Editorial 1 : Going bullish on investment in Tamil Nadu

Context

Tamil Nadu is a beacon of inclusive and sustainable growth in India, and in the global search for alternatives to China, is a strong contender for global investments.

Introduction

In 1968, the visionary leader and former Chief Minister of Tamil Nadu, C.N. Annadurai, visited Yale University under the prestigious Chubb Fellowship Program. During his visit, Annadurai described India as the “experiment station for democracy”. He observed that if India could reconstruct its economy with democracy as its political apparatus, it would be the ideal answer to the authoritarian models espoused by China and its Communist counterparts. He also presciently warned: ‘whatever economic progress we make, unless we control our population, we cannot drive out poverty’.

Tamil Nadu’s transformation

• Over 50 years later, Tamil Nadu stands as a testament to the power of Annadurai’s vision. We have harnessed the tools of democracy, controlled our fertility rate and reconstructed our economy
• Emerges as a beacon of inclusive and sustainable growth in India.
• As the world searches for alternatives to China through the “China+1” strategy, Tamil Nadu emerges as one of the strongest contenders for global investments. 

The case for economic growth and development

• Tamil Nadu’s journey: from a predominantly agrarian and poor economy to an industrial powerhouse, has been driven by its democratic ideals and people-centric policies.
• Governance and reforms: Unlike authoritarian regimes that impose top-down economic models, Tamil Nadu’s development has been rooted in participatory governance, inclusive growth and equitable distribution of resources through reservations.
• Economic reconstruction: The success of Tamil Nadu’s economic reconstruction can be attributed to a governance model that emphasises social justice, economic empowerment and a focus on the well-being of all citizens.
• Poverty reduction efforts: The State’s reduction in total fertility rate (TFR) has eased the State’s poverty burden, allowing for more focused investments in education, health care, and infrastructure, which in turn have fuelled economic growth. 

The New China+1 Destination 

• Economic data: Tamil Nadu is the second-largest contributor to India’s GDP, accounting for nearly 9% of the nation’s total output, despite having just 6% of the population.
  • The State’s per capita income is among the highest in India, reflecting the success of its inclusive development model. 
• Diversify supply chains away from China: Tamil Nadu is emerging as a clear frontrunner. Often referred to as the “Detroit of India,” Tamil Nadu accounts for 35% of the country’s automobile exports.
• Robust ecosystem: The State’s automotive ecosystem is robust, housing global giants such as Hyundai, Daimler, Renault, Nissan, BMW and Stellantis, along with a strong network of suppliers and ancillary industries.
• Capacity building: recent investment promotion visit to the United States, Ford has announced that it will resume operations at its Chennai facility. 
• Leadership in electric manufacturing: Tamil Nadu’s strength extends beyond automobiles. The State is also a leader in electronics manufacturing, contributing to 33% of India’s electronics exports, servicing global brands such as Apple, Dell, HP, Samsung and Google Pixel.
• The availability of skilled labour, a strong supply chain network and world-class infrastructure have positioned the State as a hub for electronics and technology-driven industries. 
• Strategic investment polices: Tamil Nadu has been making strategic moves to attract new investments as part of the global shift in supply chains.
  • The State government has implemented policies that focus on ease of doing business, offering incentives such as tax breaks, land at subsidised rates and a single window clearance system that streamlines the process of setting up operations.
  • As a result, Tamil Nadu has consistently ranked among the top States in India for ease of doing business, further cementing its appeal to global investors. 

Skilling, innovation, and new partnerships 

• Global reach: Tamil Nadu’s ability to attract global investments is not just about manufacturing capacity. It is also about innovation and skilling.
• Investments in R & D: The state government’s recent emphasis on fostering research and development (R&D) and creating skilling partnerships with global corporations is paving the way for Tamil Nadu to become a leader in cutting-edge industries. 
• Attracting investments: Our recent trip to the U.S. is a milestone in this effort. During the visit, we secured key investments, and skilling and research and development partnerships with some of the world’s leading companies, including Google, Applied Materials, Jabil, PayPal, Nokia, Microchip, Yield Engineering Systems and Trilliant Networks.
• Better opportunities: These partnerships are set to bring new jobs, advanced technologies and global best practices to Tamil Nadu, making it a global hub for innovation. 

Strengths of the Dravidian Model 

At the heart of Tamil Nadu’s success is its unique model of governance, often referred to as the Dravidian Model.

• This approach lays an emphasises social justice, inclusive growth and equitable distribution of resources.
• It is a model that ensures that economic growth is also about improving the quality of life for all citizens. 
• Tamil Nadu leads India in several social indicators, from education to health care.
  • The State has the highest Gross Enrolment Ratio (GER) in higher education at 47%, and an astounding 42% of India’s registered women workforce in factories are employed in Tamil Nadu.
  • Programmes such as the Naan Mudhalvan, India’s largest skilling initiative, are equipping the State’s youth with the skills needed for future jobs, particularly in technology and finance. 

Tamil Nadu’s commitment to diversity, equity and inclusion (DEI)

• Made it an attractive destination: for global corporations that value social responsibility, is reflected in our policies, such as the payroll subsidies we offer to investors who hire women, trans people and people with disabilities. 
• Leading in renewable energy: Tamil Nadu is also at the forefront of India’s renewable energy revolution, with 57% of its installed capacity from renewable sources.
• The State’s geographical advantages: that include abundant wind, solar and offshore energy hotspots, have made it a leader in clean energy.

Conclusion

We are dedicated to raising our renewable energy installed capacity to 75% and expanding green cover to 33% of the State’s total area. Tamil Nadu presents an exceptional opportunity for investment, driven by its robust manufacturing sector, a highly skilled and adaptable workforce, inclusive governance, and a steadfast commitment to sustainability. To investors worldwide, we convey a straightforward message: embrace the opportunities in Tamil Nadu and be part of the growth journey.

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Editorial 2 : An opportunity to rethink India’s pension system

Context

With the return to welfarism worldwide, India’s proposed Unified Pension Scheme should ensure that retirees are supported by a robust welfare system

Introduction

The pension system in India has undergone a significant transformation over the years with three major schemes, the Old Pension Scheme (OPS), New Pension Scheme (NPS), and the proposed Unified Pension Scheme (UPS), marking the different phases of government policy. Each scheme impacts retirees in different ways, with the OPS often being viewed as a more secure system compared to the NPS, which ties retirement funds to volatile market conditions. As the world witnesses a retreat from neoliberal policies, the debate around welfarism is being reignited. In this context, the UPS requires considerable rectification to ensure that it serves the interests of retirees effectively. 

A shift with greater individual risk About Old Pension Scheme (OPS)

The OPS, prevalent before 2004, guaranteed a defined benefit pension to government employees.

• In this scheme, the pension amount was fixed and determined by the last drawn salary.
• The government was solely responsible for disbursing the pensions.

• Financial stability and security: The OPS provided stability and ensured that retirees were insulated from any financial market risks.
  • The reliance on a fixed percentage of the last drawn salary for pensions meant employees could plan their retirements with a sense of financial security.
  • Retirees were assured of a guaranteed income stream throughout their post-retirement years.
• The commitment to social security: The OPS reflected the government’s commitment to social security.
  • By excluding the market from the equation, the scheme offered guaranteed pensions to retirees.
• A shift from OPS to NPS: In 2004, the Government of India replaced the OPS with the New Pension Scheme (NPS).
  • The shift was from a defined-benefit model to a defined-contribution model, wherein both the employee and the government contributed towards a pension fund.
  • This fund was then invested in financial markets.
• The Market-linked pension payout: The pension payout under the NPS is linked to the performance of these investments.
  • Retirees’ incomes are now subject to the fluctuations of market forces.
• Neoliberal Shift and Risk Transfer: The shift from OPS to NPS represents the neoliberal tendency to reduce state involvement in welfare provisions.
  • The transfer of risk to individuals has left retirees vulnerable to market volatility
  • Retirees’ futures are now at the mercy of speculative market conditions.
• Criticism of NPS: The NPS has drawn criticism for eroding the security once provided by the state under OPS.
  • During periods of economic downturn, retirees may face reduced returns, undermining their financial stability.
• Concerns over commercialisation and social responsibility: he market-driven pension model has fuelled concerns about the commercialisation of public welfare programmes.
  • It also raises concerns about the weakening of the state’s social responsibility.

A return to welfarism 

• Globally, the era of neoliberalism that dominated economic policy for the past few decades is showing signs of a retreat.
• The 2008 financial crisis exposed the risks associated with excessive market reliance, leading to calls for stronger social safety nets and a return to welfarism.
• The COVID-19 pandemic further amplified these demands, as governments worldwide were compelled to intervene in unprecedented ways to protect the health and livelihoods of their citizens.
• India, too, is experiencing a similar shift, with demands for the return of state-backed welfare provisions.

Introduction of the Universal Pension Scheme (UPS)

The UPS, as proposed by the Narendra Modi government, emerges in this context as an attempt to provide universal pensions while balancing state involvement and market participation.

Criticism and Challenges of the UPS

• While the U-turn of the Modi government, as pointed out by the Opposition, aims to address the issues raised by the NPS, the UPS is still in its nascent stages and requires significant rectification before it can be seen as a viable alternative to the NPS.
• Critics have already pointed out that the UPS promises retirement payouts but offers reduced returns compared to the OPS and exposes retirees to the risks of uncertain market-based assets.
• The requirement of 25 years of service for a full pension is a disadvantage for those who join late, while potential underfunding raises concerns about future pension delays or corpus depletion.
• Moreover, the scheme only covers Union government employees, excluding many public sector workers such as teachers, and may disincentivise further pay commissions.
• Need for Greater State Intervention: One of the critical aspects of the UPS that needs attention is the need for greater state intervention to ensure that retirees are not left vulnerable to market forces.
• While the UPS offers a universal framework, its structure should incorporate safeguards against market fluctuations, possibly by providing a minimum guaranteed pension similar to the OPS.

Issue of government contribution 

• Need for reform in government contribution: Another area that needs reform is the level of government contribution.
  • The UPS hybrid model would not completely mitigate risks associated with market reliance and may fail to offer a balanced pension system.
• Inclusivity across all sectors: Further, ensuring the inclusivity of the UPS across all sectors, including informal labour, is critical.
  • o India’s vast informal workforce currently lacks adequate pension coverage.
  • o The UPS must broaden its scope to provide pension security to all citizens, and not just to government employees, aligning with the broader return of welfarism that is gaining momentum globally.

Conclusion

The comparison of the OPS, the NPS and the UPS illustrates the tension between state-backed welfare and market-driven policies in India’s pension system. While the OPS provided a stable and predictable pension income, the NPS shifted retirees’ financial futures into the volatile realm of market investments, creating uncertainties and vulnerabilities. The retreat of neoliberalism and the return to welfarism worldwide, although on a limited scale or even notionally, provide an opportunity to rethink India’s pension system and strike a better balance between state responsibility and market participation. The UPS, if properly restructured, could become an important tool in protecting the financial security of retirees and addressing the shortcomings of the NPS, ensuring that India’s retirees are not left to the mercy of market forces but are supported by a robust welfare system.