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Tamil Nadu is known for its highly-skilled manpower in the information and communication technology sector produced by several institutions of technological excellence. According to Tamil Nadu Industrial Policy 2021, the state’s “talent pool adds over a million graduates every year and has the largest annual turnout of skilled workforce in India” catering to various sectors across the world. The state also has over 70 Fortune 500 companies. And yet its startup ecosystem remains in a fledgling state.

The new industrial policy supersedes the Tamil Nadu Industrial Policy 2014 and will be effective up to 2025.

The state has been known for its “self-sustained and self-propelled industrial growth process” for a very long time. Tamil Nadu’s manufacturing share in the regional economy is double that of the national economy. This showcases the dynamic diversification that the sector has undergone in Tamil Nadu, which is the second-largest regional economy in the country after Maharashtra, though Uttar Pradesh is fast catching up.

Tamil Nadu startup and Innovation Mission (TANSIM) has set an ambitious target to establish approximately 10,000 startups in Tamil Nadu by 2026. Alas, the performance achieved so far is way behind the target of its own policy, as well in comparison with other states

New startups bring new investment for higher economic growth. At present, Maharashtra with a USD 350-billion economy is the largest regional economy, Tamil Nadu follows at USD 230 billion and UP a close third with USD 210 billion. The difference between TN and UP is a mere USD 20 billion. If Tamil Nadu does not give due importance to nurturing its startup sector, its performance will suffer and UP could end up snatching the spot of the second largest regional economy in the country. In fact, Karnataka and Gujarat too, which have been improving their startup infrastructure, and thus expanding their economy, are also vying for the number 2 spot.

Startup India, a flagship initiative launched in 2015 by the Government of India aims “to catalyse startup culture and build a strong and inclusive ecosystem for innovation and entrepreneurship in India”. This initiative is a boon for millennials to test their skills at becoming successful entrepreneurs who can potentially provide jobs to millions of people.

Also Read: Who can invest in startups?

In order to utilise the talent pool of the state, Tamil Nadu Startup and Innovation Policy 2018-2023 aims to provide “an enabling, innovative ecosystem in the state”. The state startup policy aims to:

  • Encourage, facilitate and support the emergence of at least 5,000 technology startups in the State.

  • Collaborate with educational institutions to promote entrepreneurship among the youth.

  • Partner with reputed investors across India and the Globe to invest in Tamil Nadu startups.

  • Provide adequate incentives and resources to startups, facilitators, mentors, and investors to promote startup culture in the State

Tamil Nadu startup and Innovation Mission (TANSIM) has set an ambitious target to establish approximately 10,000 startups in Tamil Nadu by 2026. Alas, the performance achieved so far is way behind the target of its own policy, as well in comparison with other states.

As the startup ecosystem did not improve for many years even after the announcement of the state policy, none of the key objectives mentioned were achieved.

The state’s apex institution for anchoring the startup ecosystem is the Entrepreneurship Development and Innovation Institute of Tamil Nadu (EDII-TN), an autonomous institution under the Ministry of MSMEs that was established two decades ago in 2001. It did not take adequate proactive steps to build partnerships with industries, successful entrepreneurs, and industry chambers.

One of the systemic fault lines observed in the state is the structure of higher education institutions, which “has limited the scope for self-employment or being an entrepreneur. Many youth expect to get government jobs and salaried jobs” (Tamil Nadu State Youth Policy, 2014). Thus, the aptitude towards innovation, out-of-the-box thinking, raising of self-esteem, risk-taking and urge for awareness about entrepreneurial ventures, etc., are still not a focus in the learning processes.

There is hardly any correlation between startups and industrialisation and urbanisation in Tamil Nadu. The startup initiatives should ideally provide ideas for large-scale industrialisation and urbanisation, networking of businesses with best practices, access to finance, etc., but it’s not so. It is strange that Tamil Nadu’s startup ecosystem governance is getting worse compared to other leading states in the country

As on November 30, 2022, there are 84,012 recognised startups in India since Startup India was launched in 2015.  TANSIM has been set up with a slew of incentives which include seed funds, grants, equity, tax exemptions, etc., for youngsters starting new entrepreneurial ventures in the state. The total fund allocated by the Union Government for startups in Tamil Nadu was Rs 450 crore. Out of Rs 34 crore provided, only Rs 18.70 crore was utilised as on November 30, 2022.

It is interesting to see the startup initiatives among major states. Till November 30, 2022, the total number of startups created in Tamil Nadu was only 4,704 (6%), which is significantly lower than Maharashtra (15,571 or 19%), Karnataka (9,904 or 12%), Delhi (9,588 or 11%), Uttar Pradesh (7,719 or 9%) and Gujarat (5,877 or 7%). About 64% of startups are located in these six states.

At all-India levels, startups have gone up from 452 in 2016 to 5,147 in 2017, 8,689 in 2018, 11,328 in 2019, 14,534 in 2020, 20,089 in 2021, and 23,773 in 2022 up to November. During the same period, the total number of startups in Tamil Nadu was 43 in 2016, 252 in 2017, 448 in 2018, 602 in 2019, 755 in 2020, 1,103 in 2021, and 1,501 in 2022 up to November

Also Read: It’s time Tamil Nadu took the lead in the startup race

The pace of increase of startups in Tamil Nadu has been rather slow due to the lack of efforts to reach out to educated youth in the state. Total employment generated by startups in all of India is 8,63,608 jobs. Employment generated in Tamil Nadu was 45,107 (5.22%). Other states like Maharashtra (1,63,451or 19%), Karnataka (1,11,640 or 13%), Delhi (1,00,153 or 12%), Uttar Pradesh (76,867 or 9%), and Gujarat (61,408 or 7.1%) have contributed a higher share of employment through startups. These six states account for 65% of employment provided through startups in India.

Within the state, the startup ecosystem is yet to gather vigorous momentum across the districts, especially in the east and southern districts of the state. Till now, the startup initiatives are concentrated only in a few districts in Tamil Nadu. Out of 32 districts covered by startup initiatives, Chennai (1,900 or 48%) and Coimbatore (516 or 13.03%) districts have the most number of startups in the state. These two districts together account for 61% of the state’s startups. Six districts’ (Chennai, Coimbatore, Kanchipuram, Madurai, Trichy, and Tiruvallur) account for 81% of startups in Tamil Nadu.

The startups in Salem (61 or 1.54%), Madurai (123 or 3.11%), and Trichy (112 or 2.83%) are alarmingly low. Kongu region accounts for only 20% of startups in the state. Fourteen districts’ account (Chennai, Coimbatore, Erode, Kanchipuram, Kanyakumari, Krishnagiri, Madurai, Namakkal, Salem, Thanjavur, Trichy, Thiruvallur, Tirupur, and Vellore) for 92% of startups in the state, leaving untapped talent pools in a large number of districts. Five districts have only a handful of startups, and 15 districts have startups in double digits but less than 50.

The Tamil Nadu startup initiative has also not diversified into areas other than the information technology sector. For instance, the vast opportunities in agri-tech, food processing, organic food processing, fintech, etc., are yet to be tapped by startups in the state.

There is hardly any correlation between startups and industrialisation and urbanisation in Tamil Nadu. The startup initiatives should ideally provide ideas for large-scale industrialisation and urbanisation, networking of businesses with best practices, access to finance, etc., but it’s not so. It is strange that Tamil Nadu’s startup ecosystem governance is getting worse compared to other leading states in the country.

In addition, the lack of a decentralised governance of regulatory systems is also preventing the youth from setting up startups easily.

(The author is an economist and public policy expert)


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