India's economy, now with muscle

In many parts of the world, the prospect of securing the world's largest cellphone maker would turn local politicians into game-show hosts, offering ever-sweeter deals in hopes of winning the economic sweepstakes.

Here, it often didn't warrant a call back. From states that did respond, Nokia execs were confronted with India's intense desire to have every single document stamped – and in triplicate.

Then Nokia called the offices of the southern Indian state of Tamil Nadu. Government officials called back immediately and set up a meeting. Not long after, Nokia signed on the dotted line, and their plant opened faster than any in the company's history.

As a globalizing India attempts to unwind itself from a bureaucracy bestowed by the British and then allowed to run amok for decades, Tamil Nadu has become a model.

India still has more red tape than any country in South Asia, according to the International Finance Corp., and it is in the bottom quarter of that organization's list of easiest places to do business. But Tamil Nadu is top among a handful of states here that are taking the boldest steps to become business-friendly, executives and experts say.

"These states have learned the tricks now," says T.S.R. Subramanian, a former adviser at the International Trade Center in Geneva.

The tricks are not that revolutionary. The state has stayed ahead of the nation's electricity crunch, meaning it can supply relatively reliable power – unlike northern states. It has built highways and modernized its port. And it has attacked red tape with industrial-size scissors.

Typically, foreign firms need clearance from about 70 offices and authorities to even open their business. This can take three months or more. Like several other states, Tamil Nadu has instituted so-called single-window clearances – a one-stop shop for every business-licensing need.

These are some of the reasons that Indian automaker Mahindra chose Tamil Nadu when it wanted to set up an industrial park with special tax breaks and better infrastructure. The venture has attracted BMW, as well as Indian high-tech giant Infosys, which built the world's largest software-development campus here.

"Projects of this nature require the support of the state governments to enhance credibility and also ensure smooth, hassle-free operations," writes Anita Arjundas, chief operating officer of Mahindra World City outside Chennai, in an e-mail.

Another measure of Tamil Nadu's success is a new stretch of highway that unspools from Chennai to the Nokia plant in Sriperumbudur. The marvel is not the road itself, but the scenery. The 30-minute drive takes travelers past no less than 10 engineering colleges – one of which looks curiously like the Taj Mahal. A landmark decision a decade ago to begin privatizing education has led to 660 industrial-training institutes, 250 engineering colleges, and 234 polytechnic schools.

"The caliber of the talent pool" was a primary reason that Dell decided to build its first India factory here, says Rajan Anandan, vice president of Dell India.

Yet it was Tamil Nadu's responsiveness that clinched the deal. When Dell voiced concerns that its land parcel was too small for partner firms – which supply keyboards, monitors, and more – officials "allocated a chunk of land," says Mr. Anandan.

The government hasn't always been so take-charge. "We're focused on going after investors now," says K. Rajaraman, a state secretary for industry, "not just waiting for them to come to us." Which means when Nokia calls, Tamil Nadu listens. To be sure, says Jukka Lehtelä, Nokia's Indian operations manager, he could have set up shop elsewhere. "But how well?" he asks. "That is the question: how much you want to hit your head against the wall."

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