The Indian Economy Blog

December 6, 2005

Gaddi Shaddi

Filed under: Miscellaneous,Regulatory reforms — Amit Varma @ 11:30 am

Nitin Pai directs me to an Op-Ed in the Washington Post by Sebastian Mallaby in which he writes:

The next wave of globalization is swelling here, in this southern Indian city that was battered by a real wave during last year’s tsunami. This new wave is not about Gap T-shirts or Dell laptops, the poster children for the light industries that already have global supply chains. And it is not about software and/or call centers, the industries for which India is famous. Instead, this new globalization is about heavier manufacturing, particularly cars. Detroit’s panicking firms know it.

Mallaby’s talking about Chennai. Read the full piece.

What do you guys feel about this? Can Chennai really be a threat to Detroit? What does Indian manufacturing need to achieve its potential? In particular, what are the impediments the government can remove to make our manufacturing sector a success story? And what are the incentives it can create? Tell.

19 Comments »

  1. Chennai or any other Indian city for that matter cannot become a threat to Detroit as long as the infrastructure issues remain. I was in Detroit last month and am in chennai right now – Infrastructure just cannot be compared – Chennai roads are in terrible shape after the rains – I will not blame the rains for the state of roads in Chennai – The blame squarely lies on the indiiferent, short sighted and corrupt policies of the government.

    Comment by Prasanth — December 6, 2005 @ 12:00 pm

  2. I had sent an email to Amit and will be reproducing that verbatim here but since I was here, I happened to see the first comment and have my own observation about it. Yes, there can be no comparison of infrastructure of any US city to an Indian city. After all, we are not there yet but the question to ask is “will we be?” and I would say the answer is an emphatic “yes”. For details as to the BSP factor (Bijli Sadak Paani), the first one is becoming better and better in Chennai with fewer power cuts and greater alternate power options while the second one will gain momentum parallel to the ongoing GQ work (which NY Times had covered favorably recently) and the third one which had been the “Achilles Heel” of Chennai is also being tackled effectively by the government. Chennai may end up being the city with the maximum creature comforts that a burgeoning prosperous middle-class may enjoy having. Now, here is the email I sent to Amit:

    “Amit, regarding your latest post on car manufacturing, I am of the opinion that there is a strong undercurrent of change happening in Chennai which is unlike any other Indian city. While Rediff has already covered the IT angle to Chennai and its usurping the title role from Bangalore, there are many infrastructure/social/cultural aspects to the city that make for efficiency as the mantra, be it manufacturing or services. We’ve heard Bollywood’s praise for the legendary discipline and on-time production values of Kollywood and this is a repeated theme in almost all spheres of activity.

    With car manufacturing, while decisions such as availability of ports (sea/air) and cheap land (than other metros) were decidedly tilting the balance towards Chennai, what the American auto majors have come to realize is the quality of labor that is available in Chennai, which is arguably the best compared to other metros. Chennai has also had a rich auto ancillary base and component manufacturing in Sundaram Fasteners (and other TVS companies) and there are many light/heavy engineering units in and around Chennai that have won major quality awards. So, Chennai is and will be a serious threat to Detroit. We are just beginning to see the white tops of this wave. Ultimately it will develop into a tsunami that will forever change the metroscape of Chennai.”

    Comment by thennavan — December 6, 2005 @ 12:14 pm

  3. With less than 10% share being projected for India,Chennai can not be considered as a threat to Detroit.But it does hold promising future.It demands serious efforts to improve the infrastructure,especially power,and government’s commitment to reforms in labour laws and foreign direct investment policy

    Comment by aak — December 6, 2005 @ 12:43 pm

  4. Chennai is an underestimated factor in our thriving economy. The great job-spinners, like the big manufacturing factories have a strong presence in Chennai. That alone should be a pointer to the efficiencies available in Chennai. I mean, if China is stood up as a big example of all that is good, it is because of its manufacturing acumen.

    Seen in that context, Chennai is on the right track. It is not a city that has grown too big for its own good (See : Bangalore), nor a city where the pressure on services and infrastructure is so unbearable as to leave it bursting at the seams (See : Mumbai). It is also not a place where neither the politicians rule the complete roost (See : Delhi) nor the Unions (See : Kolkata).

    All other factors being equal, the manufacturing eco-system that already exists (in terms of manufacturers, component suppliers, vendors, resellers, etc) provide Chennai the clear edge. However, whether we can challenge Detroit is no longer a question of ability. It is one of scale, and in this respect, we are unlikely to pose a great challenge. We are not, in the near future, going to have 3 or 4 companies, with turnovers in excess of $150bn emerging from around Chennai (which is what Detroit is, at the minimum).

    In the meantime, let us bask in the reflected glory of “would-be–challenger”…

    Comment by Theesra — December 6, 2005 @ 12:52 pm

  5. What is even more interesting is that Indian companies are looking at buying out fringe companies in Detroit. Hold your horses, I am not referring to the Fords and Chryslers, but auto component companies.

    Several Indian firms, led by Bharat Forge, has stolen a march over several top-rung global autocomp companies. Detroit for this sector is Pune, not Chennai.

    Comment by Bonatellis — December 6, 2005 @ 5:47 pm

  6. Chennai and Detroit are unequal comparisons. However Chennai certainly has done well in becoming a major auto components and automobile manufacturing cluster. The growth in Chennai will happen because of the ambitious plans of Hyundai BMW Toyota Volvo in neighboring karnataka and the significant contribution by heavy vehicles manufacturer Ashok Leyland and construction equipment world leader Caterpillar. Chennai has a fifty year old support industry for assisting auto components such as Tool Design and Tool Rooms.
    Whilst the infrastructure is a major constraint in all parts of India the hope of it becoming better in Chennai is brighter by virtue of the governance of Ms.Jayalalitha.
    Above all the high quality of technical and managerial talent will assist Chennai in a big way.
    With perhaps 400000 vehicles being produced in Chennai five years from now there is really no comparison between Detroit and Chennai but Chennai will be a very vibrant part of the Automotive growth in India.

    Comment by Ramesh Daga — December 6, 2005 @ 8:45 pm

  7. Miles to go…..

    We can be reasonably optimistic about the car boom in India. The Indian middle class has grown to 250 million in the past decade or so. We are finally beginning to see descent roads in India. If this huge consumer base steps in to buy cars we will see healthy growth in the motor vehicle industry. Indian value systems are changing to more individualism and nuclear families. However according to NY Times today there are only eight million passenger vehicles on Indian roads, in a country of more than one billion people. By the late 1920′s, in comparison, the United States had 23 million registered car owners.

    How soon can Chennai beat Detroit??

    Ref: In Today’s India, Status Comes With Four Wheels
    By AMY WALDMAN
    Published: NY Times December 5, 2005

    Comment by Mani Pulimood — December 6, 2005 @ 9:45 pm

  8. I think there is definite cause for optimism. I go to Chennai every year, and you can see and feel the progress. The thing is, for whatever reasons, the government is making all the right noises. There is definitely a huge gap that needs to be bridged, but there is progress.

    I think that the single most important issue right now is an efficient supply of water. That’s one of the big hits against Chennai,and that needs to be addressed quickly.

    Ram

    Comment by Ram — December 6, 2005 @ 10:07 pm

  9. I must admit that I have never been to India, but Chennai competing with Detroit might not be so difficult. Take a look, for example, at this post from Autoblog: http://www.autoblog.com/entry/1234000530071174/. If cars from Chennai (btw, why the name change?) are not Landwinds, I don’t see why Europe and America should not import them. They may be intended for the home market only, but that won’t last long.

    Comment by Dutchman — December 7, 2005 @ 12:04 am

  10. I too think Pune is better positioned than Chennai to be the next Detroit….
    Here’s a bit of evidence why.

    http://www.indiainbusiness.nic.in/indian-states/maharashtra/autoindustry.htm

    Comment by Nachiket Kapre — December 7, 2005 @ 1:20 am

  11. It was Japan which unseated Detriot. Can Indian automakers do what Toyota did or even the Korean Hyuandai? I don’t think so. Chennai can be a center for cheap manufacturing but India does not have the competency that can produce a Toyota or Honda.

    Comment by sv — December 7, 2005 @ 7:24 am

  12. The author is talking not just about Chennai. He is talking about Mexico, Thailand and China as well. In that context, Detroit’s problems are going to get far worse.

    Comment by Sai — December 7, 2005 @ 8:34 am

  13. [...] gs might be faster in circulating news. Here’s a small example. Amit Varma points to this piece by Sebastian Mallaby on the Indian Economy blog yesterday. The Indian Express carrie [...]

    Pingback by AnarCapLib » Blogs, not baasi news — December 7, 2005 @ 12:10 pm

  14. Okay, Chennai has better infrastructure than Pune. Chennai has a port. AND, Chennai has a suburban train service that connects the main railway station, airport, and the harbour. Chennai has a Mass Rapid Transport System: a over-the-head rail service that connects areas the old suburban service does not cover. What we have here is a city that is the best of the worst. A city that segued into top gear unlike other cities that ran after IT like refugees.
    My point is Chennai’s development was planned. Unlike Bangalore’s. And combined with its pool of workers, support industries, and a friendly government, Chennai stands a better chance of making it big. And, I think we should stop referring to our cities as ‘Manchester of India’ ‘Detroit of India’… where does it leave Bihar then? ‘Darfur of India?’ Why should Chennai be the next Detroit? Let it be. Let Chennai be.

    Comment by Suman — December 7, 2005 @ 2:10 pm

  15. The FTA with Thailand was supposed to all Indian manufacturers or India-based car manufacturers – that hasnt happened as yet. I’m not quite convinced how Chennai or India can be a challenge detroit when we operate on different ends of the scale?
    The small cars sold here are exported to countries of similar profiles – south africa for example, and at times to specific parts of Europe.

    While a few manufacturers talk of making India small car hub(Hyundai/Suzuki) – no one has mentioned India being a global car hub. And Indian component companies are buying abroad – not necessarily bringing everything to India to manufacture/export.

    As such, I dont see how Chennai or India can be a threat to Detroit/USA. Not in the next couple of decades at least.

    Comment by Prasanna — December 7, 2005 @ 3:21 pm

  16. I think infrastructure needs immediate attention. Chesnnai’s roads and airport need serious development. Chennai should start building ring roads, fly overs and plan for 2015 from today. I think Hyd is a clear example of this. We cannot allow Chennai to the whims and fancies of politicians. Chennai is thousands times better than B’lore. Chennai needs to market itself better. Chennaites are known for poor marketing skills. It’s reflecting in its image. B’lore somehow has more buzz than Chennai. In fact be it schooling, retail etc. Chennai is good but there is a difference between good and world-class. Indians by nature can’t finish well. Hopefully, it will not affect our economy too!

    Comment by Sivaraman Swaminathan — December 11, 2005 @ 9:49 am

  17. China vs. India…

    Johan Norberg, everyone’s favourite Swedish libertarian, is just back from the Asian giants and writes:India’s hidden strength is that the country is already extremely entrepreneurial – but in the informal sector. An Indian friend mentions that most …

    Trackback by PSD Blog - World Bank Group — December 18, 2006 @ 3:10 am

  18. Chennai has already gained the name as “DETROIT OF SOUTH ASIA”, though chennai has a long way to go. Unlike other cities in India, chennai has concentrated on various industries and markets. Understanding that the climatic condition in chennai is not as favourable as in Bangalore, Chennai should concentrate on good infrastructure and water supply. Good Govt policoes are an added advatage to this city. I beleive that Chennai has had a slow, steady and healthy development unlike many other cities which have grown very fast but with out any planning and care for future. The Chennai city transport system (City buses, Loacl trains and MRTS)needs to guarded and improvised as they are of a good advantage to the city.

    Comment by Murthy GS — March 10, 2007 @ 4:55 am

  19. One of the biggest problems in India compared to the west is networking. Yes networking, the college where I studied was importing PCB and drill bits for $20 and $80 from germany but I knew I could get PCB for $1 a piece in chennai and that the drill bits were probably made in Chennai.
    What we do not have in scale like BMW or Volvo we need to get out of networking.

    Comment by Chandramouli — April 16, 2009 @ 12:54 am

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