Seizing next wave: How TN can be a trailblazer

This article was first published in The Times of India (Chennai) Print edition on February 16 2026.

As a state contributing 9 per cent of the national GDP with just 5.5 per cent of the national population, Tamil Nadu has consistently pulled above its weight and ranked amongst the top three economies in the country. Decades of conscious policy choices, distinct district-level industrial identities and a steady flow of educated human capital have all helped catapult the state to its current position of dominance.

Despite being referred to as the auto and SaaS capital of India and no dearth of trainable human capital (TN produces 3 lakh engineers annually), it is evident that ‘what-got-us-here wont-get-us-there’, and that TN needs to reinvent itself to be future ready. Given the recent union budget and prevailing macro themes, here are four themes that can drive economic growth in the state.

Defense manufacturing

The budget envisages Rs.2.2 lakh crores of defense spend towards capex, of which, an estimated 75 per cent would be procured from indigenous domestic manufacturers. This coupled with the Government’s aspiration to capture a sizeable share in the global defense export market makes a very compelling case for TN to get its act together. Since being earmarked as one of India’s two defense corridors in 2019, the state has solicited new investments, announced its 2022 defense policy, offered single window clearances and facilitated land acquisitions.

Growth can be further accelerated if there is active nurturing of R&D/testing and certification facilities that underpins futuristic weapons systems; supply chain bottlenecks are eased by integrating the ecosystem of supplier MSMEs; and multi-modal logistic hubs are connected with the defense corridor to facilitate seamless exports. Further, with its traditional strength in electronics manufacturing, TN could actively identify opportunities in avionics, radars and drone technologies, as seemingly, future wars are likely to be fought from a back-office!
Rare earth magnets

With the largest estimated reserves of Monazite in the country, TN has been declared a part of the rare earth corridor. Though the monazite mining and Neodymium extraction process (key to rare earth magnets, that can be extracted from Monazite) is still tightly regulated by state-run entities, the announcement of the corridor should provide a framework for technology transfer, that would incentivise private participation.

The state can supplement these efforts by notifying standards for safe disposal of radioactive byproducts and creating waste disposal infrastructure to avoid environmental challenges. Actively assisting private players avail funding from Central Government schemes and offering a dedicated investor cell under Guidance Tamil Nadu to help navigate the bureaucracy would accelerate the concept to commercialisation.
Semi-conductors

The union budget’s India Semi-conductor mission (ISM 2.0) aims to push for self-reliance across the value chain, focusing on the people, process and technology components. The past year has seen over 10 projects with an outlay of Rs.1.6 lakh crores being approved for commercialisation across India; While India is making steady progress in semiconductors, China and the USA currently maintain a considerable lead.

TN can play an active role in bridging the gap, by championing the design R&D. Though significant strides have been made vide the state’s 2024 Semiconductor Policy, 2025 Design Promotion Scheme and dedicated Semiconductor Equipment Manufacturing Parks near Coimbatore, commercial activity can be maximised only when the state actively solicits private participation and helps them avail capital subsidies under the state policy, together with design linked incentives and operating expense reimbursements under ISM 2.0.

TN’s partnership with IIT Madras to setup the ‘School of Semiconductor’ is not only a pioneer model that could be replicated nationally but could further be enhanced to facilitate partnerships with startups to develop indigenous IPs, thus helping meet our national ambition of designing our homegrown 3nm chip by 2030.
High speed rail

As a beneficiary of two high speed rail proposals that would connect Chennai with Bengaluru and Hyderabad, the road ahead looks very promising, but potentially potholed. Whilst the envisaged cost of Rs.400 crores/km is in line with global benchmarks, experience teaches us that such projects typically take a decade to execute and are fraught with land acquisition challenges and associated cost escalations.

TN can become the poster child for implementation, by proactively partnering with the National High Speed Rail Corporation (NHSRC) to monitor and resolve roadblocks. The allied manufacturing potential is also significant, if the state identifies the white spaces in components used in high-speed trains and strategises JVs with relevant technology partners.
Fintechs

TN’s fintech ambitions require an honorary mention, as the state is yet to outgrow its utility as a preferred back-office destination for several global BFSI majors. Perhaps, the upcoming Fintech city in Chennai and proposed tax rebates for data centers could help the state reinvent its identity and incubate the next round of unicorns in the country.

With elections around the corner, it is likely that any policy action would be initiated only when the new administration assumes office. Given the healthy competition from other Indian states, what would help differentiate TN is a business-friendly regulatory framework, dogged implementation rigor and private sector level accountability - all of which can help the state achieve its goal of becoming a $1 trillion economy.