DMK@75 | TN’s Dravidian model takes best of Kerala and Gujarat models: Economist Kalaiyarasan

“With two more weeks ahead (for DMK to complete 75 years), we continue to build momentum and attract more investors to Tamil Nadu, driving our progress towards a trillion-dollar economy!” tweeted MK Stalin on the first day of his US tour, where he signed MoUs worth over ₹900 crore.

The Tamil Nadu Chief Minister credited the influx of investments to the state’s Dravidian Model. This model has been a focal point of Tamil Nadu’s economic achievements and will likely be highlighted further as the party celebrates its diamond jubilee in September.

To delve into the political economy of Tamil Nadu, The Federal spoke with economist Kalaiyarasan Arumugam. A Fulbright Post-doctoral Fellow at the Watson Institute for International and Public Affairs at Brown University, Rhode Island, US and an Assistant Professor at the Madras Institute of Development Studies (MIDS) in Chennai, Kalaiyarasan offered insights into how the Dravidian Model has impacted the state’s economy.

Edited excerpts:

What exactly is the Dravidian model and how does it differ from other economic models?

The Kerala model was once celebrated for its strong performance in human development, given its notable human development index and per capita indicators. Andhra Pradesh, too, was recognised for its peak performance under Chandrababu Naidu, who had a specific vision of information technology-based economic growth. This vision was instrumental in the development of HITEC City, a major IT and business district in Hyderabad, which became a symbol of the state's technological advancement and economic transformation.

Narendra Modi’s vision for Gujarat focused on rapid infrastructure growth, creating a distinct model of growth.

In 2014, these different approaches sparked a debate on the best model for India. Jagdish Bhagwati and Arvind Panagariya, in their book Why Growth Matters: How Economic Growth in India Reduced Poverty and the Lessons for Other Developing Countries, advocated a trickle-down approach that aligned with Gujarat’s growth-centric model. Conversely, Amartya Sen and Jean Drèze, in An Uncertain Glory: India and its contradictions, argued for balancing growth with human development, highlighting Kerala’s success in healthcare and education.

The Dravidian model represents a synthesis of both growth and development, suggesting that both can be achieved simultaneously. While Gujarat excels in growth indicators, it lags in healthcare and education. Kerala, conversely, has achieved remarkable success in these areas but struggles with economic growth, relying significantly on remittances for 30 per cent of its GDP.

Tamil Nadu has shown substantial progress since the 1990s, particularly after its population stabilised. This progress can be attributed to historical interventions, including the promotion of labour-intensive sectors in clusters since the 1960s and strategic bargaining by the Dravidian parties with New Delhi to secure projects. The state's development strategy, including the establishment of numerous industrial clusters such as Krishnagiri, Tirupur, Virudhunagar, and Sankagiri, contrasts sharply with the more centralised models seen in states like Maharashtra (dominated by Mumbai) and Gujarat (centred around Ahmedabad).

Tamil Nadu’s success can also be linked to its effective public distribution system and mid-day meals scheme, which have played a significant role in shaping the state’s economy. Unlike in Gujarat, where growth did not adequately address the needs of those left behind, Tamil Nadu’s approach has managed to mitigate such disparities. This balance between growth and inclusive development highlights the strengths of the Dravidian model in achieving both economic progress and social welfare.

Tamil Nadu's economy is currently valued at around $250-300 billion, and the state has set an ambitious goal to reach $1 trillion by 2030. What strategies and measures can Tamil Nadu implement to achieve this target?

I wouldn’t focus solely on the size of the economy; my concern is more about how growth will be distributed and whether it will benefit everyone. Tamil Nadu's significant achievement has been its relative inclusivity, which reflects a broad-based, socially-embedded approach to labour-intensive growth. However, sustaining this model in the face of global changes poses a challenge. The global value chain has evolved, and Tamil Nadu now needs to compete on an international scale.

The state is shifting its focus towards emerging sectors like electric vehicles (EVs), advanced technology, and global capability centres (GCCs). Tamil Nadu's progress in electronics exports is noteworthy, but the question remains: how many jobs will these new sectors create? Despite a commendable education enrollment ratio of around 50 per cent, which is better than the national average, a major issue is the mismatch between educational outcomes and industry needs. If graduates cannot find tangible outcomes from their education, it presents a significant problem.

Another challenge is within Tamil Nadu’s cluster-based approach. Small-scale industries, which often add lower value to the economy, often struggle. It will be crucial to see how the government addresses this issue, particularly in terms of upgrading technology and exploring alternative strategies for these industries.

Tamil Nadu, a leader in manufacturing, relies on affordable labour, including migrant workers from northern India. However, northern states are increasingly offering substantial incentives for manufacturing firms to establish facilities there. Could this emerging trend present a significant challenge to Tamil Nadu’s manufacturing sector?

As economies develop and per capita income rises, certain industries may struggle to sustain low wages, leading either to their shutdown or relocation. This dynamic is evident in the shift of industries from China to Vietnam due to rising labour costs in China.

In the case of Tamil Nadu, the presence of migrant labour helps keep costs lower, avoiding the immediate need for industries to relocate. Ideally, industries facing high wages should shift to regions with lower labour costs, such as Bihar or Uttar Pradesh, where labour is cheaper. However, this hasn’t been the trend in Tamil Nadu.

The movement of labour, rather than industries, is partly because states like Bihar and Uttar Pradesh face institutional, infrastructural, and cultural challenges that hinder investment and development. A more effective institutional framework in these regions could attract investment by leveraging their lower labour costs.

Nonetheless, the economic benefits of this process are significant. If a textile mill in Tamil Nadu cannot afford high wages, relocating to a region with cheaper labour can be advantageous. This allows Tamil Nadu to concentrate on higher-value industries and innovation, potentially leading to a more balanced and efficient economic structure.

Tamil Nadu is emerging as a hub for Global Capability Centres (GCCs). Given the potential for AI to automate routine tech jobs, how might this impact the expansion of GCCs in the state, especially in terms of shifting the focus of tech professionals towards more advanced, high-end work?

The impact of AI remains a subject of ongoing global debate, much like the resistance faced during the introduction of mechanised machinery such as spinning wheels and weaving looms in Britain, or during the IT revolution of the early 2000s. Initially, there were fears that these technological advancements would lead to job losses, but, over time, societies adapted by acquiring new skills, and technologies like computers became integral to daily life.

As speculation continues about AI's impact on various sectors, it's crucial to focus on equipping educational institutions with the necessary data and programming resources to provide foundational training. Additionally, AI companies operating in India should be encouraged to commit to democratic accountability, ensuring that the benefits of AI advancements are distributed fairly and ethically.

Stalin is currently in the United States, and numerous MoUs are being signed. However, many of these agreements often do not translate into actual investments. Do you believe it is still worthwhile to highlight these MoUs?

Addressing the challenge of aligning proposed plans with actual outcomes is indeed difficult. Often, there are gaps between what is proposed and what is realised, even when a Memorandum of Understanding (MoU) is in place.

This issue arises when the party proposing the project is not fully committed or lacks clarity on the project's trajectory. Additionally, the state's capacity to enforce and ensure compliance from the proposer can be limited, leading to inefficiencies in project execution.

While it is important to raise concerns when gaps widen, it's also worth noting that Tamil Nadu is making progress and performing relatively well in its initiatives.