, which hosts India's top IT, tech, and startups.

[00:04:04]Was it always in the top two, though?

[00:04:07]Look at this. In 1960s, it started as fourth, and then eventually it got to the second position in 2010, beating other states like Arunachal, West Bengal, Gujarat, and UP. Which technically tells us that something happened between 1960s and 2010s. Those four to five decades resulted in this climb. Before we get to what happened, let's look at where Tamil Nadu stands as of today. In manufacturing, number one.

[00:04:38]It has 15% of India's factories, followed by Gujarat, Maharashtra, and UP. It is also the backbone for India's electronics exports at 41% of India's electronic exports goes from here. And this happens through a skilled workforce. It has the highest share of STEM graduates for both the genders, in fact. Hence, the highest share of female workforce in manufacturing, which is at 40%.

[00:05:07]But now, let's take a step back and wonder, how did Tamil Nadu crack this formula, right? It was not magically born with resources and geographical advantage. So, how did a state with no oil, no Silicon Valley moment, end up here?

[00:05:23]The honest answer is it did not plan to.

[00:05:27]Tamil Nadu's industrial story happened in three waves, and the first one, nobody designed. Here's the first layoff. When India got independence in 1947, Nehru had a very specific idea of what industrial India should look like.

[00:05:43]State-owned heavy industries distributed to states that had the capacity to absorb them. Tamil Nadu had its relatively educated population, its established ports at Madras, and also its administrative machinery leftover from the British. Which was enough for them to build their competitive advantage. So, by the time the state was formed through the state reorganization bill in 1956, it had a disproportionate share of what came next. First came our five industries. Avadi, near Madras, where India's first battle tank plant opened, and where India built its first indigenous battle tank called Vijayanta.

[00:06:28]After this tank played a crucial role in the Indo-Pak 1971 war, India realized its potential in manufacturing tanks domestically, and all of that started in Tamil Nadu.

[00:06:41]Ambattur, where Bharat Electronics had set up for government electronics, and then Chennai, where Indian Railways built Integral Coach Factory, which is the world's largest rail coach manufacturer, also the place where Vande Bharat got designed. Then comes Tiruchirappalli, when BHEL's golden era of expansion started. In the 1980s, the facility engineered India's first 500 MW thermal power plant boilers, introducing super-critical steam technology to the country.

[00:07:16]No wonder the state always led in the highest number of STEM graduates, scientists, researchers, academicians, engineers, who brought novelty tech to India. Then comes Ranipet. When Trichy became very overcrowded with such industries, the government shifted a lot of these factories to Ranipet to make an industry township there, and also be closer to the Chennai-Bangalore highway for easier transit. And all these places needed bolts, bearings, electrical wiring, hydraulics, precision machining, basically, which they did not produce themselves. So, it came from the dozens of small firms that grew around it.

[00:07:57]Feeding it, supplying it, surviving because of it. Alfred Marshall, one of the founding fathers of microeconomics, had come up with this concept of industrial districts. Long back in 1980s, he said that when firms in the same industry clustered together, something almost magical happens. Skills become common knowledge, suppliers locate nearby, and workers move between firms carrying the ideas. The whole becomes smarter than the sum of its parts.

[00:08:31]Tamil Nadu's PSUs built created exactly this without meaning to. Hence, an accidental manufacturing hub. Now comes the second layer to the industrial policies. In 1971, the state government set up SIPCOT, which is the State Industries Promotion Corporation of Tamil Nadu.

[00:08:53]The idea was straightforward, but radical for its time. The government would acquire land, develop its roads, power, water, drainage, and then lease it or sell it to private manufacturers at subsidized rates.

[00:09:11]Again, very similar to what the Chinese government had done. They built the capacity and the economic zones first, and then they attracted private companies. Land, buildings, all given in subsidized rates with tax holidays, which is capacity first and then demand second. Even South Korea was following this at the same time with its Saemaul Undong industries or the new village industrial estates and it's heavy chemical industry push. Now Park Chung-hee's government did not ask Korean conglomerates where they wanted to build. It built the zones first, set the targets and then told them to come.

[00:09:54]Chalmers Johnson, an economist who studied East Asian development, called this the developmental state model.

[00:10:01]Johnson defined this as a system where private property and market exists already, but a highly elite autonomous state bureaucracy explicitly steps in to guide, plan, and supercharge the strategic industrial sectors.

[00:10:21]He noticed this trend particularly in Japanese miracle, too. And he said that a country is not just limited to two options, which is the free market capitalism and the communist central planning. What it did is it spread the industry clusters all over Tamil Nadu, leading to maximum districts in Tamil Nadu being urbanized, very exceptional to most Indian states. Most Indian states industrialized in one city and left the rest of the state behind. Tamil Nadu was quietly building manufacturing capacity across the geography, which is why 50 years later its factory count is distributed and not concentrated in specific urban areas. Now comes the next layer, which is of competitive advantage. By the 1990s, industrial estates were built and the labor was trained and the decades of accumulated knowledge and shared skill led to the expansion of other industries, leading to the birth of five major industries.

[00:11:30]First is textile. No other industry in Tamil Nadu tells you more about what the state is actually capable of. You already know Tiruppur. 32,000 crore in knitwear exports, 90% of India's cotton knitwear. H&M, Marks & Spencer, Decathlon. But Tiruppur is just the assembly line. The raw material story actually starts 2 hours away in Coimbatore and Salem district. In fields where farmers are growing something that the rest of the world cannot replicate.

[00:12:03]It's called Suvin cotton. Quick tidbit on Suvin. So, Suvin is an extra-long staple cotton, meaning its fibers are longer than any other cotton variety on earth, which is 40 to 45 mm per strand.

[00:12:19]For reference, the cotton in your average t-shirt is around 25 mm, but Suvin is nearly double. So, now Japan calls this Suvin gold. Kamakura shirts, which is one of Japan's most respected shirt makers, the cotton is handpicked in Tamil Nadu to protect the fiber length. Each strand is treated with a care of premium supply chain. Now, Japanese fashion houses have built products around this cotton. Another major reason the state developed a competitive advantage is its clustered density.

[00:12:57]If an international buyer places an order in Bangladesh, that order might just take 8 to 10 weeks because the fabric comes from one place, the dying from another, the stitching from a third place. In Tiruppur, the same order is out in 3 to 4 weeks because the entire supply chain is in 30 km radius. Now, their speed is a product, hence all the fast fashion brands love Tamil Nadu.

[00:13:28]When fashion cycles are 6 months and buyers need to restock in weeks, Tiruppur's geography is structurally advantageous than no other city in India. Next comes is automobiles. For Tamil Nadu, its automobile moment was in 1996 when Hyundai Motors entered India in Chennai. But why Chennai? Trained engineering labor from PSU belt. Port access for component imports and finished car exports.

[00:14:00]Reliable power and a bureaucracy that showed up in support when Japanese investments came first. After Hyundai came, everyone else followed. Ford, BMW assembly, Renault, Nissan, Saint-Gobain, Daimler. The Chennai-Sriperumbudur-Oragadam belt became what people now call the Detroit of India. Today, Tamil Nadu produces roughly one in three cars made in India. The auto component industry in the state employs over 4 lakh workers.

[00:14:33]Chennai's ports handles a significant share of India's automobile exports. And also, like I mentioned before, became the place for electric vehicles like Ola Electric, Ather Energy, and so on.

[00:14:46]And the number that captures the moment, which is 70% of India's electric two-wheelers and 40% of its electric four-wheelers are manufactured in Tamil Nadu. The next industry is software and GCC. Everyone knows Bangalore is India's Silicon Valley.

[00:15:06]Hyderabad is Cyberabad.

[00:15:08]But Chennai? Chennai is the quiet third wheel of Indian IT, and in the last 5 years, it has started and doubled its GCCs. In 2021, Chennai had around 150 global capacity centers, the back-end innovation hubs of global corporations where they run the R&D, engineering, and finance, and analytics. By 2025, that number was 305.

[00:15:35]In 2024 alone, Chennai had 60 new GCCs, the highest of any state in India that year. Now, Chennai accounts for 11% of India's total GCC talent. Amazon, Walmart, Standard Chartered, AstraZeneca, World Bank, US firms accounts for 67% of setups. Engineering and manufacturing sectors as well, not pure software, drive 33% of GCCs demand in Tamil Nadu. And that tells you something important. Chennai's GCCs are not just call centers and back offices.

[00:16:12]They are product engineering, embedded systems, automotive softwares, pharma, and then R&D. Now comes the next industry, which is energy.

[00:16:22]India installed its first commercial wind turbine in 1986. While the rest of India was debating whether renewable energy was viable, Tamil Nadu had set up TEDA, which is Tamil Nadu Energy Development Agency, dedicated to building it. And then, Tamil Nadu became India's wind energy capital. At its peak, the state had nearly 30% of India's entire installed wind capacity.

[00:16:51]Today, Tamil Nadu has 25% of India's total wind capacity, but the turbines installed in late 1980s and 90s are now running at a fraction of their capacity.

[00:17:03]So, Gujarat, Maharashtra, and Karnataka all overtook Tamil Nadu in total renewable capacity. If Tamil Nadu repowers its aging turbines with modern technology, it could triple its capacity utilization without even extending a single land acquisition. So, Tamil Nadu is now looking at the next big bet, which is the offshore wind. It is planning to build 4 GW of offshore wind in the windiest corner in India near Kanyakumari. And that were the five major industries with five different comparative advantages. Some geographical, some situational, and some developed deliberately. And that can actually be traced in this three-tier pyramid. Dani Rodrik, the developmental economist, who connected well to the concept of industrial clusters by Alfred Marshall and Chalmers Johnsons, has a term for this kind of growth.

[00:18:03]He calls it self-discovery.

[00:18:05]He argues that the most powerful thing an economy can do is figure out what it is good at. Not by government decree, but by letting firms experiment and then doubling down on what's working. And Tamil Nadu did exactly that. Now comes the most important section, which is demographics. Tamil Nadu is already 50% urban. The national average is 36%.

[00:18:35]Among India's large states, only Goa and Kerala are more urbanized, but Tamil Nadu is at or very close to losing its best resource, which is the skilled labor. Because Tamil Nadu's fertility rate is 1.4.

[00:18:53]While the replacement level, the rate at which a population exactly replaces itself, is 2.1%.

[00:19:00]You know which other places have such low fertility rate?

[00:19:05]Japan and Germany. Which is why the aging population there.

[00:19:10]And this is a visible drop in Tamil Nadu. The birth rate in 2024 was 10.9 per thousand, which was down from 11.7 the previous year. So, every year the young workforce cohort entering the Tamil Nadu economy is also way smaller than the one before it. We have actually covered what happens when the population of India starts aging in a separate video here. On the other hand, the Dravidian reform movements back in 20th century reflects in the outcome of high female education and workforce participation in today's time in Tamil Nadu and hence an HDI rank of three is achieved in the state.

[00:19:52]So, to conclude, the graph I showed you in the beginning shows that the journey from the agricultural economy to manufacturing is an inevitable transition. Now, Tamil Nadu has made that journey and Lewis himself would probably have been surprised by the whole experiment. The state managed to keep its agricultural productivity as high as its industrial economy dominated. And now it faces the question that every successful economy faces after the transition is complete. Tamil Nadu has to become in the next decade what South Korea was in the 1990s.

[00:20:34]Transitioning from a manufacturing powerhouse into an innovation economy while simultaneously managing an aging demographic that will need more health care and pension support and not less.

[00:20:48]It is the most industrialized state in India, the most educated one, and the most equitable one. So, now the question is whether the state that accidentally became a superpower can deliberately become an innovation hub. That's it from my side. Thank you for watching everyone. If you like this video, please do like, share, and subscribe to our channel. And if you want a decode of your own state, then drop it in the comments below. See you in the next one.

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