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Chennai, formerly known as Madras, is the capital of Tamil Nadu, and the fourth-largest metropolitan city in India. The Chennai Metropolitan Area (CMA) is spread across 1,189 square kilometres and constitutes six municipalities, 20 town panchayats, and 214 village panchayats in 10 panchayat unions. Due to a well-developed infrastructure the city is one of the leading business centres in the country. Chennai’s population was 4.34 mn in the 2001 Census and is projected to reach around 5.86 mn by 2026. During the same period, CMA’s population is expected to increase from 7.04 mn to 12.6 mn.

Infrastructure

Chennai is well-connected with the rest of the country and the world.

• Road network – Chennai is primarily connected with four national highways: Kolkata (NH5), Bengaluru (NH4), Thiruvallur (NH 205), and Trichy (NH 45). The intra-city road network in Chennai spans across 2,780 km.
• Rail network - There are two main railway terminals in Chennai – the Chennai Central station, which is the city’s largest railway station that runs trains to major cities and towns in India, and Chennai Egmore, which connects the cities and towns within Tamil Nadu. The Southern Railway operates the commuter rail system in CMA. CMA handles around 180 arrivals and departures in a day, which works out to 0.22 mn trips in a day.
• Bus transport - The Metropolitan Transport Corporation (MTC) and the State Transport Corporation (STC) operate buses in Chennai. While MTC operates on 537 routes and runs more than 3.6 mn trips per day, STC manages 4,160 arrivals and departures, which works out to 0.16 mn trips per day.
• Airport - The Chennai International Airport handles both domestic and international flights. In August 2008 the state government approved a plan worth Rs 1.8 bn for modernising and expanding the Chennai airport. Under this plan, the government proposes to: construct a domestic terminal that spans across 67,700 sq m; to extend existing Anna International Terminal to 59,300 sq m and secondary runway across the Adiyar River, and to construct parallel taxi-track and parking bays. The passenger handling capacity at Chennai is expected to shoot up from 9 mn to 23 mn once this project is completed.

Industrial set-up

The industries that are prominent in the Chennai cluster include automotive, auto component, leather, engineering, and IT/ITeS BPO. Among all these industries, the auto component and leather industries have a major presence in the cluster. Chennai accounts for around 50% of the total leather exports from India.

Chennai, which is also known as the Detroit of India, is fast emerging as a major export hub for cars in South-east Asia. OEMs such as Hyundai, Ford, Mitsubishi, Lancer, Ashok Leyland, among others, are located in Chennai. Many tier-I suppliers, including Wheels India, Lucas – TVS, Brakes India, Sundaram Brakes Linings, Sundaram Fasteners and Rane Steering have a major presence in the city. Chennai’s industrial estates such as Ambathur Industrial Estate, Guindy Industrial Estate, Maraimalai Nagar Industrial Estate, and State Industries Promotion Corporation of Tamil Nadu (SIPCOT) Estate (Sriperumpudur) house many tier II and tier III ancillary auto component manufacturers.

A research conducted by Dun & Bradstreet India on India’s emerging sectors in 2008 revealed that the engineering sector is among those industrial sectors whose role has increased with the growing emphasis on infrastructure development in India, and globally. The exports of engineering goods increased from US$ 20.3 billion in FY06 to US$ 27.1 billion in FY07. Further, according to the study, around 69% engineering companies based out of Chennai operated in the light engineering segment, and 53% of these companies exported goods as compared with 45% heavy engineering companies. The engineering companies that operated in the light engineering segment had a turnover in the range of Rs 10-100 million.

The industries in Chennai are well-supported by some major companies that are operating in major sectors such as cement, healthcare, telecom, petroleum, and energy, among others.

SSI and SME set-up in Chennai

In June 2006 the Indian government enacted the Micro, Small and Medium Enterprises Development Act 2006, which is a historical and highly commended Act in itself, as it is the first Act that is exclusively meant for the micro, small and medium enterprises in India. The Act came into force on October 2, 2006 and is aimed at strengthening the Indian MSMEs and making them globally-competitive.

The industries in the Chennai cluster can be divided further on the basis of the industrial areas where they are located; the industrial estates in Chennai include Ambattur, Guindy, Mogappair Industrial Estate, Maraimalai Nagar Industrial Estate and SIDCO Industrial Estate. Among these estates, Ambattur and Guindy Industrial Estates are the largest and these estates majorly comprise auto component and leather industries. The Mogappair Industrial Estate comprises auto component, pharmaceuticals, and paper products industries. According to a study conducted by the Tamil Nadu Small and Tiny Industries Association (TANSTIA) some key characteristics of the Ambattur Industrial Area are as follows:

Ambattur Industrial Area

According to the TANSTIA Survey Report 2008, an estimated 3,400 micro industries operate in Ambattur (excluding Ambattur Industrial Estate) Padi, Korattur, and Mannurpet. Out of these 3,400, the survey covered 3,045 micro industries. Among the surveyed firms, 1,816 were core manufacturing firms, while the rest were involved in services and labour work. Among the 3,045 industries that were included in the survey, around 2,423 (about 80%) are engineering (auto component, fabrication and electroplating) units and the rest produce leather, rubber and other categories combined.

The industries in the Ambattur area employ 14,626 persons that are both skilled and unskilled; however, majority of the persons (72%) are from the skilled category.

Further, 85% of the 3,045 that participated in the survey employ 1-5 persons and the average employment in the cluster is 4.8 years.

More than 90% of the micro industries operated from rented spaces. Around 30% of the companies operated from areas in the range of 100 – 250 sq ft. The number of industries with turnover below Rs 0.3 mn changed from 68% to 63% from 2006- 07 to 2007-08. There were no industries with a turnover of above Rs 10 mn in 2006-07; however, 14 industries turned out to be in the revenue bracket with turnover above Rs 10 mn in 2007-08.

Industry associations There are few industrial associations in Chennai that operate at a national level and cater to all sectors such as the Confederation of Indian Industries (CII) and the Federation of Chamber of Commerce and Industries (FICCI). A few sectorspecific associations such as Automotive Component Manufacturers Association of India (ACMA) are also present in the cluster.

Government initiatives and policies

In FY07 the Tamil Nadu government constituted a high-level committee under the chairmanship of the Secretary, Industries Department, to identify the industrially-backward blocks in the state to encourage the SME sector. The committee announced the Micro, Small and Medium Industries Policy 2008 within the purview of the Micro, Small and Medium Enterprises Development (MSEMED) Act 2006. According to the statistics provided by Datanet India Pvt Ltd, the number of sick medium and small enterprises in Tamil Nadu went down from 9,895 to 6,074 in March 2007 to March 2008.

The policies that were laid down under the MSEMED Act 2006 are as follows:

• Infrastructure support

The Tamil Nadu government will upgrade all existing industrial estates of Tamil Nadu Small Industries Development Corporation (SIDCO) and departmental and co-operative estates on a priority basis.
• Establishment of new industrial estates

The Tamil Nadu government has also made a provision for reserving up to 20% of land in all State Industries Promotion Corporation of Tamil Nadu ( SIPCOT) estates for SMEs and up to 30% area for micro industries in SIDCO estates. Moreover, ten estates will be developed as greenfield ventures or as a part of SIDCO’s existing estate expansion.
• Stamp duty exemption

Enterprises in SIDCO or the government-developed estates for SME sectors will be entitled to a 50% rebate on stamp duty and registration at the time of original allotment based on the transfer fixed by SIDCO or the government with respect to such estates. For SMEs set up in industrially-backward areas, the 50% rebate on stamp duty and registration will be reimbursed after commencement of production.
• Privately-developed estates

The government will encourage development of industrial estates by private players outside the 30 km radius of Chennai city. The government will provide infrastructure subsidy to the extent of 20% to estates that have approved land of 50 acres and above, but this subsidy is subject to a ceiling of Rs 10 million per estate. Moreover, privately-developed estates will be entitled to 50% rebate on stamp duty and registration.
• Low Tension Power Tariff (LTPT) subsidy

LTPT subsidy will be available at a flat rate of 20% for the first 36 months from the date of commencement of production or from the date of power connection, whichever is later.
• Capital subsidy

A capital subsidy of 15% will be extended on eligible plant and machinery as indicated in the MSEMED Act 2006 and rules, subject to a maximum limit of Rs 3 million.
• Employment-intensive subsidy

An employment-intensive subsidy of an additional 5%, subject to a maximum of Rs 500,000 will be granted, if at least 25 workers have been employed for a minimum period of 3 years within the first 5 years from the date of commencement of production.
• Back-end interest subsidy

A back-end interest subsidy of 3% (subject to a maximum of Rs 1 million per enterprise over a period of 5 years) will be extended on loans up to Rs 10 million taken by SME enterprises for modernisation.
• Technology business incubators

Financial assistance to the tune of Rs 5 million per incubator/centre of excellence will be provided for creating basis infrastructure for setting up centres of excellence and technology business incubators in the fields of automobiles, machine tools, food processing etc in the SME sector for introduction of production techniques and design development.
• Subsidy for asset creation for intellectual property

A subsidy of 50% of cost of patent filling or Rs 200,000, whichever is lower, will be provided to manufacturing SMEs having in-house or standalone R&D labs for innovations capable of industrial application.

Financial institutions

There are a host of nationalised banks and financial institutions present in Chennai to cater to the financial needs of the industries operating in the cluster. These institutions provide monetary assistance in the form of working capital loans, shortterm loans and term loans to companies. Table 1.5 mentions a few prominent financial institutions present in Chennai.