Tamil Nadu Model: Blueprint for India’s economic aspirations

Tamil Nadu has once again demonstrated what strategic governance, consistent policy focus, and targeted public investment can achieve. Recording a stellar 9.69 per cent economic growth rate for 2024–25—the highest among all Indian states and the state’s best performance in the past decade—the state has not only outpaced others but has also positioned itself as a model of sub-national economic dynamism in India. This achievement compels a deeper examination of the “how”—and more importantly, the “why not”; elsewhere.

Why TN succeeded

Tamil Nadu’s economic success is a result of long-term institutional consolidation, sectoral diversification, and a political economy aligned with developmental outcomes. The state’s diversified industrial base — including automobiles, electronics, textiles, and pharmaceuticals —has provided economic resilience. Notably, the electronics manufacturing sector has attracted significant investments, such as the expansion of Foxconn and Pegatron’s facilities, contributing to FDI inflows of $2.4 billion in FY 2023-24. Consistent infrastructure development has been pivotal. The establishment of industrial parks and enhancement of connectivity through ports and transportation networks have created an investor-friendly environment. For instance, IndoSpace plans to increase its investment in Tamil Nadu by 41 per cent over the next three years, responding to growing demand for industrial parks.

Why others didn’t ?

So, if Tamil Nadu could achieve this, why couldn’t others? Firstly, one of the primary reason lies in its persistent investments in human capital formation and replenishing the existing ones via investing in education and healthcare resulting in a skilled workforce. The Human Development indicators for the state are comparable to those of advanced economies, having done significant progress in health and education sectors. Secondly, fragmentation in governance and planning, coupled with short-term populist policies and recurrent bureaucratic reshuffles disrupting growth pathways are not very common in the state. For instance, without disrupting core developmental policies, the state rotated power between DMK and AIADMK during 2000 and 2024 and consistently ranked first in judiciary and public safety and remained among top 5 in governance quality and administrative efficiency as per the Good Governance Index in recent years. Tamil Nadu over the years has invested in logical infrastructure and industrial estates across districts. Tamil Nadu’s growth strategy showcase a spatial distribution by enabling operation of over 100 industrial estates and parks though agencies like SIPCOT, TANSIDCO, etc. They are spread across tier II and tier II cities to ensure the much needed ‘forward-backward linkages’. Established in 2012, the State Balanced Growth Fund (SBGF) allocate over Rs 1,200 crore investment in backward districts resulting in the setting up of more than 60 per cent MSME’s outside Chennai, the state capital. Not only in establishing the units, but the state has succeeded in maintaining to retain the investors and that perhaps gets reflected when we see Tamil Nadu at number 3 in the Ease of Doing Business Index 2022.

What this means for India

Tamil Nadu despite comprising 6 per cent of India’s population, contributing approximately 8.5 per cent to India’s GDP is indeed a commendable achievement for Tamil Nadu. At a time when several states are facing post-pandemic stagnation, having 9.69 per cent GSDP growth, the state has had a net positive effect on India’s overall state GDP performance. A fact that cannot be ignored.

Tamil Nadu accounted for $43.56 billion in merchandise exports during the fiscal year 2023-24 and represented over 9 per cent of India’s total exports. This also makes the state as the second largest exporting state after Gujarat. Added to all these are the ‘green energy’ initiatives. Installing over 21 GW of renewable capacity in the state, Tamil Nadu further contributes to the broader national Net Zero goals. Tamil Nadu’s growth significantly boosts India’s aggregate state GDP, potentially improving overall investment attractiveness. The state’s experience provides critical lessons for cooperative federalism in action, demonstrating that states investing in human capital and aligning policy goals with long-term public interest are more likely to deliver sustained economic outcomes.

Role of the Central government

Not to disagree that the accomplishments are mostly state-driven. The role of the central Government in support and accelerating such growth along with development is the call of the hour. Centre may consider incentivising performance through fiscal transfers. Tamil Nadu’s success in exports, infrastructure development, and human development deserves corresponding rewards through performance-based grants and flexible centrally-sponsored schemes. It may also support infrastructure expansion in sync with state priorities.

However, there are few challenges. The state must steer growing environmental concerns, mounting urban pressures, and the dire need to shift to higher-end value chains. The state must focus on innovation ecosystems, including R&D and advanced manufacturing processes. It must be remembered that the 9.69 per cent growth rate in 2024-25 is much more than a statistical milestone. This is rather a signal of enormous possibilities, especially when governance, vision and the execution converge. In order to emerge as an economic powerhouse, other states must adopt such ‘best practices’ and promote balance of pragmatism, planning and achievements.

Needless to re-emphasise that the Centre must handhold such outcome driven excellence and partnerships, rather providing just prescriptions.

Thakur is Dean, Vinayaka Mission’s School of economics and Public Policy, Chennai; Mukherjee is an associate professor at Shiv Nadar University, Chennai