TABLE OF CONTENTSdcmsme.gov.in/schemes/evaluation_study(MSME)_cluster.pdf · important evaluation...

TABLE OF CONTENTS

CHAPTER NUMBER

DESCRIPTION PAGE NO.

1. INTRODUCTION.............................................................................. 1

1.1 CLUSTER DEVELOPMENT: CONCEPTS & ISSUES ................................... 1

1.2 THE SME SECTOR IN INDIA.......................................................... 1

1.3 NEED FOR A CLUSTER DEVELOPMENT APPROACH .................................. 2

1.4 CLUSTER DEVELOPMENT IN INDIA ................................................... 2

1.5 APPROACH TO CLUSTER DEVELOPMENT............................................. 3

1.6 EVALUATION STUDY: OBJECTIVES AND METHODOLOGY .......................... 5 1.6.1 Rationale For The Evaluation Study.................................. 5 1.6.2 Scope and Objectives of the Study................................... 5 1.6.3 Study Methodology and Process ...................................... 6 1.6.4 Target Groups .............................................................. 6

Cluster Development Executive................................................. 6 Functionary of SPV .................................................................. 6 Other Cluster Actors ................................................................ 6

1.6.5 Selection of Sample Clusters........................................... 7 1.6.6 Sample Size covered ..................................................... 8 1.6.7 Field Instruments Used .................................................. 8

1.7 CHAPTERISATION OF THIS REPORT .................................................. 9

ANNEXURE – 1.1 GUIDELINES FOR CLUSTER DEVELOPMENT PROGRAMME ....... 10

2. THE GENERAL PROFILE OF SAMPLED CLUSTERS ............................16

2.1 INTRODUCTION ....................................................................... 16

2.2 GEOGRAPHICAL SPREAD OF CLUSTERS ........................................... 17 2.2.1 Number of Constituent Units in Sampled Clusters............. 19 2.2.2 Size and Scale of Activity as Reflected by Turnover .......... 20

2.3 CLUSTER CONFIGURATION,VIABILITY,AND STAINABILITY...................... 23

2.4 NATURE OF THE SAMPLED CLUSTERS ............................................. 25

2.5 INPUT PROFILE OF SAMPLED CLUSTERS .......................................... 26

2.6 AVAILABILITY OF MANPOWER ...................................................... 29

2.7 ACCESS TO MARKETS AND MARKET PROSPECTS................................. 31

2.8 ACCESS TO FINANCE ................................................................ 34

2.9 ACCESS TO INFORMATION .......................................................... 36

2.10 ACCESS TO RESEARCH AND DEVELOPMENT INSTITUTIONS ..................... 37

2.11 ENVIRONMENTAL CONCERNS IN THE CLUSTERS.................................. 39

2.12 PROGRESS AND PRESENT STATUS OF THE CDP.................................. 42

ANNEXURE: 2.1- DETAIL TABLES ON RESPONSES ON IMPEDIMENTS FACED BY UNITS OWNERS .............................................................................. 45

3. THE CLUSTER DEVELOPMENT EXECUTIVE/AGENT ..........................51

3.1 INTRODUCTION ...................................................................... 51

3.2 THE ROLE AND FUNCTIONS OF THE CDE/CDA .................................. 51

3.3 THE CORE COMPETENCIES OF THE CDE/CDA .................................. 53

3.4 THE PROFILE OF CDES IN SAMPLED CLUSTERS.................................. 54

3.5 AWARENESS OF CURRENT JOB RESPONSIBILITIES .............................. 56

3.6 TENURE AND STAGE OF DEPLOYMENT OF CDE................................... 58

3.7 THE TRAINING OF CDES ........................................................... 60

3.8 FUNCTIONAL RESOURCE REQUIREMENT OF CDES ............................... 62

3.9 PERCEPTION OF CDES ON FACTORS ENABLING CLUSTER DEVELOPMENT..... 63

4. SOFT INTERVENTIONS IN THE SAMPLED CLUSTERS.......................66

4.1 INTRODUCTION ...................................................................... 66 4.1.1 Awareness Creation..................................................... 67 4.1.2 Confidence Building..................................................... 67 4.1.3 Capacity Building ........................................................ 67

4.2 SOFT INTERVENTIONS UNDER THE CDP .......................................... 67 4.2.1 Allocation and Utilization of Funds for Soft Interventions ... 68 4.2.2 Beneficiary Responses on Awareness of Soft interventions. 71 4.2.3 Beneficiary Responses on Participation in Soft Interventions

……………………………………………………………………………………………….71 4.2.4 Responses on the Benefits Derived from Soft Interventions 72 4.2.5 Impact of Soft Interventions......................................... 72

4.3 EARMARKING OF FUNDS FOR “SOFT” INTERVENTIONS.......................... 73 4.3.1 Detailed Features of the ‘Diagnostic Study’ ..................... 75

4.4 THE WAY AHEAD (ACTIONABLE ISSUES) ......................................... 76

ANNEXURE 4.1 – TABLE PERTAINING TO MAJOR SOFT INTERVENTIONS CARRIED OUT IN VARIOUS CLUSTERS......................................................... 77

5. THE SPECIAL PURPOSE VEHICLE...................................................80

5.1 INTRODUCTION ...................................................................... 80

5.2 THE SCOPE AND FUNCTIONS OF THE SPECIAL PURPOSE VEHICLE ............. 81

5.3 THE MOST SUITABLE ORGANIZATIONAL AND LEGALLY RECOGNIZED FORM OF THE SPECIAL PURPOSE VEHICLE ................................................... 82

5.4 THE GENERAL PROFILE OF SAMPLED SPVS ...................................... 83

5.5 THE SOCIAL AND ETHNIC COMPOSITION OF AND PARTICIPATION IN SPVS .. 86

5.6 PERCEPTIONS REGARDING REASONS FOR NON-PARTICIPATION IN SPVS .... 87

5.7 SUGGESTED METHODS OF REMOVING CONSTRAINTS FACED BY SPVS........ 89

5.8 PERCEPTIONS REGARDING THE ROLE OF THE CDE AND EFFECTIVENESS OF SOFT INTERVENTIONS .............................................................. 91

6. HARD INTERVENTIONS IN THE SAMPLED CLUSTERS......................93

6.1 INTRODUCTION ....................................................................... 93

6.2 THE JUSTIFICATION FOR HARD INTERVENTIONS................................. 94

6.3 THE RATIONALE AND OBJECTIVES OF HARD INTERVENTIONS .................. 95

6.4 THE ROLE OF THE STATE IN SUPPORTING HARD INTERVENTIONS ............. 97

6.5 HARD INTERVENTIONS IN SAMPLED CLUSTERS .................................. 97

6.6 STAGES OF INTERVENTION UNDER MSE-CDP ................................... 98

6.7 IMPLEMENTATION PROFILE OF HARD INTERVENTIONS IN THE SAMPLED CLUSTERS ............................................................................ 99

6.8 THE FUNCTIONING AND IMPACT OF THE CFC ...................................100

7. CONCLUSIONS AND RECOMMENDATIONS....................................104

7.1 NEED FOR A SCIENTIFIC DEFINITION OF A “CLUSTER” .........................104

7.2 A CLEARER ARTICULATION OF THE OBJECTIVES AND SCOPE OF THE CDP...105

7.3 FACILITATING AGENCIES AND FUNCTIONARIES:................................106

7.4 THE ROLE & FUNCTIONING OF CLUSTER DEVELOPMENT EXECUTIVES(CDE)106

7.5 SOFT INTERVENTIONS, THEIR CONTENT, SCHEDULING, EVALUATION, AND VALIDATION:........................................................................107

7.6 SPECIAL PURPOSE VEHICLES (SPV):............................................108

7.7 HARD INTERVENTIONS,HEIR CONTENTS, SCHEDULING, EVALUATION AND

VALIDATION.........................................................................109

7.8 ENSURING THE INVOLVEMENT OF PROMINENT SCIENTIFIC AND RESEARCH INSTITUTIONS THROUGH DEDICATED GRANTS..................................111

8. ANNEXURE

Photographs of few sample clusters……………………..……………………112 - 126

INDEX OF TABLES

Table No.- 1.1: CLUSTER COVERED IN THE STUDY................................................................................... 7 Table No.- 1.2: SAMPLE SIZE ............................................................................................................... 8 Table No.-2.1: GEOGRAPHICAL SPREAD OF THE SAMPLED CLUSTERS .......................................................18 Table No.-2.2: NUMBER OF CONSTITUENT UNITS ..................................................................................19 Table No.-2.3: IMPACT ON TURNOVER OF INTERVENTION .......................................................................21 Table No.-2.4: CLUSTER CONFIGURATION, VIABILITY AND SUSTAINABILITY .............................................24 Table No.-2.5: TYPES OF UNITS IN THE SAMPLED CLUSTERS ...................................................................25 Table No.-2.6: INPUT PROFILE OF SAMPLED CLUSTERS ...........................................................................27 Table No.-2.7: LOCATION OF INPUT SOURCES FOR SAMPLED CLUSTERS...................................................28 Table No.-2.8: AVAILABILITY OF MANPOWER .........................................................................................29 Table No.-2.9: ACCESS TO THE MARKETS ..............................................................................................31 Table No.-2.10: MARKET PROSPECTS FOR THE GOODS MANUFACTURED IN SAMPLED CLUSTERS .................32 Table No.-2.11: ACCESS TO FINANCE IN SAMPLED CLUSTERS..................................................................34 Table No.-2.12: ACCESS TO INFORMATION IN SAMPLED CLUSTERS..........................................................37 Table No.-2.13: ACCESS TO R&D INSTITUTIONS IN SAMPLED CLUSTERS ..................................................38 Table No-2.14: ENVIRONMENTAL CONCERNS IN THE SAMPLED CLUSTERS.................................................39 Table No.-2.15: TYPE OF ENVIRONMENTAL CONCERNS IN SAMPLED CLUSTERS .........................................41 Table No.-2.16: CDP IN SAMPLED CLUSTERS AND PRESENT STATUS.........................................................43 Table No.-2.17 (a): Responses on Production Related Impediments to Further Growth (Agro-Based Clusters).45 Table No.-2.17 (b): Responses on Production Related Impediments to Further Growth (Metal and

Manufacturing based Clusters) .......................................................................................................46 Table No.-2.18(a): Responses on Market Related Impediments to Further Growth (Agro-Based Clusters) ......47 Table No.-2.18 (b): Responses on Market Related Impediments to Further Growth (Metal and Manufacturing

Based Clusters)............................................................................................................................48 Table No.-2.19 (a): Responses on Finance and Technology Related Impediments to Further Growth (Agro-

Based Clusters)............................................................................................................................49 Table No.-2.19 (b): Responses on Finance and Technology Related Impediments to Further Growth (Metal and

Manufacturing Based Clusters). ......................................................................................................50 Table No.-3.1: PROFILE OF CLUSTER DEVELOPMENT EXECUTIVE IN SAMPLED CLUSTERS............................55 Table No.-3.2: AWARENESS AND CONFIDENCE LEVELS AMONG CDES REGARDING CURRENT JOB

RESPONSIBILITIES.......................................................................................................................57 Table No.-3.3: STAGES AT WHICH CDEs WERE DEPLOYED IN SAMPLED CLUSTERS.....................................59 Table No.-3.4: STATUS OF TRAINING AMONG CDEs ................................................................................61 Table No.-3.5: RESPONSES ON THE ADEQUACY OF RESOURCES AND ADDITIONAL ASSISTANCE REQUIRED..63 Table No.-3.6: RESPONSES OF CDES ON PRIME FACTORS ENABLING CLUSTER DEVELOPMENT ................64 Table No.-4.2: ALLOCATION OF FUNDS FOR SOFT INTERVENTION ............................................................69 Table No.-4.3: RESPONSES ON THE AWARENESS OF ACTIVITIES UNDERTAKEN UNDER SOFT INTERVENTIONS

..................................................................................................................................................71 Table No.-4.4: RESPONSES ON THE PARTICIPATION IN THE ACTIVITIES UNDER SOFT INTERVENTIONS .......72 Table No.-4.5: RESPONSES ON EXTENT OF BENEFITS RECEIVED BY THE UNITS FROM SOFT INTERVENTION

ACTIVITIES .................................................................................................................................72 Table No.-4.1 (a): MAJOR SOFT INTERVENTIONS CARRIED OUT IN THE SAMPLED CLUSTERS ......................77

(I) Primary Goods Based Clusters...................................................................................................77 (II) Secondary Goods Based Clusters (I) .........................................................................................78 (II) Secondary Goods Based Clusters (II) ........................................................................................79

Table No.-5.1: SPECIAL PURPOSE VEHICLES REGISTERED IN SAMPLED CLUSTERS. ....................................84 Table No.-5.2: COMPOSITION OF, AND PARTICIPATION IN SPVs...............................................................87 Table No.-5.3: PARTICIPATION AND INVOLVEMENT IN SPVs ....................................................................88 Table No.-5.4: RESPONSES ON INITIATIVES AND MEASURES REQUIRED FOR EFFECTIVELY MEETING

CHALLANGES...............................................................................................................................90 Table No.-5.5: PERCEPTIONS OF THE SPVs REGARDING THE ASSIGNED CDEs ...........................................91 Table No.-5.6: RESPONSES ON THE EFFECTIVENESS OF SOFT INTERVENTIONS .........................................92 Table No.-6.1: SUMMARY TABLE ON STATUS OF INTERVENTIONS.............................................................98 Table No.-6.2: PROFILE OF IMPLEMENTATION OF HARD INTERVENTIONS................................................100 Table No.-6.3: REVENUES, EXPENDITURE AND OPERATING SURPLUS/DEFICIT OF CFC (RUBBER CLUSTER

CHENGANACHERRY) ...................................................................................................................101 Table No.-6.4: REVENUES, EXPENDITURE AND OPERATING SURPLUS/DEFICIT OF CFC (FOUNDRY CLUSTER

AHMADABAD) ............................................................................................................................102

Chapter No:1 - Introduction

7

ACKNOWLEDGEMENT

We would, first of all, like to express our gratitude to the Ministry of Micro, Small and Medium

Enterprises, Government of India, for entrusting us with the responsibility of conducting this

important evaluation study of micro & small enterprises cluster development programme, and

for supporting our efforts through a generous research grant. It has been a rare privilege for

the IIPA to conduct and successfully complete this study.

We would also like to express our deep sense of gratitude to the Commissioner MSME, Jt.

Commissioner, Mr. B. K. Sinha, Dy. Director (CD), Mr. Vinod Kumar, for their guidance,

constant support and assistance in planning and executing this evaluation study.

A very special word of acknowledgment is due to Mr. B.K. Sinha, who has been a constant

source of support and encouragement to us, right through this evaluation study, and who

carried out his responsibilities as “the nodal officer” for this study, with vigorous commitment

and dedication in spite of his existing work responsibilities.

I would also like to thank the various State Governments and related State Agencies as well

as the MSME-DIs for extending their wholehearted support to us and our field teams during

the study. I would specially like to thank Mr. Sathyaraj N., Former CDE of Rubber Cluster

Chenganacherry, Mr. Lambert Joseph, Director MSME- Development Institute, Thrissur, Mr.

V. Rajgopal, CEO Kerala Bureau of Industrial Promotion, Mr. D. K. Singh, Deputy Director

MSME, Bihar and Mr. S. Van Roy, Kerala Bureau of Industrial Promotion for their valuable

help. A special word of acknowledgement is also deserved for the help, guidance and

logistical assistance extended to our field teams by several Cluster Development Executives,

SPV functionaries and many individual cluster actors.

I would also like to particularly thank the concerned CDEs, officers of the State Governments

of U.P, Haryana, Punjab, Bihar, Orissa, West Bengal, Assam, Gujarat, Rajasthan, Tamil Nadu,

and Kerala. These officers, along with a large number of concerned subordinate officers and

staff, were very supportive during the extensive site visits of our field teams. It must be

mentioned here that they extended all the necessary guidance and logistical arrangements to

us during these visits, and also provided vital documents and reports that were necessary for

the proper conduct of this evaluation. Without their sincere assistance and complete

cooperation, this study would not have been possible.

I would also like to express my indebtedness to the Indian Institute of Public Administration

and its staff for extending all the necessary facilities, and a conducive work environment for

the conduct of this study. The project team is specially grateful to Shri Bhartendra Singh

Baswan, Director IIPA, for his guidance, and encouragement which he most willingly

extended, particularly during the more difficult and strenuous phases of our work. I would

finally like to express my sincere thanks to Shri Devender Singh and Ms. Rajni Choudhary for

constantly assisting me, as well as sincerely sharing all the responsibilities involved in the

timely conduct and completion of this study. Last but not the least, I would like to thank Ms.

Kavita Haldwal and Shri Prayag Joshi for their unstinting and dedicating secretarial

assistance.

(ANIL CHANDY ITTYERAH)

New Delhi, 30th January 2009


8

COMMONLY USED ABBREVIATIONS

BDS Business Development Services

CC&S Cluster Configuration and Status

CDE Cluster Development Executive

CDP Cluster Development Programme

CFC Common Facility Centre

DPR Detailed Project Report

EDI Entrepreneurship Development Institute

FYP Five Year Plan

GOI Government of India

IIE Indian Institute of Entrepreneurship

KBIP Kerala Bureau of Industrial Promotion

LNA Local Network Agent

LVS Least Viable and Sustainable

MSE-CDP Micro and Small Enterprises Cluster Development

Programme

MSME Ministry of Micro Small & Medium Enterprises

MVS Most Viable and Sustainable

PGBC Primary Goods Based Cluster

S&T Science and Technology

SGBC Secondary Goods Based Cluster

SICDP Small Industries Cluster Development Programme

SPV Special Purpose Vehicle

SSI Small Scale Industry

UPTECH Technology Up-gradation and Management Programme

VDS Viable but difficult to Sustain


9

PROJECT TEAM SNo. Name Designation Qualifications Research

Experience (in years)

1. Dr. Anil Chandy Ittyerah

Project Director M.A., Ph.D. (Economics)

28

2. Ms. Rajni Choudhary

Sr. Research Associate

M.Sc. (Maths)

10

3. Mr. Devender Singh

Chief Field Coordinator

MBA, P.G.Dip.

(Advt. & PR)

18

4. Ms. Gayathri Singh Chief Field Coordinator

M.A 19

5. Mr. C. D. Mishra Field Associate

M.Sc. 8

6. Mr. O.S. Dwivedi Field Associate

M.A. 20

7. Mr. Subarna Pyne Field Associate

M.Com. 16

8. Mr. Arjun Singh Field Associate

MCA 4

9. Mr. Inderjit Singh Hira

Field Assistant B.A. 19

10. Mr. Prayag Joshi Project Assistant

B.A. 1

11. Ms. Kavita Project Assistant B.A. 1 LIST OF PERSONS MET DURING EVALUATION STUDY ON MSE-CDP OFFICIALS: Sl Name Designation Department/ Institution 1. Mr. Lambert

Joseph Director MSME- Development Institute,

Thrissur, Kerala 2. Mr. V. Rajgopal CEO Bureau of Industrial Promotion,

Kerala 3. Mr. S. Van Roy Executive

Assistant to CEO Bureau of Industrial Promotion, Kerala

4. Mr. S. Santhosh Bureau of Industrial Promotion, Kerala

5. Mr. Arvind Kumar Principal Director MSME Technology Development Centre, Agra

6. Mr. P.R. Joshi Assistant Director MSME Technology Development Centre, Agra

7. Mr. R.K. Gupta CEO Centre for Development of Stone, Jaipur

8. Mr. K.R. Sharma Director MSME- Development Institute, Jaipur

9. Mr. C.P. Khattar Principal Director MSME-Tool Room, Jallandhar


10

CLUSTER DEVELOPMENT EXECUTIVES:

Sl Name Cluster 1. Mr. M.K. Handique Bamboo Cluster Dimapur 2. Mr. K.M. Bangar Food Processing Cluster Muzffarpur 3. Mr. G.P Agarwal Leather Goods Cluster Agra 4. Mr. D. Ghosh Leather Goods Cluster Shantiniketan 5. Mr. Chandan T.S. Plywood Cluster Perambavoor 6. Mr. B.N. Kapoor Rice Milling Cluster Karnal 7. Mr. P.N. Solanki Rice Flakes Cluster Ahmedabad 8. Mr. B. Sivaprasad Rice Milling Cluster Kalady 9. Mr. Sathyaraj N. Rubber Cluster Kottayam 10. Mr. Ajay Sharma Ball bearing Cluster Jaipur 11. Mr. B.B. Panigrahi Bell metal Cluster Khurda 12. Mr. S. Deka Bell metal Cluster Hazo 13. Mr. D.K. Singh Brass Utensil Cluster Pareo 14. Mr. B.C. Singh Bisht Cotton Hosiery Cluster Kanpur 15. Mr. Mr. R.S. Nirwan Diesel Engine Cluster Rajkot 16. Mr. Arvind Patwari Fan Industry Cluster Hyderabad 17. Mr. Neelambaran K.V. Plastic Cluster Aluva 18. Mr. S.S. Bedi Sewing Machine Cluster Ludhiana 19. Mr. S.K. Roy Surgical Instruments Cluster Baruipur 20. Mr. V. Ramakrishanan Wet Grinder Cluster Coimbtore 21. Mr. K.C. Singh White ware Cluster Khurza

HEADS OF SPV:

Sl Name Designation Cluster 1. Mr. Budhadeb

Sengupta President Leather Goods Cluster Shantiniketan

2. Mr. C.K. Abdul Majid President Plywood Cluster Perambavoor 3. Mr. N.P. Antony Managing

Director Rice Milling Cluster Kalady

4. Mr. K.J. Louis Managing Director

Rubber Cluster Kottayam

5. Mr. Abhadur Rahman

General Secretary

Bell metal Cluster Hazo

6. Mr. Tulsi Prasad Secretary Brass Utensil Cluster Pareo 7. Mr. K.K. Ibrahim Managing

Director Plastic Cluster Aluva

8. Mr. Kamal Das Secretary Surgical Instruments Cluster Baruipur

9. Mr. N. Rajan Secretary Wet Grinder Cluster Coimbtore 10. Mr. Rajiv Kalra Secretary White ware Cluster Khurza 11. Mr. P.N. Bhagawati President Foundry Cluster Ahmedabad Note: In addition to the above interactions were held with 30 cluster actors in each cluster that

were covered in the study.


11

1.1 Cluster Development: Concepts & Issues

Small and medium enterprises operating in the same or inter- related industrial sectors

tend to concentrate in specific geographic locations. This phenomenon has been

observed in all parts of the world. There are sound economic reasons for this

phenomenon (Krugman 1991). Micro and small units operating in such clusters derive a

clear competitive advantage from:

� The proximity to sources of raw materials and other inputs,

� The availability of suitably customised business development services (BDS),

� The abundance of clients attracted by the cluster tradition in that industry, and

� The presence of a skilled labour force.

A ‘cluster’ may, therefore, be defined as the agglomeration of SMEs producing

same/similar products/services or engaged in the same line of manufacturing activities

or services, located within an identifiable and, as far as practicable, contiguous area.

Not all the clusters are however characterised by the same dynamism or indeed by the

same economic success. The literature on the so-called Italian industrial districts (Piore

and Sabel 1984, Best 1990, Porter 1990) describes SSE clusters that have reached high

levels of growth and leadership in profitable niches of world markets (e.g. leather goods,

textile, jewellery, ceramic tiles, and spectacle frames). Similar accounts exist from other

developed countries such as Germany (Semlinger 1993), the USA (Saxenian 1989),

Japan (Friedman 1988), and increasingly from low-income countries (Schmitz 1995,

World Development 1999). However, in many other clusters, SSEs do not achieve the

same high-growth trajectory. On the contrary, they often struggle for bare survival

within increasingly open and globalized markets.

Worldwide, the micro and small enterprises (MSEs) play a leading role in propelling

economic growth sustaining livelihood and in promoting equitable regional development.

The MSEs constitute over 90% of total enterprises in most of the developing economies

and are credited with generating the highest rates of employment growth and accounting

for a major share of industrial production and exports.

1.2 The SME Sector in India

In India too, the MSEs play a pivotal role in the overall industrial economy of the

country. It is estimated that in terms of value, the sector accounts for about 39% of the

manufacturing output and around 33% of the total export of the country. Further, in

recent years the MSE sector has consistently registered a higher growth rate compared

to the overall industrial sector. The major advantage of the sector is its employment

potential at low capital cost. As per available statistics, this sector employs an estimated

INTRODUCTION

CHAPTER 1


12

31 million persons spread over 12.8 million enterprises and the labour intensity in the

MSE sector is estimated to be almost 4 times higher than the large enterprises. There

are about 388 documented SME clusters in India.

1.3 Need for a Cluster Development Approach

SSE clusters constitute ideal targets for a SSE support agency (Mead & Liedholm 1998,

OECD 1998). The concentration of largely homogenous enterprises within a relatively

limited geographical area facilitates the intervention because of their similarity of needs

and support requirements, speeds up the dissemination of best practices because of the

pervasiveness of demonstration effects, and allows for a distribution of the fixed costs of

interventions among a large number of beneficiaries. This is true for under-achieving

clusters as well as for the best performing ones.

However, underachieving clusters are characterized by environments where information

does not flow easily and where the various actors are not accustomed to talking with one

another. In stark contrast with their counterparts in the more successful well-performing

clusters, especially in developed countries, entrepreneurs in under-performing clusters

rarely if ever meet one another, do not usually have on-going relationships with BDS

providers and are not accustomed to presenting articulated calls for actions to the local

policy makers. On the contrary, these clusters are more often than not characterized by

extremely fragmented knowledge, latent conflicts, and an absence of a discussion forum.

The SSEs in these clusters therefore have a very poor perception about the feasibility of

joint actions.

1.4 Cluster Development in India

The Ministry of Micro, Small & Medium Enterprises laid special emphasis for development

of clusters and launched a scheme for technology up-gradation and management called

UPTECH in 1998. Although it was having a cluster based approach for development of

MSEs, it was mainly technology-focused comprising of a diagnostic study, setting-up of a

demonstration plant and organising workshops, seminars, etc. for quicker diffusion of

technology across the cluster of small enterprises.

In August 2003, the scheme of the Ministry of Micro Small and Medium Enterprises was

renamed as Small Industry Cluster Development Programme (SICDP) and made broad

based by adopting a holistic pattern of development of the cluster encompassing

marketing, exports, skill development, setting up of common facility centres, including

technology upgradation of the enterprises, etc. SICDP guidelines were comprehensively

revised in March, 2006 making the cluster programme more broad-based by facilitating

substantial economies of scale in terms of deployment of available resources in the

medium to long term. The Government of India’s assistance under the scheme was

enhanced upto Rs.8 crore per selected cluster to support soft as well as hard

intervention, including setting up of a common facility centre.

As per the Promotional Package announced by the Government, SICDP was renamed as

Micro & Small Enterprises - Cluster Development Programme (MSE-CDP) to make it more


13

attractive, though the basic features of this scheme have been retained as such. The

proposals for setting up new clusters shall now be considered under MSE-CDP and the

quantum of grant has been raised to 75% of the cost and the project cost has been

raised from Rs. 5 crore to Rs 10 crore. Raising the project cost to Rs. 10 crore and the

central grant upto 7.5 crore is quite attractive and is expected to encourage the setting

up of new clusters for micro and small enterprises. Please refer Annexure 1.1 for detailed

guidelines 2006 issued by the MSME (appended at the end of this Chapter).

1.5 Approach to Cluster Development

The UNIDO started a Cluster Development Programme in 1995 to strengthen the

competitive advantage of under-achieving SSE clusters. The current approach for the

CDP in India largely draws its concepts and methodology from the UNIDO model which

draws lessons from the experience of successful clusters and implements them through

technical cooperation projects in various developing countries. The strategy adopted is to

identify the collective competitive advantage of particular clusters, and to build up local

capabilities to realise it by supporting the broadest spectrum of cluster actors, such as

SSE owners, producers’ associations, BDS providers, local policy makers, etc.

Cluster approach is different from the concept of development of Industrial Estates. The

latter is largely based on infrastructure development and creation of new assets,

whereas, cluster development aims at holistic development (covering diverse areas like

marketing, export promotion, skill up-gradation, infrastructure etc.) and may be

designed to cover industrial estates as well as natural clusters, which may have evolved

on their own historically at any place.

The methodology addresses both the vision and capacity building objectives. This section

emphasises the three phases which each cluster project is expected to undergo over its

lifetime, namely: Preparation of a diagnostic study and formulation of a cluster action

plan; Implementation of pilot and strategic projects; and the self-management phase.

It must be stressed, however, that the boundaries between the various phases are not

strictly defined and that all phases contribute to vision and capacity building.

A key tool for cluster development is the diagnostic study. This study gathers previously

dispersed and fragmented knowledge about the economic and social conditions of the

cluster and its development potential, as well as the state of inter-firm relationships and

the existing institutional support mechanisms. The diagnostic study also provides a

valuable opportunity to enforce awareness about the approach and to promote trust

among the cluster actors. Moreover, it helps to identify potential leaders from within the

cluster and, more generally, the suitable counterparts to assist implementation. The

diagnostic phase ends with the preparation of a broad action plan for the cluster. This

document is drafted by the Focal Point together with key cluster representatives and

offers a vision around which to gather the support and collaboration of the various

cluster actors. The preparation of such a plan is the essential first step in developing

long-term local capacities for responding to evolving economic and technical

circumstances, rather than as a once-for-all prescription. The first draft of the cluster


14

action plan is thus a working document which must be revised as more information about

the cluster is disclosed and on the basis of the results of the initial interventions.

Nevertheless, it is expected that the information gained as a result of the diagnostic

study and the joint preparation of the action plan (especially concerning the competitive

position of the cluster in the national and international market) will suffice to identify the

potentialities of the cluster as well as the key obstacles which prevent it from taking up

the opportunities provided by the globalisation of the Indian economy. As these obstacles

are identified, a key task is to help the partner institutions to prioritise them (both in

terms of their importance and of the capacity of the cluster actors to jointly tackle them)

and to identify the initiatives which can relieve them including the utilization of existing

BDS and the development of new ones.

The elaboration of an action plan is meant as the initial step for the development of pilot

projects where groups of firms sharing similar constraints (networks) are formed and

specific initiatives are formulated and implemented. During this phase, co-operation

starts bearing concrete results to the participating enterprises. The initiatives are

generally of a commercial and/or promotional kind (e.g. joint participation in fairs, joint

purchase of raw materials, design of a collective catalogue). The idea is to generate

visible results (although of a short-term nature) to engender optimism and trust. At the

same time, the pilot projects consolidate willingness of the networks and associations to

undertake long-term strategic initiatives around an increasingly shared vision for the

cluster as a whole. These projects generally entail an increase in the degree of

specialization by process and/or by product of the firms involved (e.g. restructuring or

creation of common service facilities, new product lines, common brands). It is at this

stage that the involvements of both technical and financial institutions become essential

and that the initiatives are meant to contribute more directly to the creation of capacities

at the cluster level. UNIDO therefore ensures that the networks/associations supported

by the projects can draw assistance from the available institutions. As will be emphasised

in subsequent Chapters, this task often implies upgrading the capacity of BDS providers

or even initiating their establishment, especially in clusters characterised by a relatively

weak support framework.

Finally the intervention gives way to a self-management phase, as the networks /

associations gain greater autonomy from the sponsoring agency’s assistance and the

capacity to undertake further joint activities independently. It is during this phase that it

becomes possible to test whether the earlier investment on vision- and capacity building

has delivered the expected results and if the cluster approach has won the endorsement

of the various cluster actors. Self-management is not always easily achieved. Often the

networks/associations tend to lean on sponsoring agency’s assistance for a longer time

than initially envisaged. In order to avoid dependency the work plan established by the

cluster actors and the Focal Point must have a specific time frame. The cluster actors

thus know from the beginning that they can count on assistance only for a limited period

of time. As the various networks/associations develop, sponsoring agency’s intervention

shifts towards softer co-ordination and a progressive transfer of responsibilities to the

cluster actors is ensured.


15

Following are the main steps:

� Selection of cluster(s)

� Selection of Cluster Development Executive(s)

� Trust building

� Diagnostic study

� Preparation of action plan

� Approval of budget and leveraging of funds from various institutions

� Implementation of the action plan

� Monitoring and evaluation

� Handing over and exit

� Self-management phase

1.6 Evaluation Study: Objectives and Methodology

1.6.1 Rationale For The Evaluation Study

The Ministry of Micro Small and Medium Enterprise has been running the Cluster

Development Programme since 1998 though the latest comprehensive guidelines have

been issued only in 2006. The CDP is being implemented in 90 clusters across different

states.

Before making the budgetary allocation in the next plan, the GOI decided to conduct a

comprehensive evaluation of the CDP to assess its performance and identify the areas of

corrective action if any, and if required, to further strengthen it. Indian Institute of

Public Administration (IIPA) was selected by the Ministry to undertake this evaluation

study.

1.6.2 Scope and Objectives of the Study The Ministry of MSME wants to assess the impact of the MSE-CDP programme and

various schemes undertaken under the programme.

The scope of the study is as follows:

1. To assess the impact of soft interventions undertaken in terms of:

� Improvement in existing skills

� Adoption of new skills, techniques or technologies

� Awareness of modern trends and needs in the markets

� Adoption of better and efficient manufacturing practices

� Increase in market share in domestic and global markets

2. To assess the impact of hard interventions undertaken in terms of:

� Improvement in the product quality

� Improvement in processes and technologies

� Cost competitiveness

� Diversification in the product portfolio

� User fee and self management of SPVs

3. To identify the specific areas of improvement in the existing schemes.


16

4. Role of the schemes in bringing cohesiveness among the enterprises and increasing

their ability to face external competition.

5. To examine the systems and procedures for approval and receipt of funds.

6. Development of benchmark indicators for periodic evaluation of the progress of

different schemes in the future.

7. To examine the role of the scheme in improving the economic status of special

population groups.

8. To assess the outreach and access of the scheme in general and particularly in the

northeast region.

9. To develop strategies for increasing the outreach of the scheme.

1.6.3 Study Methodology and Process Prior to the main study, an exploratory study was carried out. The research team visited

two Clusters in Kerala, the state having achieved maximum success in implementation of

CDP, and held detailed interactions with various stakeholders to get an insight into

various important aspects of the programme.

1.6.4 Target Groups The following target groups were covered in the study for data collection:

Cluster Development Executive The Cluster Development Executive (CDE) is appointed by the Programme Implementing

Agency to conduct the Diagnostic study and carry out soft interventions. A detailed

schedule was canvassed to the CDE. All facts and figures related to the Cluster were

also collected from the CDE using a Fact Sheet.

Functionary of SPV An SPV schedule was administered to the member or office bearer of the SPV to

understand the impact of various soft interventions, challenges faced in mobilization of

cluster actors for the formation of SPV and issues related to the functioning of the SPV

and the CFC.

Other Cluster Actors A Beneficiary schedule was administered to the unit owners in the study cluster to

ascertain their awareness and familiarity of the programme; issues and concerns;

reasons for joining/ not joining the SPV and use of the CFC. Equal quota was kept for the

three categories of Cluster actors for the Clusters having a functional CFC:

� Members of SPV and using the CFC.

� Members of SPV but not using CFC

� Not members of SPV but using the CFC.

In the clusters not having a functional CFC, the sample size was equally divided between

members and non-members of SPV.


17

1.6.5 Selection of Sample Clusters

One of the main objectives of the study was to assess the impact of soft and hard

interventions. Therefore, clusters having received both soft and hard interventions were

selected for the study.

There were only two Clusters where the hard interventions in the form of Common

Facility Center (CFC) were fully functional (Foundry Cluster Ahmadabad and Rubber

Cluster Kerala). Both Clusters were covered during the study.

Nine other clusters, where setting up of CFC was in progress, were also covered during

the study. Since there were no other clusters having received both soft and hard

interventions, those having received only soft interventions were included in the study.

Overall, twenty-six clusters were covered in the study. Of these twenty-six clusters, 4

clusters did not conform to the CDP Guidelines of 2006 (Center for support of herbal and

aromatic plants, Patna, Bihar; Center for support of herbal and aromatic plants, Ganjam,

Orissa; Centre for Development of Stones, Jaipur and Hand Tools Cluster, Jallandhar),

hence they were not included in the study. Moreover the absence of key functionaries

such as CDE, as well as a complete non-availability of adequate information and

documentation forced the IIPA research team to exclude these clusters. In the case of

the Centre for the Development of Stone, Jaipur the involvement of the MSME was

negligible and the project was sponsored and managed by the Ministry of Mines in close

collaboration with the State Government.

Therefore, the study was carried out in 26 clusters but the findings have been presented

for 22 clusters.

Table No. - 1.1 CLUSTERS COVERED IN THE STUDY

North Zone

1 Rice Milling Cluster Karnal, Haryana

2 Sewing Machine Cluster Ludhiana, Punjab

3 Leather Goods Cluster Agra, Uttar Pradesh

4 Cotton Hosiery Cluster Kanpur, Uttar Pradesh

5 White ware Cluster Khurza, Uttar Pradesh

6 Food Processing Cluster Muzffarpur, Bihar

7 Brass Utensil Cluster Pareo, Bihar

South Zone

1 Plywood Cluster Perambavoor

2 Rice Milling Cluster Kalady

3 Leather Goods Cluster Shantiniketan

4 Rubber Cluster Kottayam

5 Plastic Cluster Aluva

6 Wet Grinder Cluster Coimbatore

7 Fan Industry Cluster Hyderabad


18

Table No. - 1.1 (contd.)

East/ North East Zone

1 Surgical Instruments Cluster Baruipur, West Bengal

2 Bell metal Cluster Khurda, Orissa

3 Bell metal Cluster Hazo, Assam

4 Bamboo Cluster Dimapur, Nagaland

West Zone

1 Ball bearing Cluster Jaipur, Rajasthan

2 Foundry Cluster Ahmedabad, Gujarat

3 Rice Flakes Cluster Ahmedabad, Gujarat

4 Diesel Engine Cluster Rajkot, Gujarat

1.6.6 Sample Size covered

The size and composition of the sample drawn for the study is given in the table below:

Table No. - 1.2 SAMPLE SIZE

Sl. Target group Sample Per Cluster Total Sample 1 Cluster Development Executive 1 22

2 Functionary of SPV 1 22 3 Other Cluster Actors 15 323

1.6.7 Field Instruments Used

As mentioned earlier apart from conducting detailed discussions with various

stakeholders of the SICDP in the clusters covered during the study, our teams also

collected various project related documents provided by MSME-DIs, State Governments,

SPVs and CDEs. Our field teams also used three comprehensively designed field

schedules as well as a fact sheet for each cluster. We have also referred to various

reports, books and journals, as well as the Annual Reports of the relevant ministries, and

organisations.


19

1.7 Chapterisation of this Report

This report contains seven chapters in all (including chapter annexure). The chapter

scheme adopted by us is as follows:

Chapter I : Introduction

(Containing a brief subject introduction, scope and methodology of the study)

Chapter II : The General Profile of Sampled Clusters

(Covering various features of the clusters studied during this evaluation)

Chapter III : The Cluster Development Executive/Agent

Chapter IV : Soft Interventions in the Sampled Clusters

(The nature and impact of Soft Interventions)

Chapter V: The Special Purpose Vehicle

(The concept, legal form and other issues)

Chapter VI : Hard Interventions in the Sampled Clusters

(Concepts, features and impact of Hard Interventions)

Chapter VII: Conclusions and Recommendations


20

ANNEXURE – 1.1 Guidelines for Cluster Development Programme

The current guidelines were issued in March 2006 having the following salient features

Introduction

1. The Ministry of Small Scale Industries (SSI), Government of India (GoI) has adopted

the cluster approach as a key strategy for enhancing the productivity and

competitiveness as well as capacity building of small enterprises (including small scale

industries and small scale service and business entities) and their collectives in the

country. Among other things, this approach also facilitates substantial economies of scale

in terms of deployment of available resources for effective implementation and more

sustainable results in the medium to long term.

2. In view of the large number and dispersed locations of the small enterprise clusters

and varied status of collaborative self-help capabilities of these cluster-based enterprises

across the country, the success of this Programme depends not only the initiatives of the

cluster-based enterprises but also on the active involvement of the State Governments

and other institutions engaged in the promotion of small enterprises. The following

guidelines are, therefore, issued, in super session of the existing guidelines, to assist all

the stakeholders in formulating proposals for financial support from the Ministry of Small

Scale Industries for implementation of cluster development initiatives under the Small

Industries Cluster Development Programme (SICDP).

Implementing Agencies

3.1 A clear legal entity with evidence of prior experience of positive collaboration among

its members, whether formally or otherwise, as the applicant of the proposed cluster

development initiative assures sound management. Ideally, therefore, all proposals for

cluster development seeking assistance under the SICDP must emanate from special

purpose vehicles (SPV), consisting of the actual/likely cluster beneficiaries/enterprises

organised in any legally recognised form like a cooperative society, registered society,

trust, company, etc.

3.2.1 Considering, however, the uneven state of development of such collaborative

initiatives among small (and tiny or micro) enterprises in the country, it would be

permissible for a lead Government institution to be the prime mover of a proposal for

cluster development in the initial stages of its conceptualisation, design, determination of

technical parameters, project preparation and documentation, etc., in consultation with

the cluster beneficiaries. It will, however, be necessary to constitute the SPV at the

earliest possible, with clear indication of the time frame for completion of this essential

requirement while submitting the proposal for Government assistance.

3.2.2 In short, in addition to the SPVs of cluster beneficiaries, institutions/ agencies of

the following categories will, therefore, be eligible to propose and implement cluster

development projects under the SICDP, with financial support of the Ministry of SSI


21

Field organisations/offices and autonomous/public sector institutions/enterprises of the

Ministry of SSI, Ministry of Agro and Rural Industries (ARI) and other Ministries of the

Government of India.

State Governments and their autonomous/public sector organisations.

National and international institutions engaged in promotion and development of the

small enterprises, including SSI, sector.

Any other institution/agency approved by the Ministry for this purpose, keeping in view

the special circumstances applicable to a State or Union Territory.

Selection of Cluster(s)

4. Detailed study of the features of the clusters with due care and application are

essential prerequisites for selection of a cluster of the right type. The criteria may vary to

some extent depending on the type of clusters and the goals sought to be achieved

through the cluster development initiatives. However, broadly, the following illustrative

aspects should be kept in view:

� Importance of the clusters (s) in terms of number of units, employment, production,

exports, etc.

� Existence of critical gaps in technology, product quality, common facilities, skill up

gradation, availability of raw material, marketing support, etc. National and

international institutions engaged in promotion and development of the small

enterprises, including SSI, sector.

� Viability of the cluster.

� Vibrancy of local industry association and/or interest evinced by other institutions

engaged in development financing and SSI promotion in development of the cluster.

5. Social and environmental considerations like gender inequalities, poverty conditions,

need for employment generation, pollution scenario, etc. Clusters of SSI units

manufacturing products, which fall under the administrative purview of other Ministries

of the Government of India, may also be considered for financial assistance under this

Programme, with the consent of the Ministry concerned.

6. In case the implementing agency is not the Government of the State in which the

cluster is located or an organisation of that State Government, the agency will also need

to necessarily consult the State Government concerned and take its views into account

while selecting the cluster and drawing up the strategy and/or action plan for its

development.

Illustrative Steps in Cluster Development Programme

7. The main steps are:

� Selection of cluster(s)

� Selection of Cluster Development Executive(s)

� Trust building

� Diagnostic study


22

� Preparation of action plan

� Approval of budget and leveraging of funds from various institutions

� Implementation of the action plan

� Monitoring and evaluation

� Handing over and exit

� Self-management phase

Cluster Development Executive (CDE)

8. An officer/executive of the cluster-based SPV or the implementing agency (other than

the SPV) has to be selected and trained to act as the Cluster Development Executive

(CDE). The CDE is required to conduct the Diagnostic Study, prepare the Action Plan

based on the former and get the Plan implemented with full participation of the Cluster

Actors, so as to build up the collective capacity of the units in the Cluster to sustain and

carry on the promotional as well as commercial activities in the long run even after the

project comes to an end.

9. In case the selected cluster is far away from the office of the implementing agency,

office space may be provided to the CDE on rent with basic equipment and furniture,

etc., within or near the cluster. Funds will, however, not be provided by Ministry of SSI

for construction of office building, purchase of vehicle, costly furniture and furnishing,

etc. Provision for office expenditure and travelling expenses at a reasonable scale,

usually ranging between 10 to 15 per cent of the total project cost, may also be

considered depending on necessity.

10. The National Resources Centre (NRC) for SSI Cluster Development created at the

National Institute of Small Industry Extension and Training (NISIET), Hyderabad-500 045

and the International Centre for Cluster Competitiveness and Growth (IC3G) at the

Entrepreneurship Development Institute of India, P.O. Bhat-382428, District -

Gandhinagar, Gujarat have been established for providing training and related services

for cluster development. They conduct courses spread over 3 to 4 weeks for training of

CDEs on the tools and methodology of conducting diagnostic studies and implementing

cluster development initiatives. Implementing agencies may approach the NRC or IC3G

for organising training of the CDEs after the Ministry of SSI approves their project

proposals

Cost of Project and Government of India Contribution.

11. The project cost may vary from cluster to cluster and will depend on parameters like

the duration of the project (usually 3 years), size of the cluster, nature and scope of the

proposed interventions, etc., as emerging from the diagnostic study. However,

contribution of the Ministry of SSI will not exceed 80 per cent of the total project cost,

subject to a ceiling of Rs.10 crore per project including Rs. 10 lakh for “soft activities”

i.e. capacity building activities in the cluster where no fixed asset is acquired or formed.

12. The formats of proposals for such soft interventions are detailed in Part I of the

enclosures to these guidelines (Annex I to IV). These need to be adhered to strictly.


23

13.1.a. Wherever required, assistance under this Programme may also be considered for

setting up Common Facility Centre (CFC) in the cluster. The Detailed Project Report

(DPR) for the CFC together with appraisal report prepared by a bank (if bank financing is

involved) or an independent Technical Consultancy Organisation/reputed Consultant will

have to be submitted in such cases.

13.1.b. With the grant-in-aid sought from the Government, the proposed CFC must be

financially and operationally as viable as any commercial project. As a result, all CFC

proposals should comply with the financial norms of appraisal that a commercial bank

would seek, e.g., internal rate of return, break-even point analysis, debt-service

coverage ratio, sensitivity analysis, etc., using basic templates such as projected profit &

loss account and projected balance sheet for the proposed CFC. The proposed CFC must

also justify its need in terms of its likely impact at the level of an individual

representative enterprise of the group that it intends to benefit.

13.1.c. In keeping with the objective as stated at the beginning of paragraph 13.1.b

above, CFC projects would be classified and the Central Government (viability gap

funding) assistance therefore would be based on the following broad norms:

Developmental CFC projects: Central Government support of 70 per cent of the project

cost and the remaining to be provided by the State Government concerned and the

project beneficiaries.

Quasi-Developmental CFC projects: Central Government support of 50 per cent of the

project cost and the remaining to be provided by the State Government concerned and

the project beneficiaries.

Quasi-Commercial CFC projects: Central Government support of not more than 30 per

cent of the project cost and the remaining to be provided by the State Government

concerned and the project beneficiaries.

However, in case of clusters of micro and / or village enterprises, i.e., enterprises with

investment in plant and machinery (excluding land and building) in each case not

exceeding Rs. 25 lakh, the extent of Central Government assistance may be raised to 80,

60 and 40 per cent of the project cost in the three types of CFCs respectively.

In all the cases stated above, the entire cost of land and building shall be met by SPV /

State Government concerned.

13.2. Implementing agencies shall be responsible for setting up and commissioning of

the CFC on a turn-key basis. The CFC thus established will have to be run by the Special

Purpose Vehicle (SPV) on commercial lines, with enough current revenue surplus to meet

all its current expenses as well as cost of replacement/expansion of assets as and when

necessary. Ministry of SSI shall not accept any financial liability arising out of operation

of any CFC.


24

13.3. The formats for proposals in this regard are given in Part II of the enclosures

(Annex V and VI). The guiding principles elaborated in Part II need to be gone through

carefully.

14. Contribution of the Ministry of SSI to the total cost of the project will be decided

keeping in view the availability and willingness of other stakeholders and partners like

State governments, industry associations, firms in the cluster etc. For further details of

funding scales, reference is invited to Part I and Part II of the enclosures to these

guidelines. Implementing agencies (including State Governments, cluster beneficiaries

and/or their SPVs) are expected to mobilise resources to fund the remaining cost, as

detailed in Part I/II of the enclosures.

Linkages with Business Development Services (BDS)

15. Development of capacities of BDS providers to meet the needs of small enterprises

and establishing linkages between them and small enterprise clusters constitute a

priority area of the cluster development strategy. Therefore, the proposed cluster

development activities should include establishment of linkages between the cluster units

and the BDS providers in the public and private sectors capable of catering to the needs

of small enterprises.

Dovetailing with Other Schemes of the Ministry of SSI/ARI and Schemes of Other

Ministries of the Government of India

16. Implementing agencies will be encouraged to dovetail the cluster development

initiatives with other Schemes of the Ministry of SSI/ARI. Similar schemes of other

Ministries of the Government of India should also be tapped.

17. Implementing agencies may, wherever necessary, seek assistance from technical

agencies like the Product and Process Development Centres and Central Tool Rooms of

the Ministry of SSI as well as the Central Glass and Ceramics Research Institute, Central

Leather Research Institute, Technology Information Forecasting and Assessment Council

and other similar institutions of other Ministries and Departments of the Government of

India engaged in technology up gradation of client enterprises, including SSIs.

Formats and Approval of Project Proposals

18.1. The proposals for seeking financial assistance from the Ministry of SSI should be

made in the formats given in Part I and Part II of the enclosures to these Guidelines.

These formats, though quite detailed, are still illustrative and necessary

additions/amendments to the contents may be done by the implementing agencies,

depending on the nature of the cluster and the proposed activities.

18.2. The proposals will be considered and approved by the Steering Committee of the

Small Industry Cluster Development Programme under the chairmanship of Secretary,

Ministry of SSI for projects costing Rs. 1 crore and above and of the Development

Commissioner (SSI) for projects costing less than Rs. 1 crore. However, projects costing


25

Rs. 5 crore and above will be scrutinised on file by the office of DC(SSI) in consultation

with FA, before putting up to the Steering Committee for approval.

Disbursement of Funds

19.1 Funds will be released by the office of the DC (SSI) directly to the SPV/IA, under

intimation to the State Government. The disbursement schedule of the GoI grant would

generally be in accordance with the annual installments requested in the proposal of the

project, with justification for the said schedule to be considered and approved by the

Steering Committee. However, in general, upfront contribution by the SPV or the

.beneficiaries’ share would be a prerequisite before release of the first installment of GoI

assistance. Where bank finance is involved, written commitment of the bank concerned

to release proportionate funds will also be necessary before release of GoI assistance.

This will also apply to the State Government contribution, wherever applicable.

19.2 Further releases of the GoI grant will be contingent on furnishing of prescribed

utilisation certificate(s) and verification of release of contribution by the bank and the

State Government. DC (SSI) may also require physical verification of the progress of

works before release of the second and subsequent installments of GoI grants.

Monitoring and Evaluation

20.1 In case of projects implemented by the State Governments, their autonomous

bodies and SPVs with the State Government as one of the stakeholders, monitoring of

the projects to ensure satisfactory and time-bound implementation of the activities will

be the responsibility of the State Governments concerned. Each of the State

Governments will also be required to constitute a Project Steering Committee consisting

of representatives of all the stakeholders for this purpose. State Governments will send

Quarterly Progress Reports (QPR) on physical and financial parameters progress as well

as utilisation certificates prescribed under the General Financial Rules of the Central

Government to the Office of the Development Commissioner (Small Scale Industries).

20.2 In case of cluster development projects not covered by the provisions in the

preceding paragraphs, the Ministry of SSI will directly monitor the progress through

monitoring committees constituted at the level of the Ministry or through its State level

offices.

Chapter No:2 – The General Profile of Sampled Clusters

26

2.1 Introduction

The clusters we have selected for the study have been broadly classified into two groups.

The first group of clusters which are the Primary Goods Based Clusters (PGBC), mostly

involve the processing and value addition to primary goods produced in the agriculture

and animal husbandry sector. These clusters are seen to add value to primary products

such as food grain, fruits and vegetables, Bamboo and Wood, Rubber, and Leather.

These agro-based activities are largely taken up as cottage or artisanal occupations that

supplement meager agricultural incomes and are based on easily available inputs, and

local skills, catering to the needs of local markets and peri-urban demand. They are

usually based on labour intensive production methods and are dependent on surplus

labour. Their working capital requirements are confined to simple tools and traditional

technologies. Since members of the household normally take them up, these activities

are widely dispersed over village habitations covering a large geographical area,

sometimes an entire block or even a small district.

However it needs to be clarified that there are some exceptions among these PGBCs

which use fairly advanced processing technologies and industrial inputs, though their

major raw material is drawn from the primary sector. The Plywood and Rubber Goods

Manufacturing Clusters in this group stand out as exceptions since they involve relatively

higher levels of processing, technology and the use of skilled industrial labour. Rice

Milling has also to a very large extent evolved from being a traditional household based

activity to a large scale, highly mechanized industrial process using modern machinery

and power. Their scale of operation is quite large and similar to any normal

manufacturing activity.

Over time these activities tend to get concentrated and localized among the better

equipped and skilled artisan groups who are able to cater to the demand for goods that

are standardized and of higher quality. This gradual process leads to the formation of

identifiable clusters. In spite of being relatively dispersed over a large geographical

area, they provide opportunity to harness the collective energies and externalities of

cooperation.

The Secondary Goods Based Clusters (SGBC) unlike the first group are more localized

and relatively less dispersed as they are often located in traditionally well defined

industrial areas and estates where essential infrastructure like

power and water supply is available and accessible. They are dependent on both skilled

and unskilled labour, utilizing tools plant and machinery that embody a fairly

sophisticated level of technology and technical inputs.

Unlike their agro-based counterparts, they require relatively higher investments and

need larger doses of working capital.

THE GENERAL PROFILE OF SAMPLED CLUSTERS

CHAPTER 2


27

The range of products that they produce is more diversified and they often serve as

ancillaries of larger firms both at home and abroad. Not only do the units in these

clusters require maintaining a cost advantage, they require constant modernization and

innovation to face the stiff competition that they face from the larger firms at the

national and international level.

Based on this broad classification the subsequent sections would attempt to highlight the

spatial dispersions of the clusters, the number of constituent units, the economic size of

the units as reflected in the average annual turnover, the product range of the clusters,

their input profile and other general characteristics.

2.2 Geographical Spread of Clusters

The nature of activities as well as the sources of various inputs determines the

geographical spread or dispersion of the clusters. While some clusters are compact with

their individual units located over a smaller and more manageable area, there are others

where individual constituent units are spread out and dispersed over a large area.

In order to highlight the geographical spread or dispersion of the sampled clusters we

have adopted a classification that categorizes the sampled clusters into two groups

namely Compact, and Dispersed clusters. It is important to mention here that the

mobilization of individual units for collective action, the effective use of common

facilities, and the overall management of the CDP is better facilitated in case of a

compact cluster as compared to a dispersed cluster. As seen in Table 2.1 of the 9 sampled clusters that are primary goods based, as many as

6 are highly dispersed being spread over an area exceeding 250 square kilometers. The

remaining 3 clusters are compact and are spread over an area of less than 250 square

kilometers. Among the compact clusters we have the Bamboo Cluster, Dimapur, the

Leather Goods Cluster, Shantiniketan and the Rubber Goods Cluster in Chengancherry.


28

Table No.-2.1: GEOGRAPHICAL SPREAD OF THE SAMPLED CLUSTERS

Primary Goods Based Clusters Sl Cluster Compact

(C) Dispersed

(D) Area (in Sq Kms)

1 Bamboo Cluster Dimapur √ 100

2 Food Processing Cluster Muzffarpur √ 800

3 Leather Goods Cluster Agra √ 625

4 Leather Goods Cluster Shantiniketan √ 90

5 Plywood Cluster Perambavoor √ 962

6 Rice Milling Cluster Karnal √ 3000

7 Rice Flakes Cluster Ahmedabad √ 3000

8 Rice Milling Cluster Kalady √ 314

9 Rubber Cluster Chenganacherry √ 30

Secondary Goods Based Clusters Sl Cluster Compact

(C) Dispersed

(D) Area (in Sq Kms)

10 Ball bearing Cluster Jaipur √ 225

11 Bell metal Cluster Khurda √ 25

12 Bell metal Cluster Hazo √ 2

13 Brass Utensil Cluster Pareo √ 1

14 Cotton Hosiery Cluster Kanpur √ 400

15 Diesel Engine Cluster Rajkot √ 100

16 Fan Industry Cluster Hyderabad √ 28

17 Foundry Cluster Ahmedabad √ 2500

18 Plastic Cluster Aluva √ 45

19 Sewing Machine Cluster Ludhiana √ 25

20 Surgical Instruments Cluster Baruipur √ 225

21 Wet Grinder Cluster Coimbatore √ 150

22 White ware Cluster Khurza √ 224

Note: C- Compact Cluster- Spread over an area less than 250 Sq Kms D- Dispersed Cluster- Spread over an area more than 250 Sq Kms 250 Sq Kms approximates an area with a radius of about 9 Kms.

Turning to the 13 secondary goods based clusters covered in this study we see that as

many as 11 of these sampled clusters are compact. This means that they are spread

over a compact area of less than 250 square kilometers. There are however 2 sampled

clusters in this group which are highly dispersed. These are the Cotton Hosiery Cluster,

Kanpur and the Foundry Cluster, Ahmedabad.

As compared to the sampled clusters in the first group of primary goods based clusters,

the sampled clusters in this second, group of secondary goods based clusters are less

highly dispersed.


29

2.2.1 Number of Constituent Units in Sampled Clusters

The number of constituent units in each cluster normally reflects the size of the cluster.

It also helps us in estimating the ‘cluster density’, which stands out as an important

operational parameter in any Cluster Development Programme. A large enough number

of units in a cluster ensures a ‘critical mass’ not only for effective intervention but also

indicates the extent of externalities that can be exploited for mutual benefit.

Here in this section we have again used a simple two-fold classification of small and

large clusters in order to highlight the size of the sampled clusters in our study.

In Table 2.2 it seen that as many as 7 out of the 9 PGBCs sampled, are small clusters

with less than 360 individual units. However there are 2 large clusters in this group,

which have individual units in excess of 360. It may be mentioned here that the cut off

number, which is 360 units, represents the median in our range of cluster sizes and is

not an arbitrary figure. Turning to the clusters in the second group it is seen in Table 2.2

that of the 13 clusters in the group as many as 6 are small clusters while there are 7

clusters that are large.

Small clusters may be easier to manage particularly if they are ‘homogeneous’. In the

case of large clusters there is always scope for identifying more than one cluster wherein

the CDP can be initiated simultaneously. These multiple clusters are likely to reinforce

each other by learning from each other and constantly sharing vital information. In such

cases a single diagnostic study would serve the purpose of identifying more than one

cluster for intervention thus saving a great deal of resources and effort. One additional

benefit that can be visualized is that soft interventions can be carried out jointly thereby

saving precious time and resources.

Table No.-2.2: NUMBER OF CONSTITUENT UNITS

Primary Goods Based Clusters Sl Cluster Small Cluster

(S) Large Cluster

(L) NCU

1 Bamboo Cluster Dimapur √ 120

2 Food Processing Cluster Muzffarpur √ NA

3 Leather Goods Cluster Agra √ 2300

4 Leather Goods Cluster Shantiniketan √ 80

5 Plywood Cluster Perambavoor √ 85

6 Rice Milling Cluster Karnal √ 221

7 Rice Flakes Cluster Ahmedabad √ 70

8 Rice Milling Cluster Kalady √ 70

9 Rubber Cluster Chenganacherry √ 315

10 Ball bearing Cluster Jaipur √ 101

11 Bell metal Cluster Khurda √ 110

12 Bell metal Cluster Hazo √ 200

13 Brass Utensil Cluster Pareo √ 500

14 Cotton Hosiery Cluster Kanpur √ 467

15 Diesel Engine Cluster Rajkot √ 4180


30

Table No. -2.2 (Contd.)

Secondary Goods Based Clusters Sl Cluster Small Cluster

(S) Large Cluster

(L) NCU

16 Fan Industry Cluster Hyderabad √ 300

17 Foundry Cluster Ahmedabad √ 76

18 Plastic Cluster Aluva √ 108

19 Sewing Machine Cluster Ludhiana √ 800

20 Surgical Instruments Cluster Baruipur

√ 600

21 Wet Grinder Cluster Coimbatore √ 700

22 White ware Cluster Khurza √ 494 Note: S - Small Cluster- Upto 360 constituent units. L - Large Cluster- More than 360 constituent units. NCU- Number of constituent units.

If the geographical spread is considered along with the number of constituent units it

could be concluded that the cluster density in the second group tends to be generally

higher than that observed for the first group.

2.2.2 Size and Scale of Activity as Reflected by Turnover

The magnitude of the average turnover is a fairly realistic reflection of the ‘scale of

operations’ of the individual units in a cluster. However one must hasten to add that

these averages conceal the degree of heterogeneity that may exist in each cluster and

are likely to underestimate the turnover of the larger units, and like wise overestimate

those of the very small constituents. However as a first pass, these averages do give us

a fair picture of the scale of operations. These figures also reflect the level of technology

and capital intensity that exists in the individual units of the cluster. As the scale of

operations in a unit increases it is normally expected that the capital intensity would also

increase, and the technological processes involved would also tend to become more

complex and sophisticated. It is also important to note that all the individual units in a

cluster may not be in a position to uniformly scale up their activities, and the related

capital intensity, resulting in some lagging behind. This uneven development of the

cluster leads to increasing the heterogeneity within the cluster. It is now well recognized

that heterogeneity as against homogeneity has important implications for cluster

development through collective action. Democratic participation and collective action

through cooperation is the essence of the cluster development programme. It is

therefore extremely important to carefully assess the turnover of each unit in the cluster

which along with cluster density enables policy designers to determine the cluster

configuration. It is only on the basis of a cluster configuration that clusters can be

identified and carefully selected and prioritized to initiate the most appropriate set of

interventions that are likely to deliver tangible results in the shortest possible time.

These tangible results are highly demonstrative, and are the most effective catalyst of

cluster development.

The aggregated turnover of each cluster in our sample both before and after selection

and intervention are presented in Table 2.3. This table also indicates the number of

constituent units, as well as the average annual turnover of each unit. The figures on


31

the turnover have been canvassed through the fact sheet for each cluster and have been

provided by the CDE for each of the clusters. In the absence of the CDE other cluster

functionaries have reported the figures. It is however important to stress that these

figures are at times not compiled too carefully and may also be considered guesswork in

some cases. Since these figures are not as accurate as they need to be and have not

been estimated using the appropriate method and procedure, they should be treated

with caution. However as a first pass they do provide some interesting information.

First of all, it is reported that there has been some spectacular increases in turnover in

the case of some clusters among the sampled PGBCs.

Table No.-2.3: IMPACT ON TURNOVER OF INTERVENTION

Primary Goods Based Clusters Sl Cluster ATBI ATAI AAT Turnover

Status 1 Bamboo Cluster Dimapur 11.30 L 139.10 L 1.16 L M

2 Food Processing Cluster Muzaffarpur

NA NA NA M

3 Leather Goods Cluster Agra 200 Cr 265 Cr 11.52 L M


2.50 Cr 5.50 Cr 6.88 L M

5 Plywood Cluster Perambavoor 305 Cr 680 Cr 800.00 L H

6 Rice Milling Cluster Karnal 1200 Cr 1300 Cr 588.24 L H

7 Rice Flakes Cluster Ahmedabad 80 Cr 110 Cr 157.14 L M

8 Rice Milling Cluster Kalady 2000 Cr 2890 Cr 4128.57 L H

9 Rubber Cluster Chenganacherry 300 Cr 500 Cr 158.73 L M

Secondary Goods Based Clusters Sl Cluster ATBI ATAI AAT Turnover

Status 10 Ball bearing Cluster Jaipur 108 Cr 200 Cr 198.02 L H

11 Bell metal Cluster Khurda 20 Cr 24 Cr 21.82 L M

12 Bell metal Cluster Hazo 2 Cr 5 Cr 2.50 L M

13 Brass Utensil Cluster Pareo 30 Cr 36 Cr 7.20 L M

14 Cotton Hosiery Cluster Kanpur .52 Cr 10 Cr 2.14 L M

15 Diesel Engine Cluster Rajkot 4980 Cr 5000 Cr 119.62 L M

16 Fan Industry Cluster Hyderabad 200 Cr 300 Cr 100.00 L M

17 Foundry Cluster Ahmedabad 400 Cr 425 Cr 559.21 L H

18 Plastic Cluster Aluva 70 Cr 350 Cr 324.07 L H

19 Sewing Machine Cluster Ludhiana 365 Cr 425 Cr 53.13 L M


5.2 Cr 100 Cr 16.67 L M

21 Wet Grinder Cluster Coimbatore 225 Cr 350 Cr 50.00 L M

22 White ware Cluster Khurza 123 Cr 283 Cr 57.29 L M Note: ATBI- Aggregate Annual Turnover Before Intervention H - High Turnover ATAI- Aggregate Annual Turnover After Intervention M - Modest Turnover AAT- Average Annual Turnover As seen in Table 2.3 there has been a more than ten fold increase in the turnover of the

Bamboo Cluster in Dimapur. A near doubling of the turnover in the case of the Leather

Goods Cluster, Shantiniketan, the Plywood Cluster in Perimbavoor, and the Rubber

Cluster in Chenganacherry.


32

In the SGBCs also there are as many as six clusters that report significant increases, the

most notable in this regard being the Plastic Cluster in Aluva, and the Surgical

Instruments Cluster, Baruipur. However it is important to note that these significant

increases in the turnover are likely to be exaggerated, and may not have occurred

entirely as a result of identification and intervention under the CDP. However these

recent increases in turnover do perhaps reflect the potential for growth of these clusters,

if nurtured through appropriate interventions.

It may also be seen that the annual average turnover varies very widely in both the

groups. This variation can be observed to be much larger in the case of the PGBCs as

compared to the SGBCs. This wide variation reflects the considerable differences in the

scale of activities among different clusters. The differences among individual units within

a cluster or the heterogeneity in the cluster is however likely to be much lower in the

case of those clusters where the annual average turnover is low. This inter-unit

heterogeneity is most likely to increase as the average annual turnover of the cluster

increases. It is important to mention here that the differences in heterogeneity would

also require different types of organizational structures or institutions to effectively

enhance collective initiatives and democratic participation.


33

2.3 Cluster Configuration,Viability and Sustainability

On the one hand we have the geographical spread or dispersion along with the number

of individual units giving us the ‘cluster density’ and on the other we have the turnover

that gives us an idea of the scale of activity. If we now combine these two

characteristics we obtain the cluster configuration. The cluster configuration provides us

a useful theoretical basis for identifying and selecting clusters for intervention. On one

end of the cluster configuration we have clusters that are compact and having a large

number of units making them dense along with a high turnover. These clusters are both

viable and sustainable as they provide the ideal critical mass for effective interventions.

On the other extreme of the cluster configuration we have those that are very widely

dispersed and having a small number of individual units making them low in density

along with a low turnover. These clusters are generally less viable and sustainable as

they often are difficult to manage. These do not provide the critical mass for effective

intervention. Between these two extremes both density and turnover may combine in

different ways to determine the degree of viability and sustainability. In these cases the

additional factor such as the degree of heterogeneity/homogeneity also determines how

easy it would be to mobilize individual units for collective action and sustained

cooperation. Clusters in this range of cluster configuration which are highly

heterogeneous, with individual units varying widely in size and scale of activity, are likely

to appear viable but would be difficult to manage and sustain in the long run. In these

heterogeneous clusters the larger units may come forward to form SPVs and to set up

common facilities, however the use of these facilities are likely to be monopolized with

the smaller units being discriminated against. Such conflict situations have often been

noticed in the case of heterogeneous clusters.

In Table 2.4 we have combined the three characteristics namely geographical dispersion,

number of units (size of cluster), and aggregate turnover as well as the average annual

turnover. These were separately discussed earlier in this chapter. Considering the

cluster configuration worked out on the bases of these characteristics we have broadly

and roughly indicated the present status of these sampled clusters. This three fold

classification of the status of clusters are, clusters which are most viable and sustainable

(MVS), clusters which are least viable and sustainable (LVS) and clusters which due to a

high level of heterogeneity are Viable but difficult to sustain (VDS).

On the whole, with both our sampled cluster groups taken together, it is seen that as

many as 14 of the 22 clusters (64 percent) are most viable and sustainable. However it

must be noted that the viability and sustainability in the case of these 14 clusters varies

according to their respective ranks. It is also seen in Table 2.4, that there are 4 specific

clusters that appear to be viable but would be difficult to sustain. This is mainly on

account of both their respective cluster configuration as well as the fact that they are

observed to be more heterogeneous with the inter-unit differences in these clusters

being substantial. We also have a group of 4 specific sampled clusters that we consider

to be the least viable and sustainable, and as a result of our analysis we would consider

the development of these clusters to prove problematic in the future.


34

Table No.-2.4: CLUSTER CONFIGURATION, VIABILITY AND SUSTAINABILITY All Sampled Clusters

Dispersion Size Turnover Sl Cluster

C D L S H M

Cluster Configuration & Status

Rank

18. Plastic Cluster Aluva √ √ √ MVS 1

10. Ball bearing Cluster Jaipur √ √ √ MVS 2

15. Diesel Engine Cluster Rajkot √ √ √ MVS 3

22. White ware Cluster Khurza √ √ √ MVS 4

19. Sewing Machine Cluster Ludhiana

√ √ √ MVS 5

21. Wet Grinder Cluster Coimbatore

√ √ √ MVS 6

20. Surgical Instruments Cluster Baruipur

√ √ √ MVS 7

13. Brass Utensil Cluster Pareo √ √ √ MVS 8

9. Rubber Cluster Chenganacherry

√ √ √ MVS 9

16. Fan Industry Cluster Hyderabad

√ √ √ MVS 10

11. Bell metal Cluster Khurda √ √ √ MVS 11

4. Leather Goods Cluster Shantiniketan

√ √ √ MVS 12

12. Bell metal Cluster Hazo √ √ √ MVS 13

1. Bamboo Cluster Dimapur √ √ √ MVS 14

8. Rice Milling Cluster Kalady √ √ √ VDS 15

5. Plywood Cluster Perambavoor

√ √ √ VDS 16

6. Rice Milling Cluster Karnal √ √ √ VDS 17

17. Foundry Cluster Ahmedabad √ √ √ VDS 18

3. Leather Goods Cluster Agra √ √ √ LVS 19

2. Food Processing Cluster Muzffarpur

√ √ √ LVS 20

14. Cotton Hosiery Cluster Kanpur

√ √ √ LVS 21

7. Rice Flakes Cluster Ahmedabad

√ √ √ LVS 22

Note: C - Compact; D - Dispersed; L - Large; S - Small; H - High Turnover; M–Modest Turnover MVS-Most Viable and Sustainable; VDS-Viable but Difficult to Sustain (due to Heterogeneity) LVS- Least Viable and Sustainable


35

2.4 Nature of the Sampled Clusters

The units in each cluster we have sampled are likely to be independent units catering

entirely to the internal local or national market. They could also be purely ancillary units

who supply their output to other firms who use these as essential intermediate inputs in

their production process. The units could also be primarily export-oriented units only

catering to international demand. Moreover the units in a cluster could be a mix of all

three types.

In Table 2.5 we see that of the 9 sampled clusters in the PGBC as many as 8 consist of

predominantly independent units catering to the internal market, however there are 5

clusters in this group wherein they produce for the export market as well. It is also seen

that they are mostly involved in the production of final products and do not act as

ancillaries for larger firms.

Table No.-2.5: TYPES OF UNITS IN THE SAMPLED CLUSTERS

It is also seen that of the 13 sampled clusters in the SGBC there is a predominance of

independent units in 12 clusters. Only two of the sampled clusters in this group contain

ancillary and export units. It is interesting to note that contrary to common belief, the

units in most clusters are independent units producing finished products for the market.

The degree of ancillarisation is low and this reflects that they have maintained

themselves as independent entities enjoying a level of autonomy not common among

small enterprises the world over. The low level of export orientation that the units in

most clusters display is mainly on account of two reasons. The first reason is the

protected and insulated existence of Indian Industry in general and SMIs in particular

during the post independence and pre liberalization period (from 1951 to 1991). The

second reason is the existence of a large and growing internal market which is rapidly

opening up and which many in the world are more than eager to exploit.

However it is important to mention here that both ancillarisation and export orientation

among the units in the sampled clusters are likely to increase rapidly as Indian Industries

compete in the world markets as a result of economic reforms, liberalization and

globalization. These trends are likely to have a wide-ranging set of implications for the

Cluster Development Programme and special efforts would be required to facilitate the

enhancement of the export capabilities of these cluster units and equip them to

effectively compete and survive in the globalised world market.

Predominant Type of Units in the Sampled Cluster

Primary Goods Based Clusters

Secondary Goods Based Clusters

Total Sampled Clusters

Independent Units 8 12 20

Ancillary Units - 2 2

Export Oriented Units 5 2 7


36

2.5 Input Profile of Sampled Clusters

The availability of and the access to raw materials and other intermediate inputs is an

important concern in sustaining the activities of individual units in a cluster. It is

therefore not only important to examine the current input profile of the sampled clusters

but also to anticipate the likely constraints that may be faced by the units in the medium

and long term. A clear temporal perspective regarding the availability of the required

raw materials and other inputs particularly helps in planning for alternate inputs and

technologies, as well as timely diversification. The development of such a long-term

strategy, which comprehensively takes into account future constraints, is most essential

for the very survival and sustainability of the cluster and its constituents.

Table 2.6 highlights the responses of cluster leaders and key cluster functionaries

regarding their perception of raw material availability in the sampled clusters covered

under this study. The table incorporates the cluster specific responses on current

availability as well as that which is perceived in the medium and long term.

For the first group of 9 Primary Goods Based Clusters it is reported by two clusters

namely the Bamboo Cluster in Dimapur as well as the Rice Milling Cluster in Karnal that

currently, there is an abundant availability of raw materials. The remaining seven

clusters in this group report an adequate current availability of raw material. For the

medium term also, the profile of availability remains unchanged across the sampled

clusters. However in the long term a shortage of raw materials is anticipated in the case

of two specific clusters in the group namely the Leather Goods Cluster in Agra, and the

Rice Milling Cluster in Kallady, (Kerala).

Turning to the Secondary Goods Based Clusters in our sample, the majority of the

clusters report that access and availability of required inputs is not only adequate in the

current context but is likely to remain so in both the medium and long term. However in

the case of three specific clusters in this group it is reported that while there are

shortages of inputs in the current period they anticipate the shortages to continue in the

medium and long term as well.


37

Table No.-2.6: INPUT PROFILE OF SAMPLED CLUSTERS


Current Medium term Long term

Sl Cluster Abundant

Adequate

Shortage

Abundant

Adequate

Shortage

Abundant

Adequate

Shortage

1 Bamboo Cluster Dimapur

√ √ √


√ √ √

3 Leather Goods Cluster Agra

√ √ √


√ √ √


√ √ √

6 Rice Milling Cluster Karnal

√ √ √

7 Rice Flakes Cluster Ahmedabad

√ √ √


√ √ √

9 Rubber Cluster Chenganacherry

√ √ √



Sl Cluster Abundant

Adequate

Shortage

Abundant

Adequate

Shortage

Abundant

Adequate

Shortage

10 Ball bearing Cluster Jaipur

√ √ √

11 Bell metal Cluster Khurda

√ √ √

12 Bell metal Cluster Hazo √ √ √

13 Brass Utensil Cluster Pareo

√ √ √

14 Cotton Hosiery Cluster Kanpur

√ √ √

15 Diesel Engine Cluster Rajkot

√ √ √


√ √ √

17 Foundry Cluster Ahmedabad

√ √ √

18 Plastic Cluster Aluva √ √ √

19 Sewing Machine Cluster Ludhiana

√ √ √


√ √ √


√ √ √

22 White ware Cluster Khurza

√ √ √


38

Each of these three clusters have reported specific reasons for the present and

anticipated shortages in the required inputs, and even anticipate that these serious

constraints are likely to increase in the future and if the issue is not addressed

appropriately and in time it is bound to affect the very survival of these clusters. In the

case of the Ball Bearing Cluster in Jaipur the units have been facing a severe shortage of

steel as well as a steep rise in prices. In the case of the Plastic Cluster in Aluva, Kerala

where plastic granules are produced from plastic waste there has been a fall in the

supply of waste as the garbage containing waste plastic is not being properly segregated

and is increasingly being used for land filling.

In case of the Rice Milling Cluster in Kallady the input constraints have taken a very

serious turn. This is because local paddy production and procurement in Kerala has been

steadily declining as farmers turn to cultivating more lucrative commercial crops or to

even stop cultivation altogether, diverting land to alternate uses. What has made

matters worse is that the adjacent states like Karnataka and Tamil Nadu have now

restricted or even banned the export of paddy to other states and Kerala’s large cereal

requirement is provided in terms of Rice rather than paddy.

It is also observed in Table 2.7 that while 7 of the 9 sampled clusters procure inputs

from local sources in close proximity of the cluster, there are two specific clusters which

procure their inputs from sources in a larger region.

Table No. - 2.7: LOCATION OF INPUT SOURCES FOR SAMPLED CLUSTERS

Primary Goods Based Clusters Inputs are available in Sl Cluster Close

Proximity Regional Proximity

National Proximity

1. Bamboo Cluster Dimapur √ 2. Food Processing Cluster Muzaffarpur √ 3. Leather Goods Cluster Agra √ 4. Leather Goods Cluster Shantiniketan √ 5. Plywood Cluster Perambavoor √ 6. Rice Milling Cluster Karnal √ 7. Rice Flakes Cluster Ahmedabad √ 8. Rice Milling Cluster Kalady √ 9. Rubber Cluster Chenganacherry √

Secondary Goods Based Clusters Inputs are available in Sl Cluster Close


National Proximity

10. Ball bearing Cluster Jaipur √

11. Bell metal Cluster Khurda √ 12. Bell metal Cluster Hazo √

13. Brass Utensil Cluster Pareo √


39

Table No.-2.7 (contd.)

Secondary Goods Based Clusters Inputs are available in Sl Cluster Close


National Proximity

14. Cotton Hosiery Cluster Kanpur √ 15. Diesel Engine Cluster Rajkot √ 16. Fan Industry Cluster Hyderabad √ 17. Foundry Cluster Ahmedabad √ 18. Plastic Cluster Aluva √ 19. Sewing Machine Cluster Ludhiana √ 20. Surgical Instruments Cluster Baruipur √ 21. Wet Grinder Cluster Coimbatore √ 22. White ware Cluster Khurza √

A more detailed presentation of production related impediments and constraints faced by

individual cluster units in each of the sampled clusters belonging to both the PGBCs and

SGBCs groups is presented in Tables 2.17(a) and 2.17(b) which is seen in Annexure 2.1

to this Chapter. These tables provide a more comprehensive perception of the

constraints faced by individual units in the cluster unlike the more general table

discussed above which is primarily based on the perceptions of Cluster Development

Functionaries such as the CDE and others.

2.6 Availability of Manpower

The growth and development of Clusters requires the availability of both skilled and

unskilled manpower. As seen in Table 2.8 the availability of unskilled manpower is

reported to be either abundant or adequate in most sampled clusters and understandably

this is more so in the PGBCs as compared to the SGBCs. However in the case of the

Rubber Cluster in Chenganacherry, Kerala it is reported that the units face shortages

even in the case of unskilled labour. The Foundry Cluster in Ahmedabad also reports a

shortage of unskilled manpower.

Table No. -2.8: AVAILABILITY OF MANPOWER

Primary Goods Based Clusters Unskilled Manpower Skilled Manpower Sl Cluster Abundant Adequate Shortage Abundant Adequate Shortage 1. Bamboo Cluster Dimapur √ √

2. Food Processing Cluster Muzaffarpur

√ √

3. Leather Goods Cluster Agra

√ √


√ √


√ √

6. Rice Milling Cluster Karnal

√ √


√ √


40

Table No.-2.8 (contd.)

Primary Goods Based Clusters Unskilled Manpower Skilled Manpower Sl Cluster Abundant Adequate Shortage Abundant Adequate Shortage 8. Rice Milling Cluster

Kalady √ √


√ √

Secondary Goods Based Clusters Unskilled Manpower Skilled Manpower Sl Cluster Abundant Adequate Shortage Abundant Adequate Shortage 10. Ball bearing Cluster

Jaipur √ √

11. Bell metal Cluster Khurda

√ √

12. Bell metal Cluster Hazo √ √ 13. Brass Utensil Cluster

Pareo √ √

14. Cotton Hosiery Cluster Kanpur

√ √

15. Diesel Engine Cluster Rajkot

√ √


√ √

17. Foundry Cluster Ahmadabad

√ √

18. Plastic Cluster Aluva √ √


√ √


√ √


√ √

22. White ware Cluster Khurza

√ √

Turning to the availability of skilled manpower it is seen that the shortages are more

pronounced. The shortage of skilled manpower is reported by 4 of the 9 sampled

clusters in the first group of PGBCs. Three of the four clusters are located in Kerala while

one is located in Karnal, Haryana. Two of these clusters are involved in the production of

Rubber goods and plywood, while the other two are engaged in Rice Milling. It is seen

that these clusters are fairly capital intensive and utilize advanced processes and

technology that require maintaining and operating by skilled labour.

There are four other clusters in the SGBCs, which report severe shortages of skilled

labour. These are Ball Bearing Cluster in Jaipur, the Bell Metal Cluster in Khurda, the

Foundry Cluster in Ahmedabad and the Plastic Cluster in Aluva. Here it may be

mentioned that clusters located in and around already well established industrial areas

may find it possible to attract skilled labour however a lot depends on the level of wages

prevailing in these places and smaller units in the cluster may not be able to afford these

wages. The only viable solution to this pressing problem is to create common facilities

for upgrading the skills of the abundantly available unskilled labour. This has to be a

collective effort as individual units may not be capable of taking up this task. This issue

must be adequately addressed, as increasing capital intensity invoked by the use of


41

advanced processes and technologies is likely to occur in most clusters in the near

future. The large numbers of MSME-DIs have an important role to play in this regard

and would require significant up gradation to be able to effectively contribute in tackling

this issue.

A more detailed presentation of manpower related impediments and constraints faced by


SGBCs groups is presented in Tables 2.17(a) and 2.17(b) which are Annexure 2.1 to this

Chapter. These tables provide a more comprehensive perception of the constraints faced

by individual units in the cluster unlike the more general table discussed above which is

primarily based on the perceptions of Cluster Development Functionaries such as the

CDE and others.

2.7 Access to Markets and Market Prospects

The sustained and healthy growth of clusters is critically dependent on their access to

markets. It is encouraging to note that a fairly large number of sampled clusters report

that they have sufficient access to markets. However there are an equally large number

who report that market access is a problem and is limited.

Among the PGBCs there are three specific clusters that report limited access to markets

these are the Food Processing Cluster in Muzzafarpur, Bihar, the Leather Goods Cluster

in Shantiniketan, West Bengal, and the Rubber Cluster in Chenganacherry, Kerala. In all

these cases it is the standardization, quality, packaging and design of the products that

limit market access.

Limited access to markets seem to be more prevalent among the SGBCs. As seen in

Table 2.9 there are as many as Seven Clusters that report limited access to markets.

Table No.-2.9: ACCESS TO THE MARKETS Primary Goods Based Clusters

Sl Cluster Sufficient Access

Limited Access

No Access

1. Bamboo Cluster Dimapur √ 2. Food Processing Cluster

Muzaffarpur √

3. Leather Goods Cluster Agra √ 4. Leather Goods Cluster

Shantiniketan √

5. Plywood Cluster Perambavoor √ 6. Rice Milling Cluster Karnal √

7. Rice Flakes Cluster Ahmedabad √

8. Rice Milling Cluster Kalady √ 9. Rubber Cluster Chenganacherry √


42

Table No.-2.9 (Contd.)

Secondary Goods Based Clusters Sl Cluster Sufficient

Access Limited Access

No Access

10. Ball bearing Cluster Jaipur √ 11. Bell metal Cluster Khurda √

12. Bell metal Cluster Hazo √

13. Brass Utensil Cluster Pareo √ 14. Cotton Hosiery Cluster Kanpur √

15. Diesel Engine Cluster Rajkot √ 16. Fan Industry Cluster Hyderabad √

17. Foundry Cluster Ahmadabad √ 18. Plastic Cluster Aluva √ 19. Sewing Machine Cluster Ludhiana √

20. Surgical Instruments Cluster Baruipur √ 21. Wet Grinder Cluster Coimbatore √

22. White ware Cluster Khurza √

Here we see that apart from the need for standardization, quality control, packaging and

design, there are also constant threats from substitutes and cheap high quality and low

priced imports. In the long run these clusters would need to diversify into new products

and cater to the changing needs and requirements of the consumer.

It is also essential to highlight the perception of the sampled cluster regarding the

market prospects for the goods manufactured by them. In Table 2.10, the current,

medium term and long term perceptions of the market prospects are indicated.

Table No.-2.10: MARKET PROSPECTS FOR THE GOODS MANUFACTURED IN SAMPLED CLUSTERS



Sl Cluster Good Adequate Low Good Adequate Low Good Adequate Low


√ √ √


√ √ √


√ √ √


√ √ √


√ √ √


√ √ √


√ √ √


√ √ √

9 Rubber Cluster Chenganacherry

√ √ √


43

Table No.-2.10 (Contd.)



Sl Cluster Good Adequate Low Good Adequate Low Good Adequate Low


√ √ √


√ √ √

12 Bell metal Cluster Hazo

√ √ √

13 Brass Utensil Cluster Pareo

√ √ √


√ √ √


√ √ √


√ √ √


√ √ √

18 Plastic Cluster Aluva

√ √ √


√ √ √


√ √ √


√ √ √


√ √ √

For the clusters in the first group it is seen that most of them perceive the prospects to

be good accept in the case of the Rubber Cluster, Chenganacherry, Kerala, wherein the

current and medium term prospects are reported to be adequate, however in the long

term the market prospects are anticipated to be low.

In the case of SGBCs too the current and future market prospects are perceived to be

either good or adequate accept in the case of the Bell Metal Cluster in Khurda and Hazo,

the Brass Utensils Cluster in Pareo, Bihar, and the Sewing Machine Cluster in Ludhiana.

The pessimism regarding market prospects particularly in the long term is mainly due to

changing tastes and the increasing availability of substitutes and cheap imports.

However with adequate diversification and increase in the product range these

perceptions could change over time.

A more detailed presentation of market related impediments and constraints faced by



44





CDE and others.

2.8 Access to Finance

The availability and adequate access to finance is of critical importance to each of the

functional units in the cluster. While financially stronger clusters having good market

demand and prospects are likely to have adequate access to finance from banks and

other financial institutions, others are likely to face problems. In Table 2.11 it is seen

that in the case of 8 of the 22 sampled clusters, the cluster functionaries report that

there is sufficient access to finance.

There are however as many as 9 clusters that report that access to finance is limited,

these are clusters wherein the scale of activity and the size of the individual units is

limited. From the perception of the financial institution these clusters and the units

therein may be into activities that are relatively more risky.

Table No. - 2.11: ACCESS TO FINANCE IN SAMPLED CLUSTERS



Limited Access

No Access

1. Bamboo Cluster Dimapur √


√

3. Leather Goods Cluster Agra √ 4. Leather Goods Cluster

Shantiniketan √



8. Rice Milling Cluster Kalady √ 9. Rubber Cluster Chenganacherry √


45

Table No .-2.11 (Contd .)



Limited Access

No Access

10. Ball bearing Cluster Jaipur √ 11. Bell metal Cluster Khurda √

12. Bell metal Cluster Hazo √ 13. Brass Utensil Cluster Pareo √

14. Cotton Hosiery Cluster Kanpur √


17. Foundry Cluster Ahmadabad √ 18. Plastic Cluster Aluva √

19. Sewing Machine Cluster Ludhiana √ 20. Surgical Instruments Cluster

Baruipur √

21. Wet Grinder Cluster Coimbatore √


Moreover there are as many as 5 specific clusters that are severely constrained in terms

of finances and report that they have no access to institutional finance a large number of

units in these clusters are extremely small, often highly dispersed, with very limited

turnover. A fairly large number of individual units borrow money at very high interest

rates from loan sharks and local moneylenders and are drained off investable surpluses

resulting in retarded growth. These units may need to be assisted to access finance

through special measures as regular banks and other institutions are likely to shy away

from providing finances to them.

Overall it can be concluded that access to adequate finances are a major constraint faced

by a fairly large number of clusters with as many as 14 of the 22 sampled clusters

reporting limited or no access to finance. There is thus a need to strengthen the CDP

through special measures and facilities to improve access to finance for the participating

clusters.

A more detailed presentation of finance related impediments and constraints faced by






CDE and others.


46

2.9 Access to Information

Units in each cluster constantly require a whole range of information. Information

related to market trends and new products are necessary to adapt quickly and effectively

to market demand and changing tastes. Information related to market trends also helps

units to diversify and attempt changes in the product range to stay and survive in highly

competitive markets. Units also need to keep abreast with price trends and price related

information concerning both inputs as well as finished products.

Units also constantly require information related to new processes and technologies that

can improve the quality of products, technologies and processes that can reduce costs

and conserve energy, technologies and processes that are less polluting and thereby

more sustainable in the long run. Participating units also need information related to

regulatory measures, standards, taxes and various schemes and incentives provided by

the State and Central Government and various other developmental agencies.

Access to information is thus the key to success and survival specially in the highly

competitive world of today. With significant progress in information technology and

communication access to information has been brought within easy and affordable reach

of even the smallest of individual enterprises. However individual small entrepreneurs

would still find it difficult to spare the time to access this wealth of information that they

can utilize. Common facilities or a common information centre catering to these

individual units can considerably enhance timely access to information.

We also observe that there is no dearth of information and very often there is too much

of it leading to an information overload, this can in fact do more harm than good to the

small entrepreneur and leave him confused and disoriented. It is therefore very

essential to know what information is most required in a cluster and make the necessary

arrangement to collectively gather the information and disseminate it to the individual

units. The importance of this collective access to information and its regular and

effective dissemination should be very high on the agenda of the CDEs when they are

carrying out soft interventions. The efforts at creating a high level of awareness

regarding the benefits of regular access to information should not end with the soft

interventions, but must be implemented through hard interventions in the concerned

cluster.

As seen in Table 2.12 only 4 out of the 22 sampled clusters reported access to sufficient

information. In the case of 10 clusters it was reported that access to the required

information was limited. It is also important to note that there were as many as 8

sampled clusters that reported that they had no access to information.


47

Table No.-2.12: ACCESS TO INFORMATION IN SAMPLED CLUSTERS



Limited Access

No Access



√

3. Leather Goods Cluster Agra √


√


7. Rice Flakes Cluster Ahmedabad √ 8. Rice Milling Cluster Kalady √

9. Rubber Cluster Chenganacherry √ Secondary Goods Based Clusters


Limited Access

No Access


11. Bell metal Cluster Khurda √ 12. Bell metal Cluster Hazo √ 13. Brass Utensil Cluster Pareo √ 14. Cotton Hosiery Cluster Kanpur √

15. Diesel Engine Cluster Rajkot √

16. Fan Industry Cluster Hyderabad √ 17. Foundry Cluster Ahmedabad √

18. Plastic Cluster Aluva √ 19. Sewing Machine Cluster Ludhiana √


√



On the whole it is very clear that most clusters do not have adequate access to the

required information. This is a major handicap and requires immediate attention through

the strengthening of soft and hard interventions under the CDP.

2.10 Access to Research and Development Institutions

Individual units in a cluster constantly require technical and scientific advice and

assistance. They particularly need the assistance of expert institutions regarding the

choice of appropriate technology, the input mix and various processes that help in the

improvement of quality and conservation of energy. They also need expert guidance in

effectively treating problems related to the proper disposal of effluents other toxic and

waste as well as for effectively tackling pollution. It must also be emphasized that the

ability to succeed in the face of stiff competition can only come with constant innovation

for which scientific and technological inputs are most essential.


48

Though there are many scientific institutions in the country particularly those that

specialize in areas that are of direct relevance to the sampled clusters in our study there

seems to be an utter lack of access by these clusters to scientific institutions.

As seen in Table 2.13 only one of the 22 sampled clusters reports that it has sufficient

access to R&D institutions. There are however 13 clusters which claim that they have

only limited access to R&D institutions. Most of the assistance or advice that these

receive on scientific and technology matters are normally confined to informal or casual

contacts and since such scientific or technical inputs often come at a price, individual

small units are not always in a position to afford such services. It is also quite

disheartening to see that as many as 8 clusters report that they have no access what so

ever to scientific and technological information that they desperately require.

Active linkages with the relevant R&D institutions seems to be one of the critical

deficiencies of the Cluster Development Programme and unless such linkages are actively

encouraged and nurtured, the long term competitive abilities of these clusters are most

likely to suffer.

Table No.-2.13: ACCESS TO R&D INSTITUTIONS IN SAMPLED CLUSTERS



Limited Access

No Access



√



√

5. Plywood Cluster Perambavoor √

6. Rice Milling Cluster Karnal √


8. Rice Milling Cluster Kalady √

9. Rubber Cluster Chenganacherry √



Limited Access

No Access


11. Bell metal Cluster Khurda √

12. Bell metal Cluster Hazo √

13. Brass Utensil Cluster Pareo √


15. Diesel Engine Cluster Rajkot √

16. Fan Industry Cluster Hyderabad √

17. Foundry Cluster Ahmedabad √

18. Plastic Cluster Aluva √


49

Table No -2.13 (Contd.)



Limited Access

No Access

19. Sewing Machine Cluster Ludhiana √


√



A more detailed presentation of technology related impediments and constraints faced

by individual cluster units in each of the sampled clusters belonging to both the PGBCs

and SGBCs groups is presented in Tables 2.19(a) and 2.19(b) which form Annexure 2.1

to this Chapter. These tables provide a more comprehensive perception of the

constraints faced by individual units in the cluster unlike the more general table

discussed above which is primarily based on the perceptions of Cluster Development

Functionaries such as the CDE and others.

2.11 Environmental Concerns in the Clusters

Environmental concerns are fairly high on the agenda of policy makers these days, and

regulatory measures draw a great deal of attention. Regulators have specifically

targeted industries, as they are known to be responsible for polluting the air and water.

These problems arise largely on account of the improper treatment of effluents and safe

disposal of toxic wastes. Our sampled clusters are involved in a fairly wide range of

industrial activity and it is important to identify whether they generate environmental

concerns.

Table No-2.14: ENVIRONMENTAL CONCERNS IN THE SAMPLED CLUSTERS


Sl Cluster Generates Environmental

Concern

Does not Generate


2. Food Processing Cluster Muzaffarpur √



√

5. Plywood Cluster Perambavoor √

6. Rice Milling Cluster Karnal √


8. Rice Milling Cluster Kalady √

9. Rubber Cluster Chenganacherry √


50


Secondary Goods Based Clusters Sl Cluster Generates

Environmental Concern

Does not Generate


11. Bell metal Cluster Khurda √

12. Bell metal Cluster Hazo √ 13. Brass Utensil Cluster Pareo √



17. Foundry Cluster Ahmedabad √

18. Plastic Cluster Aluva √

19. Sewing Machine Cluster Ludhiana √ 20. Surgical Instruments Cluster Baruipur √

21. Wet Grinder Cluster Coimbatore √ 22. White ware Cluster Khurza √

It is seen in Table 2.14 that there are 12 sampled clusters which generate environmental

concerns. Among these, there are 4 clusters which belong to the PGBC group and as

many as 8 clusters from the SGBC group. It is also reported that the remaining 10

sampled clusters do not generate environmental concerns though there are doubts

regarding this issue especially in the case of the plywood cluster in Perimbavoor, the Rice

Flakes cluster in Ahmedabad and the Rice Milling cluster in Karnal. If one takes this into

consideration then the number of polluting clusters increases to 15 out of the 22 sampled

clusters. With strict environmental regulation these clusters are likely to face problems

in their day to day functioning, some of them are already facing problems with the

concerned authorities who even go to the extent of closing down units which are not in a

position to address pollution issues.

There are three major types of pollution that clusters generate these are air pollution,

water pollution, and pollution caused by non-degradable toxic solid wastes. There may

be other forms of pollution also such as noise pollution, which affects not only the

workers but also neighbouring habitations.

As seen in Table 2.15 air pollution seems to be the most widespread among our sampled

clusters with as many as 12 clusters in our sample causing air pollution. There are 5

sampled clusters that are reported to be causing water pollution and is drawing the

increasing attention of regulators. Moreover there are 2 clusters that generate pollution

through non-degradable toxic solid wastes.


51

Table No.-2.15: TYPE OF ENVIRONMENTAL CONCERNS IN SAMPLED CLUSTERS


Type of Pollution Sl Cluster Air

Pollution Water

Pollution Non-degradable

Toxic Solid Waste

1. Bamboo Cluster Dimapur

2. Food Processing Cluster Muzaffarpur √ √ 3. Leather Goods Cluster Agra

4. Leather Goods Cluster Shantiniketan 5. Plywood Cluster Perambavoor

6. Rice Milling Cluster Karnal √ √

7. Rice Flakes Cluster Ahmedabad √ 8. Rice Milling Cluster Kalady √ √

9. Rubber Cluster Chenganacherry √ Secondary Goods Based Clusters

Type of Pollution Sl Cluster Air

Pollution Water

Pollution Non-degradable

Toxic Solid Waste

10. Ball bearing Cluster Jaipur 11. Bell metal Cluster Khurda √ √ 12. Bell metal Cluster Hazo

13. Brass Utensil Cluster Pareo √ 14. Cotton Hosiery Cluster Kanpur √

15. Diesel Engine Cluster Rajkot √ 16. Fan Industry Cluster Hyderabad

17. Foundry Cluster Ahmadabad √

18. Plastic Cluster Aluva √ √ 19. Sewing Machine Cluster Ludhiana √ 20. Surgical Instruments Cluster

Baruipur


22. White ware Cluster Khurza √ √

It is also important to note that there are as many as 6 sampled clusters that generate

more than one type of pollutant. Three of these clusters belong to the PGBC group

namely the Food Processing Cluster, Muzzaffarpur, and the two Rice Milling Clusters in

Karnal and Kalady. There are another three clusters in the SGBC group that generate

more than one type of pollutant. These are the Bell Metal Cluster, Khurda, the Plastic

Cluster in Aluva, and the White ware Cluster in Khurza. While the Bell Metal and Plastic

Clusters generate non degradable toxic solid wastes apart from polluting the air, the

White ware Cluster in Khurza pollutes both air and water. With increasing concern and

regulation regarding environmental problems, most of these clusters would increasingly

become the focus of control and would be required to effectively respond to regulation if

they are to grow and develop.

A high level of awareness regarding environmental regulation and standards would be

required through soft interventions. It may also be necessary to earmark a portion of

the funds released for hard interventions to be used for collective management of


52

environmental problems especially on the safe collective disposal or treatment of

effluents as well as the proper disposal of solid toxic wastes. At present it is noticed that

both soft as well as hard interventions do not address environmental issues adequately

and though there are some large individual units, which have the resources to undertake

anti pollution measures the larger majority of individual units lack the means of

addressing this problem effectively.

2.12 Progress and Present Status of the CDP

It would be most appropriate to conclude this chapter on the Profile of Sampled Clusters

by assessing the progress and present status of the Cluster Development Programme in

the sampled clusters covered by this study.

Each cluster identified for interventions under the CDP passes through five distinct

stages. The programme only stands competed when all these five important stages are

successfully competed. It is only then that a complete assessment of the impact can be

undertaken.

The first Stage or Stage I stands completed when the CDE undertakes a diagnostic study

and based on this the cluster is identified and soft interventions initiated. The second

Stage or Stage II is completed with the successful formation of the SPV and the formal

registration of the SPV.

The third distinct Stage or Stage III stands completed after the DPR for the CFC is

formulated along with detailed estimates of the cost, and then approved by the

concerned sponsors. The fourth Stage or Stage IV, involves the setting up of the CFC,

the CFC at any point of time may itself be in various stages of its construction and

testing. The final fifth Stage or Stage V is reached when the CFC is fully commissioned

and becomes functional and starts being used by individual cluster units. Each of these

stages are likely to take varying lengths of time for completion. It may be mentioned

that since no specific timeline is prescribed for each stage, there is a tendency for the

entire process to drag on.

Each of these stages involves different activities and are marked by specific problems

and constraints. For instance Stage I can be considerably prolonged if the CDE is not

appointed and adequately trained and equipped to carry out the diagnostic study and

effectively initiate soft interventions. Stage I may also be prolonged due to the delayed

release of funds, as well as the delayed approval and consent of the State Government,

which is essential for the initiation of the programme in any state.

The second stage also faces several intractable constraints specially when the cluster

identified is heterogeneous. In such situations it is always more difficult and time

consuming to get individual units to come together and form an SPV and register it in the

most suitable institutional form. The successful completion of Stage II is also conditional

to how carefully the cluster has been identified on the basis of a diagnostic study and

also how effectively the soft interventions are carried out. It may also be mentioned that

in a compact, dense, homogenous, cluster, already represented by an active association

or union, it is much easier and faster to form an SPV and complete its registration


53

formalities. Stage III involves the careful selection of the CFC and the formulation of a

Detailed Project Report (DPR), and the acceptance and approval of the proposal by the

sponsors. Arriving at a consensus on the choice of the most appropriate CFC is itself a

difficult and time consuming process. The formulation of a DPR often involves prolonged

consultations with experts, and equipment manufacturers. Access to affordable

expertise either from individuals or institution is not easy and often comes at a fairly high

cost. The process of approval may also prove to be very cumbersome and time

consuming and clusters are likely to get ‘stuck’ in this stage. Stage IV involves the

setting up of the CFC, the pace of construction depends on the timely supply of

equipment and machinery, and this is conditional to the regular and timely disbursement

of payments. The timely release of approved funds by the MSME as well as the

concerned State Government is critical for the timely completion of this stage. Delays in

the Stage IV can lead to cost escalation which are not acceptable to sponsors and would

have to be born by the concerned SPV, as a consequence the DPR and related estimates

may have to be modified causing further delays in successfully completing this stage.

The final Stage V involves the commissioning of the CFC and ensuring the full utilization

of the capacity created.

The proper testing of installed machinery the conduct of trial runs, the removal of

teething problems which often takes time as equipment suppliers do not attend to the

need for prompt after sales services. The purchase agreements are also not properly

framed to incorporate the timely provision of such services.

The proper training of workers who are required to operate these machines may also

create problems in the initial phase of operations. The pricing of services provided by

the CFC is also an important issue as both under pricing or over pricing brings with it a

host of other problems affecting the equitable utilization of the facility by individual units

in the cluster.

We now turn to Table 2.16 to highlight the present status of cluster development in the

sampled clusters at the time this study was conducted. As seen in the Table 2.16 there

are as many as 11 clusters which are still in Stage I. While 4 of these clusters belong to

the PGBC group the remaining 7 clusters belongs to the SGBC group. It is rather

disappointing to find as many as 50 percent of the sampled clusters in Stage I. Several

factors as mentioned above have been responsible for the slow pace of implementation

of the CDP with such a large number of clusters still stuck at the very first stage of the

programme.

Table No.-2.16: CDP IN SAMPLED CLUSTERS AND PRESENT STATUS


Sl Cluster Stage 1. Rice Milling Cluster Karnal I

2. Rice Flakes Cluster Ahmedabad I

3. Rice Milling Cluster Kalady IV

4. Food Processing Cluster Muzffarpur II

5. Rubber Cluster Chengnacherry V

6. Bamboo Cluster Dimapur I


54



Sl Cluster Stage 7. Plywood Cluster Perambavoor IV

8. Leather Goods Cluster Agra I

9. Leather Goods Cluster Shantiniketan III


Sl Cluster Stage

1. Cotton Hosiery Cluster Kanpur I

2. Plastic Cluster Aluva IV

3. White ware Cluster Khurza II

4. Brass Utensil Cluster Pareo IV

5. Bell metal Cluster Khurda I

6. Bell metal Cluster Hazo IV

7. Foundry Cluster Ahmedabad V

8. Ball bearing Cluster Jaipur I

9. Hand tool Cluster Jallandhar I

10. Surgical Instruments Cluster Baruipur IV

11. Sewing Machine Cluster Ludhiana I

12. Wet Grinder Cluster Coimbatore IV

13. Fan Industry Cluster Hyderabad I

14. Diesel Engine Cluster Rajkot I

All Sampled Clusters

Sl Stage Numbers

1. I 11

2. II 2

3. III 1

4. IV 7

5. V 2 Note: The five different stages indicated in the tables above are defined as follows:

Stage I- CDE appointed, Diagnostic Study completed and Soft interventions carried out Stage II- SPV formed and registered. Stage III- DPR submitted and approved Stage IV- Setting up of CFC in progress Stage V- CFC commissioned and functional

It is also not very encouraging to note that only in the case of 2 clusters has Stage II

been accomplished. One cluster is still in Stage III of development, while 7 sampled

clusters are in Stage IV. Only 2 of the clusters have managed to accomplish Stage V.

Considering the stages in which the sampled clusters have been found at the time of the

study it is premature to assess the full impact of the CDP. The figures also clearly

indicate that the pace of implementation has been very slow and appropriate measures

are required to avoid this stagnation.


55

Annexure: 2.1- Detailed tables on responses on impediments faced by units owners Table No.-2.17 (a): RESPONSES ON PRODUCTION RELATED IMPEDIMENTS TO FURTHER GROWTH (AGRO-BASED CLUSTERS)

Bamboo Cluster Dimapur

Food Processing Industry Cluster Muzpur

Leather Footwear Industry Cluster, Agra

Leather goods industry Cluster,

Shantiniketan

Plywood Cluster Kerala

Rice Industry Cluster Karnal

Rice Flake Mill

Ahmedabad

Rice Mill Cluster Kerala

Rubber Cluster Kerala

Nos 2 8 4 3 2

Raw Material Availability % (13) (53) (27) (20) (13)

Nos 1 1 Labour Availability % (7) (7)

Nos 1 1 6 Power Supply % (7) (7) (40)

Nos 2 1 1 Shortage of Skilled Manpower % (13) (7) (7)

Nos 1 1 High Salaries & Wages % (7) (7)

Nos 6 High Transportation Cost % (40)

Nos 1 3 3 Land is Expensive % (7) (20) (20)

No 3

Poor Quality of Inputs % (20)

Nos 2 1 High Cost of Inputs % (13) (7)

Nos 1 Fluctuation in Prices of Inputs % (7)

Restrictions on Pollution Nos 2 2 1

% (14) (14) (7)


56

Table No.-2.17 (b): RESPONSES ON PRODUCTION RELATED IMPEDIMENTS TO FURTHER GROWTH (METAL AND MANUFACTURING BASED CLUSTERS)

Ball bearing Cluster Jaipur

Brass and Bell metal Industry Cluster Khurda


Brass Untensil Cluster Pareo

Hosiery Cluster Kanpur

Diesel Engine Cluster, Rajkot

Fan Cluster, Hyderabad

Foundry Industry Cluster

Ahmedabad

Aluva Plastic Cluster

Sewing machine Ludhiana

Surgical Instruments Cluster Baruipur

Wet Grinder Cluster

White ware

Industry Cluster Khurja

Nos 9 8 1 1 15 3 1 9 1 Availability of Raw Materials

% (60) (53) (7) (7) (100) (20) (7) (60) (7)

Nos 3 4 1 Availability of Labour % (20) (27) (7)

Nos 13 9 13 1 2 11 1 Power Shortage % (87) (60) (87) (7) (13) (73) (7)

Nos 1 2 5 5 Shortage of Skilled Manpower

% (7) (13) (33) (33)

Nos 1 3 1 High Salaries & Wages % (7) (20) (6)

Nos 2 1 Transportation Cost is High % (13) (7)

Nos 1 1 2 1 Land is Expensive

% (7) (7) (13) (7)

Nos 1 2 1 Quality Inputs

% (7) (13) (7)

Nos 1 0 3 1 2 3 4 8 4 High Cost of Inputs

% (7) (0) (20) (7) (14) (19) (27) (50) (41)

Nos Fluctuation in Prices of Inputs %

Nos Restrictions on Pollution %


57

Table No.-2.18(a): RESPONSES ON MARKET RELATED IMPEDIMENTS TO FURTHER GROWTH (AGRO-BASED CLUSTERS) Bamboo

Cluster Dimapur


Leather Footwear Industry Cluster, Agra

Leather goods industry Cluster, Shantiniketan



Rice Flake Mill

Ahmedabad

Rice Mill

Cluster Kerala


Nos 1 13 6 2 1 1 2 Marketing/Access to Markets

% (7) (87) (40) (14) (7) (7) (13)

Nos 2 1 Credit Sales

% (13) (7)

Nos 1 1 Highly Competitive Market

% (7) (7)

Nos 2 1 Market Assistance

% (13) (7)

Nos 3 1 Lack of Support for Exports

% (20) (7)

Nos 3 3 Ban on Exports

% (20) (20)

Nos 2 Availability of Substitutes % (13)


58

Table No.-2.18 (b): RESPONSES ON MARKET RELATED IMPEDIMENTS TO FURTHER GROWTH (METAL & MANUFACTURING BASED CLUSTERS)



Bell Metal Cluster Hazo

Brass Utensil Cluster Pareo





Ahmedabad




Wet Grinder Cluster

White ware


Nos 2 6 2 1 1 7 6 5 Marketing/ Access to Markets % (14) (40) (13) (7) (7) (47) (39) (34)

Nos 2 1 Credit Sale

% (13) (7)

Nos Highly Competitive Market

%

Nos Market Assistance

%

Nos Lack of Support for Exports

%

Nos Ban on Exports

%

Nos Availability of Substitutes %


59

Table No.-2.19 (a): RESPONSES ON FINANCE & TECHNOLOGY RELATED IMPEDIMENTS TO FURTHER GROWTH (AGRO-BASED CLUSTERS) Bamboo

Cluster Dimapur


Leather Footwear Industry Cluster Agra

Leather goods industry Cluster

Shantiniketan



Rice Flake Mill

Ahmedabad

Rice Mill Cluster Kerala


Nos 6 4 9 7 2 3 5 4 Working Capital % (40) (27) (60) (46) (13) (50) (33) (27)

Nos 1 3 1 Non Availability of Soft Loan % (7) (20) (7)

Nos 2 High Interest Rate % (13)

Nos 12 8 1 2 Non Availability of New Technology

% (80) (54) (7) (13)

Nos 3 Non Availability of CFC

% (20)

Others Impediments

Nos 4 Government License

% (27)

Nos 2 7 State Government Policy

% (13) (47)

Nos 1 5 3 Nothing/ Can't Say

% (7) (33) (20)


60

Table No.-2.19 (b): RESPONSES ON FINANCE AND TECHNOLOGY RELATED IMPEDIMENTS TO FURTHER GROWTH (METAL AND MANUFACTURING BASED CLUSTERS)









Ahmedabad




Wet Grinder Cluster

White ware


Nos 3 4 2 5 2 9 Working Capital

% (20) (27) (13) (31) (13) (56)

Nos 4 5 1 7 2 3 6 Finance

% (27) (33) (7) (47) (13) (20) (40)

Nos 6 4 1 Non Availability of Soft Loan % (40) (27) (7)

Nos 7 7 9 1 4 1 1 4 4 2 6 Non Availability of New Technology % (47) (47) (60) (7) (27) (7) (6) (27) (27) (13) (40)

Nos 1 ISI Certification

% (7)

Nos 1 No R&D Facilities

% (7)

Others Impediments

Nos 3 2 2 1 1 Nothing/ Can't Say

% (20) (13) (13) (7) (7)

Nos 5 5 2 7 State Government Policy % (33) (33) (13) (44)

Chapter No: 3 – The Cluster Development Executive/Agent

61

3.1 Introduction

Many ongoing cluster interventions are being pursued through a catalyst - a Cluster

Development Executive (CDE) or a Cluster Development Agent (CDA). He or She is an

important pivotal functionary who stays with the cluster through all its stages of

evolution and maturity. This important agent of change has a very challenging mandate

and his role as a guide and facilitator is second to none in the CDP, and accounts for its

success or failure to a very large extent. Though the CDE plays an extremely critical role

under the CDP, his effectiveness needs to be reinforced by a mentor institution, a

supportive regional office of the MSME, the required technical consultants and R & D

institutions an experienced battery of BDS providers, and last but not the least an able

local Network Agent who is thoroughly familiar with the cluster.

3.2 The Role and Functions of the CDE/CDA

The initial task of the CDE/CDA is the proper identification of the cluster highlighting its

viability and sustainability. This is mainly done through the conduct of a detailed

diagnostic study that carefully puts together the important general characteristics of the

cluster such as its dispersion, size and the resulting density, the scale of operations

among the constituent units, the nature of the cluster, the markets it caters to, and the

various inputs that it requires. This diagnostic study comprehensively assesses the

existing externalities, the market prospects over the medium and long term as well as

the constraints and bottlenecks both contemporary and anticipated. Not only is the

cluster comprehensively studied and identified through this diagnostic study but also a

strategic plan for cluster development evolves on its basis. The selection of appropriate

interventions as well as the prioritization of these interventions is carried out on the basis

of this initial study.

This initial task is usually followed by the implementation of what are known as “soft

interventions” that mainly involve the creation of awareness among individuals cluster

units regarding the benefits of cooperation and the systematic exploitation of the existing

externalities for the collective good. Soft interventions are particularly targeted at

activities that mobilize individual cluster units for collective action by encouraging

dialogue and discussion among units, and are an attempt to evolve a shared vision and

strategy for enhancing competitiveness and productivity for the cluster as a whole.

Mobilization of individual cluster actors for collective action is not an easy task and

concerted efforts are needed particularly on the part of the CDE/CDA to convince and

motivate many a dissident cluster actor to join the fold. All the efforts are primarily

directed towards ‘synergizing’ individual cluster actors into a vibrant collective and

unleashing the power of cooperation to survive and sustain in a highly predatory and

competitive industry normally dominated by large entities such as the large organized

national and international firms.

THE CLUSTER DEVELOPMENT EXECUTIVE/AGENT

CHAPTER 3


62

The next important task for the CDE/CDA is to catalyze the formation of a consortia or a

special purpose vehicle, which is necessary for the creation of a common facilities centre.

Here again while it may be possible to get individual cluster actors to form a consortia or

an SPV, it is often difficult to get them to evolve a strong consensus on the kind of

common facilities that are most required by the cluster. The formation of the SPV and

the institutional form it should take in order to ensure democratic participation and the

equitable sharing of both the managerial responsibilities as well as the benefits, also

depend on how strong a consensus emerges, largely based on the competence and

efforts of the CDA. The CDE therefore has an extremely responsible role to play and

should be adequately equipped to play his or her part most effectively. It is also

necessary for the CDE/CDA to build a high level of trust among individual cluster actors

and also to generate a strong sense of confidence and trust in his own actions, through

being transparent, unbiased and respectful in his dealing with all cluster members

irrespective of their social or economic status. The formal registration of the consortia or

SPV requires various formalities to be completed this includes a clear articulation of its

mission and objectives, the articles of association and rules, and also the mobilization of

share capital from each of the units forming the SPV. All these formalities need the

active guidance and close attention of the CDE/CDA.

Once the SPV is formally registered, the formulation of a Detailed Project Report is

initiated for the CFC. The proper formulation of the DPR and related estimates often

requires the involvement of technical consultants and also competent BDS providers.

The identification and short-listing of equipment manufacturers is also required. The

CDE/CDA has to actively liaison and closely interact with these experts often assisted by

the Information Manager of the SPV who is equipped adequately with the information

technology and systems to enable the proper collation and analysis of a range

technological options, that aid the selection and final choice of the process technology to

be adopted.

The CDE/CDA is also actively involved in the close monitoring of the administrative

procedures and acts as an effectively bridge between the SPV and the Concerned Central

Ministry as well as the State Government. The process of setting up a CFC often involves

various clearances by various regulators and it is the CDE/CDA who has to follow up on

these procedures and enable the CFC to be set up within the proposed time frame

specified in the DPR. Once the CFC is set up properly tested and commissioned the

CDE/CDA should be relieved to take up a fresh assignment preferably in a similar cluster

where his experience and expertise can be fully utilized.

The general mandate of the CDE/CDA is thus as follows:

To mobilize cluster actors for collective initiatives and utilize the externalities that exists.

To assist the cluster actors to develop governance frame work for the cluster and to

strengthen all associational initiatives for a strong collective identity and to evolve a

sustainable action plan.

To assist in formulating and catalyzing various interventions for achieving higher

productivity and competitiveness in accordance with a validated action plan.


63

To be working in a cluster specific local context through a field office that enables close

and constant contact with the cluster.

It is also important to emphasize that a CDE/CDA may be drawn from a Non-

Governmental Organization, an industry support organization, or an industry association.

He could also be selected from among independent industry professionals or competent

persons from the concerned scientific or research institutions or BDS providers.

Moreover the cluster actors as being unbiased and devoid of any vested interest should

perceive a CDE/CDA.

3.3 The Core Competencies of the CDE/CDA

Considering the varied role and functions of the CDE/CDA which is briefly described in

the previous section, there are several functional competencies required of a CDE / CDA.

There are two major areas of skills that are most essential for the effective functioning of

the CDE / CDA. The first set of essential skills are the Behavioural and Organizational

skills namely interpersonal communication, delegation of powers and responsibilities,

leadership, negotiation and conflict resolution skills, planning and strategizing skills, and

collective bargaining and decision making specially related to cooperative institutions.

The second set of essential skills required would be Managerial and Administrative skills,

namely public relations and effective liaison with concerned ministry and departments,

project and programme management skills, and also the ability to evolve appropriate

linkages with scientific and R and D institutions (specific to the cluster activity) as well as

BDS providers. Familiarity with some hard skills such as financial management,

accounting, business development, and information technology would also be desirable.

In addition to these essential skills and competencies it would also be desirable to take

into consideration the past working experience of a prospective CDE / CDA. Person

having worked on assignments involving SME development either in technical NGOs,

scientific institutions, or corporate concerns, could be preferred and would have an added

advantage. It is also essential to emphasize that apart from the core competencies and

experience required of a CDE/CDA, it is most essential to ensure that the person selected

attends a comprehensive foundation training programme that sensitizes him for his

assignment as a CDE / CDA. This programme should be very carefully designed to cater

to the specific training needs of these key functionaries and should be made an essential

pre condition before the person is assigned the task of a CDE / CDA. It is equally

important to emphasize that one cannot expect to find a CDE/CDA who has all the

desirable traits required to handle this pivotal function. It is therefore essential to

ensure that he is attached to and constantly assisted by the regional office of the MSME,

further assisted by a Mentor (individual or institution), supported also by an appropriate

sector specific scientific and technological institution, and the relevant BDS providers. A

Local Network Agent who belongs to the specific cluster and is familiar with the area and

the local language should also assist the CDE/CDA in all cases. This assistance from

below is most essential for the CDE/CDA to carry out his or her day-to-day functions,

and to remain in constant touch with the individual units that form the cluster.


64

It may finally be stressed that it is absolutely essential for the CDE to operate from a

field office cum residence, which is located in the cluster area. His office should be

adequately equipped and he should be provided the means to be able to travel

frequently both inside and outside the cluster area.

3.4 The Profile of CDEs in Sampled Clusters

In this section we look at the general profile of the CDEs in the sampled clusters covered

during our study. The information was canvassed through a schedule specially designed

to obtain the responses of the CDEs currently posted in the clusters covered by us. It

may be mentioned that only in the case of one cluster was the concerned CDE not

available as it was reported that the CDE had not been appointed in the cluster, and

furthermore that no soft interventions were carried out. Hard interventions were

however undertaken after the formation of the SPV and the CFC for this cluster has been

commissioned and has started to function. This appears to be an exceptional case where

in all the functions normally carried out by the CDE were ‘successfully’ undertaken by

‘other’ entities.

It is seen in Table 3.1 that the 21 CDEs who are presently assigned to the sampled

clusters have a wide and diverse range of educational qualifications. As many as 7 of

these 21 CDEs have a general under-graduate or graduate degree or diploma. There are

12 CDEs that hold technical degrees or diplomas, while there are only 2 CDEs that have

qualifications related to management. It may be also seen that while two of the CDEs

hold graduate diplomas in Footwear Technology there are two others who hold diplomas

in Metallurgy.


65

Table No.-3.1: PROFILE OF CLUSTER DEVELOPMENT EXECUTIVE IN SAMPLED CLUSTERS Sl Cluster Name CDE Name Parent

Department Age of CDE

Educational Qualification

Years of Service

Years of

Service as CDE


M.K. Handique IIE 47 M. Com 21 3

2 Food Processing Cluster Muzffarpur

K.M. Bangar MSME 56 M.Sc. 29 8 Months


G.P. Agarwal MSME 48 Diploma in Footwear Technology

27 4


Debashish Ghosh MSME 48 B.Sc. (Tech) 27 3


Chandan T.S. Kerala Industries Department

43 M.A. (Economics)

18 6 Months


B.N. Kapoor MSME 49 M.A., Master of Marketing Management

27 4


P.N. Solanki MSME 42 Diploma in Metallurgy

23 1.4


B. Sivaprasad Kerala Industries Department

51 M.A. 19 1

9 Rubber Cluster Chengnacherry

Sathyaraj N Kerala Industries Department

48 B. Tech. 18 5


Ajay Sharma MSME 44 B.E. 12 2.5


B.B. Panigrahi MSME 41 M.A. 17 2

12 Bell metal Cluster Hazo S. Deka MSME 44 B. Tech. 23 3 13 Brass Utensil Cluster

Pareo D.K Singh MSME 55 M. Tech. 30 1.5


B.C. Singh Bisht MSME 54 Diploma in Footwear Technology

27 3


R.S. Nirwan IIE 31 B.Com. 6 3


Arvind Patwari MSME 50 M. Tech. 17 3


NO CDE was appointed

18 Plastic Cluster Aluva Neelambaran K.V. Kerala Industries Department

47 B.A., Diploma in Cooperation

24 1


S.S. Bedi MSME 52 B.A. (3 yr. Diploma)

30 6


S.K. Roy MSME 59 Diploma in Metallurgy

37 4


V. Ramakrishanan SIDO 40 B.E., MBA 20 5


K.C. Singh Govt of India (Ministry of Science & Technology)

47 B. Tech. 25 3


66

Such a wide variation in the educational background of the CDEs indicates that they are

not selected on the basis of a defined set of qualifications required for the assignment,

but have been recruited and deployed on the basis of their availability. The large

number of CDEs with technical qualifications is also not always useful as the specific job

of the CDE requires organizational and managerial skills rather than technical skills. The

required day-to-day functional technical or scientific inputs are normally available among

experienced cluster actors and the specialized inputs required can be accessed from the

appropriate technology and science institutions or advisors outside the cluster. It may

be concluded that the profile of qualifications for our CDEs in the sampled clusters does

not conform to the core competencies required for the job.

Turning our attention to age and experience are finds that as many as 14 of the 21 CDEs

(66 percent), are in the late 40s and 50s age group, not ideally suited for an active field

assignment. These CDEs have also put in several years of service, however their

experience as CDEs in most cases is quite limited. It is also seen that a fairly large

number of CDEs have been drawn from the MSME-DIs, and there are 12 out of the 21

CDEs covered who belong to these regional establishments of the MSME. There are also

4 CDEs that have been drawn from the state industries departments/organization while

the remaining three belong to other institutions. This also leads to a high degree of

inbreeding which is not always desirable. There is thus a need to break out of the

confines of a narrow set of institutions and draw the required talent and expertise from a

wider arena consisting of technical NGOs and the corporate private sector. There should

also be an attempt to recruit younger persons, who may have the requisite educational

background or experience more suited to the tasks at hand.

Apart from revamping the recruitment system for CDEs, adequate efforts are needed for

the proper identification and incorporation or ‘Mentors’ and Mentor Institutions in the

programme. These Mentors and Mentor Institutions are required to guide and advise the

CDEs in their tasks. The CDEs too are required to be assisted in his day-to-day work, by

a Local Network Agent. It is also necessary to ensure that the CDE is allowed to carry

out his well-defined tasks and is not burdened with responsibilities that are not directly

related to the Cluster Development Programme. It is often noticed that the agencies

that control the CDEs assign additional responsibilities that distract the CDE from his

focused task.

Another factor seriously affecting the work of the CDEs is frequent transfers. The CDE

should thus be appointed for a cluster specific tenure, which should normally be long

enough for him to see the cluster through its various stages of development. This is all

the more important as the CDE develops his competencies considerably while being

posted in a specific cluster. This on the job cluster specific expertise is likely to turn out

to be exceedingly useful in the subsequent development of other similar clusters.

3.5 Awareness of Current Job Responsibilities

Having highlighted the current profile of the CDEs we now proceed to evaluate the level

of awareness that the CDEs have regarding specific job responsibilities. We have also

tabulated the responses of the CDEs regarding their confidence levels in carrying out the

assigned tasks. This helps us to identify the specific tasks where awareness and


67

confidence levels are low. The effective functioning of the CDE to catalyze cluster

development depends on the extent to which he understands his job responsibilities and

has the necessary level of confidence to carry out these tasks.

In Table 3.2, there are 12 specific job responsibilities that each CDE is required to

shoulder. These are normally functions and responsibilities that arise in the context of

soft Interventions under the Cluster Development Programme of the MSME. These soft

interventions once successfully carried out, prepares the cluster to collectively attempt

the ‘Hard Interventions’. There are 3 specific job responsibilities related to the hard

interventions where in the CDE has an important role to play. The CDE along with

cluster members who agree to form an SPV have to work hard in the formulation of the

articles of association and rules of the SPV and assist the members forming the SPV to

formally register the body. The CDE along with experts, also has to assist in the proper

formulation of the DPR and related estimates, and take all the necessary follow up action

to get the DPR approved by the concerned authorities. Once the DPR is formally

approved the Common Facility Centre (CFC) has to be set up, tested and commissioned.

At this last stage of the hard intervention, the CDE can be relieved from the cluster and

can take up a fresh assignment.

Table No.-3.2: AWARENESS AND CONFIDENCE LEVELS AMONG CDES REGARDING CURRENT JOB RESPONSIBILITIES

Sl. No.

Job Responsibilities Responses (numbers)

SOFT INTERVENTIONS Awareness Confidence Level

1. To Prepare a Diagnostic Study. 14 5

2. Trust Building among Units and Strengthening of Associational activities in the Cluster.

14 7

3. To Increase Awareness about CDP and its Benefits. 16 8

4. Organizing Exposure Visit. 18 18

5. Conduct of Training Programmes /Seminars on Capacity Building.

15 5

6. Development of Information Bank and Common Website for Cluster.

8 2

7. Development of Product Brochures and Information CDs for Cluster Products and Prices.

5 1

8. Organizing Industrial Promotion Activities and Participation in Industrial Fairs.

12 6

9. Organizing Financial Assistance/Credit Facilities. 10 2

10. Awareness Creation and Introduction of New Technology and Technology up gradation.

10 5

11. Development of New Products, Market tie-ups and tie ups with Technical Institutions and BDS providers.

5 1

12. Creation of Raw Material Bank and Spares through Collective Procurement.

4 2

HARD INTERVENTIONS Awareness Confidence Level

1. Formation of Special Purpose Vehicle/Consortia. 5 2

2. Preparation of Detailed Project Report (for developing CFC) and following up on its timely approval by concerned authorities.

5 1

3. Setting up of the CFC and its testing and Commissioning.

5 2


68

It is seen that awareness regarding the job responsibilities are quite high in the case of 8

of the 12 specific functions related to soft interventions while it is fairly low in the case of

4 of the 12 specific functions. Awareness regarding the role and responsibilities related

to the development of an information bank and portal, the development of new product

brochures and information CDs, the development of new products and market and

institutional tie-ups, and the creation of raw material banks and spares through collective

procurement are areas where the CDEs have a very low awareness as reflected in their

responses. Moreover the confidence levels for shouldering these responsibilities

effectively are found to be uniformly low among the CDEs. This reflects the deficiencies

in the proper grounding and training required to effectively carry out these functions.

Most soft interventions require the CDEs to have the required expertise in the

behavioural, organizational and managerial skills and it is not surprising to observe such

low levels of confidence considering the educational and experiential background of the

CDEs as seen in our earlier section.

The functions and responsibilities pertaining to hard interventions also require additional

hard skills such as project formulation and monitoring. Here even the awareness

regarding functional responsibilities are very low leave alone the level of confidence to

effectively carry out the tasks involved.

3.6 Tenure and Stage of Deployment of CDE

As seen in the earlier chapter the Cluster Development Programme passes through 5

distinct stages, the first stage involves the conduct of a diagnostic study and the

identification and selection of the cluster for subsequent interventions, the last stage in

the setting up of the Common Facilities Centre and the commissioning of the CFC. The

CDEs should be assigned or deployed in a cluster from the very first stage, and should

continue to catalyze and assist in the completion of all the stages over the time cycle of

the programme in each selected cluster.

Ideally speaking, the CDE should be assigned to or deployed in a cluster from the very

first stage and must continue to carry out his functions till the last stage is successfully

completed. This enables him to thoroughly familiarize himself with his cluster, gain the

confidence of individual cluster actors, develop the necessary network with other cluster

partners and stakeholders such as BDS providers, technical consultants, and regulating

and monitoring agencies. It is therefore essential that his tenure as the CDE in a specific

cluster conform to the expected programme cycle for that cluster. This continuous and

uninterrupted deployment makes him accountable to the stakeholders and programme

managers.

It is also observed that CDEs are constantly and frequently transferred from one cluster

to another not allowing them the time to gain the confidence of cluster actors and

stakeholders, and not giving him the required stability of tenure to thoroughly familiarize

himself with any specific cluster. He would, like the proverbial ‘rolling stone’ gather no

moss. However this does not mean that the CDE should be permanently deployed in a

cluster and not assessed for his performance of successfully completing the stages within

defined segments of the programme cycle. We have seen in the last chapter that there

are many sampled clusters that have lingered on in the 1st stage for many years and


69

“soft interventions” seem to continue in perpetuity. Such a situation can lead to a

serious loss of credibility not only for the CDP as a whole, but also the CDE in particular.

In such situations cluster actors seem to be the ultimate losers and often fail to realize

the potential for improving their lot through collective action. They often loose their

livelihoods falling prey to predatory competitors, and becoming increasingly dependent

and exploited.

It is therefore essential to assess the performance of CDEs regularly, adequately

rewarding them for good performance while also penalizing them for failures. Such

safeguards can only be ensured through a complete review of the terms of appointment

and tenure of the CDEs. Failure to perform according to the standards set, should in the

case of CDEs who are on deputation from parent organization, lead to a reversion to the

parent cadre. In the case of CDEs directly recruited, failure to perform as per standards

of assessment should lead to a termination of the contract. In other words no

permanent appointments should be made in the case of CDEs.

On the basis of information canvassed through the CDE schedule we have compiled

Table 3.3 wherein the stage at which the CDEs were assigned to or deployed in the

sampled clusters is highlighted. It is encouraging to note that as many as 10 CDEs out

of a total of 21 CDEs, (47.62 percent) joined the specific cluster at the first stage and

continue to work in these assigned clusters. They have thus enjoyed a fairly stable

tenure and have not been shunted about Table 3.3 also indicates that 5 of the 21 CDEs

(23.81 percent) joined their respective clusters after the diagnostic study was completed

by their predecessors and after the cluster had been identified. They were assigned their

clusters at the time when the soft interventions were initiated. These 5 CDEs have also

continued to work in their respective clusters undisturbed by transfers and have also

enjoyed an uninterrupted tenure. It must be emphasized that these figures do not

necessarily mean that these clusters have progressively graduated to the higher stages

of intervention, on the contrary, a fairly large number of clusters continue to linger in the

1st stage itself as was seen in the earlier chapter.

Table No.-3.3: STAGES AT WHICH CDEs WERE DEPLOYED IN SAMPLED CLUSTERS

Stage at which CDEs Deployed Number of CDEs % Distribution

Stage I (A): Diagnostic Study / Cluster Identification

10 47.62

Stage I (B): Starting of Soft Interventions 5 23.81

Stage I (C): Middle of Soft Interventions 1 4.76

Stage II & III: Formation of SPV / Preparation and Approval of DPR

1 4.76

Stage IV & V: Setting up of CFC/ testing and Commissioning of CFC

4 19.05

Total 21 100.00

It is also seen that 1 of the 21 CDEs (4.76 percent) was deployed in the middle of soft

interventions. Another CDE was assigned the cluster during Stage II while as many as 4

of the 21 CDEs were assigned their clusters during Stage IV. These figures indicate that

as many as 6 out of the 21 CDEs (28.57 percent) have joined the cluster during the later


70

stages, and have not had stable tenures. Most of them do not have much credibility

among cluster actors and do not command much respect, their near redundancy and

limited usefulness is obvious among SPV members and this has seriously affected their

self esteem, self confidence, morale and motivation. There is also a tendency on the

part of the parent organization to assign them tasks, which are strictly not related to the

CDP.

3.7 The Training of CDEs

Training and the sustained development of skills is a continuous and ongoing process

and should form a recognized and integral part of any long term strategy and policy

design for cluster based industrial development. The key field functionary of this

programme, namely the CDE, learns a great deal from his actual work situation and

experience. However like any other professional, he has to keep abreast with functional

skills through well designed training programmes that particularly focus on the functional

competencies that are required to achieve the objectives of the CDP. The CDP thus

needs to evolve a training strategy based on the specific objectives of the CDP wherein

unlike general management training certain management and administrative disciplines

need to be focused on.

At present training is not being accorded the priority that it deserves. Though adequate

physical infrastructure exists within the MSME-DIs these facilities need to be properly

maintained and optimally utilized. Very limited training opportunities are currently

available for key functionaries of the CDP. Apart form a general training programme for

CDEs, a few refresher course are also being offered. However the design, content, and

pedagogy of these training programmes appear to be grossly deficient and have hardly

had the desired impact.

Detailed discussion with CDEs currently posted in the sample clusters lead us to believe

that a major constraint in the area of training arises from the fact that once a CDE is

deployed in a specific cluster, work pressures and time lines prevent them from

attending training programmes particularly those that are of a long duration. At present

the absence of a ‘Mentor’ or a local Network Agent provides no effective substitute to

manage the important day-to-day functions of the CDE even for short periods while he is

away on a training assignment.

It is therefore suggested that the training needs of the CDP should be effectively

addressed through the proper design and conduct of two types of training programmes.

The first should be a long-term programme of 12 to 14 week duration. This programme

should be the Foundation/Orientation Training Programme for CDEs. This programme

must be strictly targeted at the fresh CDEs that are newly recruited. This programme

must be carefully designed on the basis of a training needs analysis and an expert

training institution should be required to design and conduct the programme in one of

the Regional MSME-DIs. The second type of training programme should be a short term

refresher programme. Under this programme four specific thematic modules should be

designed. Each module should be of a 10-day duration and comprehensively cover the

four thematic areas, which are as follows:

� Behavioural and Organizational Skills for CDEs.

� Presentation and Articulation Skills for CDEs.


71

� Project Formulation, Management, and Monitoring Skills for CDEs.

� Financial Management and Accounting Skills for CDEs.

It is essential for each of these modules to be designed and conducted by expert

institutions, which specialize in each of the thematic areas. Though it is necessary to

conduct these programmes at the Regional MSME-DIs in order to ensure that the

facilities available are properly maintained and utilized. It is also necessary to earmark

adequate funds for training. Additional resources will be required for the design and

regular conduct of these programmes in the 11th Plan Period.

It is important to emphasize that these refresher programmes should be sequenced to

conform to the project cycle of about 3 years with modules (a) and (b) being offered to

those CDEs who are involved in soft interventions. The (c) and (d) modules should be

targeted at those CDEs who are involved with hard interventions. It may also be noted

that these refresher programmes cater to the needs of all the existing as well as the

newly recruited CDEs. Attending these programmes should be made statutory and all

further increments and promotions should be subject he regular attendance and

successful completion of these programmes.

Turning now to the present status of training provided to CDEs in the sampled clusters,

we see in Table 3.4 that of the 21 CDEs covered during this study as many as 19 claims

to have attended the training programme for CDEs. It is to be further noted that most of

them have attended only one such programme after being appointed as CDEs. Moreover

there are 2 CDEs that have not attended any training programme related to Cluster

Development. It may also be mentioned that only one CDE has attended a refresher

programme in addition to the general programme for CDEs.

Table No.-3.4: STATUS OF TRAINING AMONG CDEs

Participation in Training *

Adequacy of Training

Inadequacy of Training Total CDEs Interviewed

Yes No Yes No N.R. Due to Deficiency in Content and

Design

Due to Deficiency in Pedagogy

21

19 2

10

9

2

7

9

Note: * Most CDEs who report to have participated in training have attended only one programme during their present tenure, while one CDE has attended an additional refresher course. N.R: No Response

Table 3.4 also highlights the responses of CDEs regarding the inadequacy of the training

they have attended. It is seen that of the 19 CDEs who participated in training as many

as 9 reports that the training provided was inadequate while 7 out of the 9 respondents

report that the deficiencies in training were on account of content, and design, all the 9

respondents report that the pedagogy adopted was also deficient. Discussions have

revealed a distinct preference for focused training in the relevant functional areas, the

use of the case study method, and field visits and interaction with projects that have

adopted a set of best practices, and also projects that have failed to deliver.


72

3.8 Functional Resource Requirement of CDEs

Having discussed the role and functions of the CDEs, the functional competencies and

training needs of the CDEs, and also the tennurial conditions of CDEs, we must now

discuss the resources and facilities that are required by the CDE especially in the context

of the varied functions and responsibilities that are expected of him.

The functions and responsibilities of the CDE are extremely challenging and requires him

to be in close and constant touch with all the individual cluster units at all times. This

often requires him to functions from an independent field office located at a close

proximity to, if not in, the cluster area itself. To ensure his availability he must also

reside close to the cluster. In this regard the ideal arrangement would be that he is

provided with a residence cum field office facility along with adequate office

infrastructure and some office assistance.

The CDEs functions also involve networking with a large number of other stakeholders,

BDS providers, S & T Institutions, Equipment Suppliers, Market Promotion Agencies and

the like. His job thus requires frequent travel and communication both within and

outside the cluster area. He thus needs to be provided Communication and Transport

facilities/allowances. The frequent work related travel outside the cluster area and long

hours of work, entails daily allowances and other special field allowances. These are

often provided as “perks” and through “generous” reimbursements in the corporate world

(which includes public sector firms) for executives with far lesser functions and

responsibilities as compared to the CDE.

The CDE also requires the support of a Mentor/Mentor Institution which can guide and

assist him in carrying out his functions effectively. The effectiveness of the CDE is

considerably enhanced if a Local Network Agent who resides within the cluster area and

is well versed in the local language and culture assists him. The Mentor/Mentor

Institution, the CDE, and the Network Agent form a core team that can function far more

effectively as compared to a lone CDE. The provision of this additional field assistance

seems necessary considering the varied functions and responsibilities expected of a CDE.

Finally the CDE also requires regular training for updating and keeping abreast with the

functional skills essential for effectively carrying out his tasks.

In Table 3.5 we have recorded the responses of the CDEs regarding the adequacy of

resources as well as the additional assistance required. It is seen that 10 of the 21 CDEs

contacted during this study report that the resources provided to effectively carry out

their functions and responsibilities are adequate. However there are 11 CDEs that

consider the resources inadequate. As for the specific type of additional facilities and

assistance required the number of responses is uniformly large in the case of all 5

categories of assistance. This issue needs to be looked into and all attempts made to

allocate additional resources for the purpose during the 11th plan period.


73

Table No.-3.5: RESPONSES ON THE ADEQUACY OF RESOURCES AND ADDITIONAL

ASSISTANCE REQUIRED

Adequacy of Resources Numbers of CDEs Responding

Adequate 10

Not Adequate 11

Additional Assistance Required Numbers of CDEs Responding

Independent Field Office cum Residence, Office Infrastructure and Office Assistance

9

Communication and Transport Facilities / Allowances

11

Additional Field Allowances 10

Additional Field Assistance, Mentor or Mentor Institution

11

Access to Regular Training for improving / updating functional skills

9

3.9 Perception of CDEs on Factors Enabling Cluster Development

The close association and experience of CDEs in Cluster Development enable them to

clearly perceive the prime factors that enable such development. Their involvement in

catalyzing a strong consensus among individual cluster actors and effectively removing

the constraints that hinder collective initiatives in their respective clusters also enables

them to rank the importance of these prime factors. Systematically canvassing these

perceptions of key functionaries helps in strengthening and prioritizing the policy frame

for effective interventions. This information is particularly useful in developing proper

guidelines for the conduct of the diagnostic study, which helps in the identification of

clusters while also highlighting the probability of success of the programme in the

identified cluster.

We have observed that a very large number of clusters have been identified, most often

without a proper diagnostic study and also due to various political pressures. We feel

that the number of clusters identified are also far in excess of the financial,

administrative, and human resources available for the Cluster Development Programme.

It is expected that a clearer perception on the prime factors that enable cluster

development and the relative importance of these factors will help in evolving a more

scientific method of identification of clusters and help in selecting only those clusters that

have a high probability of success in terms of achieving the basic objectives of the

Cluster Development Programme. It must be emphasized that these factors should be

taken into consideration in order to ensure both a proper selection of clusters, and their

viability, as well as sustainability. On the basis of our study and the related discussions

we have had with key functionaries it is felt that the programme has been over extended

too quickly thereby seriously diluting its impact.

We now turn to Table 3.6, which incorporates the perceptions of CDEs in our sampled

clusters regarding the prime factors as well as their relative importance for enabling


74

cluster development. It should be noted that the number of CDEs responding on these

issue is fairly low. To some extent this reflects a lack of awareness regarding the CDP

itself. The identification and ranking of factors enabling cluster development depends on

how comprehensively the CDE understands and perceives the various issues involved.

Table No.-3.6: RESPONSES OF CDES ON PRIME FACTORS ENABLING CLUSTER DEVELOPMENT

Sl. PRIME FACTORS NUMBER OF CDES

RESPONDING

RANKING OF PRIME FACTORS

1. Clusters that are less dispersed 13 4

2. High Skill based Clusters 4 12

3. High Product range clusters 7 10

4. Clusters with greater access to R&D institutions 12 5

5. Labour intensive clusters 5 11

6. High Density Clusters 8 9

7. Highly Homogeneous Clusters 14 3

8. Clusters facing threats from competitors 9 8

9. Cluster with well established and active associations

16 1

10. Clusters with common facilities (for testing, quality control, and standardization)

10 7

11. Clusters with clarity of Vision and Mission 15 2

12. Clusters with greater access to Information 11 6

13. Clusters endowed with an abundance of locally available raw materials.

11 6

It is seen that the largest number of responses pertains to seven of the 13 prime factors

listed in the table namely:

� Clusters with well-established and active associations.

� Clusters with clarity of Vision and Mission.

� Highly homogeneous clusters.

� Clusters that are less dispersed.

� Clusters with greater access to Research and Development.

� Clusters with greater access to information.

� Clusters endowed with an abundance of locally available raw materials.

It is seen that these seven factors are also ranked highly. The remaining factors are

perceived to be relatively less important and ranked accordingly. However this does not

mean that they should not be considered, in the identification of potentially viable and

sustainable clusters.

It also needs to be mentioned that the seven prime factors are fairly quantifiable and if

correctly measured or assessed at the diagnostic or even pre-diagnostic stage preferably

by a competent agency or an expert appointed to carry out such pre-diagnostic studies,

they may further be developed into a viability and sustainability index which should

enable the choice and prioritization of intervention.


75

All the 13 prime factors enabling cluster development are important and need to be very

carefully studied before a cluster is finally selected for intervention.

In addition there are some more issues that need to be considered which have a wider

national policy connotation. It is noticed that clusters are being identified across a very

wide range of sectors and many of the cluster based initiatives/industrial activities are

being actively taken up by leading banks, and other ministries. The MSME should avoid

duplication and unhealthy competition by staying away from clusters that are being

supported by other ministries and State Industrial Agencies.

Chapter No: 4 – Soft Interventions in Sampled Clusters

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4.1 Introduction

“Soft Interventions”, as they are most inappropriately termed are not ‘soft’ at all as the

term may imply. They are vital trust building measures undertaken to promote

cooperation among individual cluster units. These measures are intended to bring

cluster units together on a common platform by making them realise their collective

strengths as compared to their strengths as individuals units.

These measures are aimed at providing a spark or a critical inducement, to catalyze

collective action and to unravel the enormous latent power of cooperation that can lead

to concrete individual benefits. The measures cement the bonds between individual units

and bring them on to a common platform, strengthening their resolve to act together,

and to unleash their collective strength. As such they are the basic and preparatory

steps which are most essential to create the conditions for the successful implementation

of the Cluster Development Programme. These measures are aimed at building a strong

consensus around a feasible and well-designed action plan to strengthen the cluster, with

the support of the state.

The nature of the clusters differs widely in terms of their input requirements, outputs,

production processes, as well as developmental stages. In some cases they may be

already evolved and active while in other cases they may be less evolved, passive, and

inert. The size and scale of activities and the degree of development are important

differentiators and as such the problems that they confront may be substantially different

in each case. Moreover, first generation small entrepreneurs in new businesses who are

likely to be more educated and progressive in their outlook, would require to be

mobilised and motivated for collective action. A different approach would have to be

followed, and a different support system would have to be provided to them, as

compared to others who have evolved in the activity over many generations.

Similarly, existing MSEs require different services at different stages of their growth,

especially those that relate to modernisation and up-gradation of production processes,

additional financing, new markets, etc. Additionally, MSEs are likely to have sector

specific requirements. The soft interventions have to take into account all these

parameters while designing the action plan for such interventions.

The Cluster Development Executive acts as a guiding force in the planning and

implementation of soft interventions. The roadmap for soft interventions is laid during

the preparation of the diagnostic study itself. The diagnostic study must also identify

the needs of the cluster actors, as well as their common aspirations. The

comprehensiveness of the diagnostic exercise helps in correctly identifying the common

needs, that when articulated through an action plan, assists in building trust and

cohesiveness.

SOFT INTERVENTIONS IN THE SAMPLED CLUSTERS

CHAPTER 4


77

The CDE catalyses frequent interaction among the cluster members and also with other

important stakeholders in the CDP. Awareness programmes, training sessions and visits

to existing clusters within the country, and outside are, arranged to aid the process of

increasing awareness of the power of collective interventions that strengthen the cluster

as a dynamic entity with immense inert potential for development through cooperation.

Soft interventions can be divided into three specific categories that need to be

sequenced in the following order:

4.1.1 Awareness Creation

The first task is to create a high-level awareness and interest of the cluster actors about

the various benefits of the Cluster Development Programme. The actors should be

exposed to the objectives, the guidelines and norms designed to strengthen collective

benefits and the effective exploitation of the economies of scale.

At this stage, the CDE organises meetings with the actors through their associations and

at the individual level. This effectively increases self-confidence and self esteem and

removes various apprehensions and doubts regarding the viability and sustainability of

the action plan by exposing them to the experiences of other successful cluster initiatives

at home.

4.1.2 Confidence Building

Having created awareness, the Cluster actors need to be exposed to the external

situation and technological advancements to make them understand the benefits of the

adoption of these for the development of their own cluster. The actors need to be told of

the benefits of coming together through the formation of an SPV. Exposure visits to other

clusters within the country training programmes to enhance the horizon of the actors are

some of the programmes that are undertaken at the second stage. Experts from these

institutions also facilitate linkages with the financial, technology and marketing

institutions, through these visits and through presentations.

4.1.3 Capacity Building

Having understood the concept of cluster development and need for collective

functioning, the cluster actors can then be motivated to form a Special Purpose Vehicle,

identify and evaluate the options for setting up the Common Facility Centre, while also

democratically choosing the most suitable form of a legally recognised organisation to

initiate common facilities most needed by the cluster. Achieving the highest level of

consensus about these facilities is most important to harness all the latent collective

energy of the cluster.

4.2 Soft Interventions under the CDP

All the clusters have carried out activities and programmes related to the creation of

awareness about the Cluster Development Programme. Most of the clusters have

undertaken exposure visits also. The Programmes related to energy efficiency, which has

an important role in improving the productivity of units, particularly so in the secondary

goods based clusters, have been undertaken only in two primary goods based clusters.


78

Developing financial linkages is important for strengthening the artisan-based clusters. It

has been observed that only two clusters have undertaken initiatives in this direction.

The following Table 4.1 highlights the soft interventions recommended on the basis of

Diagnostic Study, and those actually carried out in the sample clusters. As the table is

very detailed and incorporates a wide range of interventions it has been appended at the

end of this chapter.

4.2.1 Allocation and Utilization of Funds for Soft Interventions

The fund allocation for soft interventions varies widely across different sampled clusters.

The absence of any uniformity across different clusters indicates the discriminatory

nature of these allocations. They are devoid of any rationality and reflect ad-hoc

decisions on the part of authorities. As seen in Table 4.2, the Rice Flakes Cluster

Ahmedabad, has the lowest fund allocation of Rs. 13.64 Lakhs for three years while

White ware Cluster Khurza had the highest allocation of Rs 67 Lakhs. All clusters, except

Diesel Engine Cluster, Rajkot could not make 100% utilisation of the allocated funds. The

range of utilisation of funds varies between 24% in case of the Rice Flakes Cluster

Ahmedabad to 91% in the case of Bamboo Cluster Dimapur.

The two clusters having the highest rate of utilisation of the allocated funds are Diesel

Engine Cluster Rajkot and Bamboo Cluster Dimapur. Both these clusters have CDEs from

EDI and IIE respectively. The clusters directly handled by the field offices of MSME have

a low utilisation of funds allocated for the soft interventions.


79

Table No.-4.2: ALLOCATION OF FUNDS FOR SOFT INTERVENTIONS

Sl Cluster Date Amount Received

(In Lakhs)

Total Amount Utilised

(In Lakhs)

% Utilised

2004-05 8.40 1.90

April 2005 4.70 1.48

1. Rice Milling Cluster Karnal

July 2007 12.67 7.67 Total 25.77 11.05 42.8

April 2004 6.95 1.94 July 2005 3.70 .70


July 2006 2.99 .68

Total 13.64 3.32 24.3 3. Rice Milling Cluster

Kalady No funds allocated by MSME.

4. Food Processing Cluster Muzffarpur

Information not made available


No funds allocated by MSME.

Dec 2004 4.30 00 Sept 2005 13.82 11.50 August 2006 17.00 14.8

6. Bamboo Cluster Dimapur

July 2007 9.88 14.90 Total 45 41.2 91.5 7. Plywood Cluster

Perambavoor No funds allocated by MSME.

July 2005 5.55

June 2006 9.69

8. Leather Goods Cluster Agra

Oct 2007 7.76

Total 23 July 2005 16.45

June 2006 14.85


Oct 2007 21.54

Total 52.84 10. Cotton Hosiery

Cluster Kanpur Information not made available

11. Plastic Cluster Aluva No funds allocated by MSME

2005-06 45 45 12. White ware Cluster Khurza 2006-07 22.5 12.0

Total 67.5 57.0 84.4

April 2004 8.90 5.70

Jan 2005 9.75 4.33

13. Brass Utensil Cluster Pareo

July 2006 12.30 3.09

Total 30.95 13.12 42.3


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Table No. 4.2- (Contd.)

Sl Cluster Date Amount Received

(In Lakhs)

Total Amount Utilised

(In Lakhs)

% Utilised

11.2005 6.40 5.22

07.2006 10.52 9.92

14. Bell metal Cluster Khurda

11.2007 19.52 11.43

Total 36.44 26.57 72.9 August 2004 8.10 4.12

June 2005 5.25 3.72

15. Bell metal Cluster Hazo

July 2006 15.65 14.23

Total 29 22.07 76.1 16. Foundry Cluster

Ahmedabad Soft Interventions not undertaken

July 2005 5.15 00

July 2006 10.30 7.72

17. Ball bearing Cluster Jaipur

Oct 2007 19.00 7.25

Total 34.45 14.97 43.4

2004-05 8.4 5.56

2005-06 9.5 7.52


2006-07 21.75 8.98 Total 39.65 22.06 55.6

April 2004 15.20 3.08

July 2005 16.45 12.17


July 2006 18.80 7.72

Total 50.45 22.97 45.5 June 2004 11.55 6.15

July 2005 12.15 3.45


July 2006 16.10 11.46

Total 39.8 21.06 52.9 May 2004 12.45 2.60

August 2005 19.75 9.87


July 2006 11.08 1.84

Total 43.28 14.31 33 August 2003 15.00

Dec 2004 7.5

22. Diesel Engine Cluster Rajkot

March 2006 7.5

Total 30.0


81

4.2.2 Beneficiary Responses on Awareness of Soft interventions

As seen in Table 4.3, the programmes/seminars to enhance awareness have the highest

level of responses among the cluster actors. This is followed by the response related to

participation in the exhibitions and tours to model clusters/institutions and technology

demonstrations. Awareness regarding participation in international fairs was relatively

low indicating that these activities were either confined to limited participation or not

undertaken at all. The responses related to other soft initiatives such as common

website, development of common marketing brochure/news letters, export meet, craft

shows, food melas, loan schemes and other interventions have a very low response

regarding awareness indicating that these activities were either not carried out or

confined to a very few cluster actors.

Table No.-4.3: RESPONSES ON THE AWARENESS OF ACTIVITIES UNDERTAKEN UNDER

SOFT INTERVENTIONS

Activity/ Programme Units Responding % Distribution Training Programme / Workshop / Seminar 246 85

Participation in Exhibitions 161 56 Tour to Model Cluster / Institution /Technology Demo 101 35 Participation in Foreign Fairs 41 14 Common Website 60 19

Brochure /News letter for Cluster 44 14 Export Meet 32 11

Craft Show 10 3

Food mela 6 2 Loan scheme 2 1

Others 16 5 Base: All Respondents 323 100

4.2.3 Beneficiary Responses on Participation in Soft

Interventions

As seen in Table 4.4, the participation of beneficiaries in soft interventions has been

substantial in only three activities namely training programmes/workshops /seminars,

exhibitions/fairs, and exposure visits. The participation in other activities has been very

low indicating the choice of soft interventions among cluster actors.


82

Table No.-4.4: RESPONSES ON THE PARTICIPATION IN THE ACTIVITIES UNDER SOFT INTERVENTIONS

Activity/ Programme Units Responding

% Distribution

Training Programme / Workshop / Seminar 202 78

Participation in Exhibitions 106 41

Tour to Model Cluster/Institution/ Technology Demonstration

69 27

Meeting on Exports 27 9

Participation in Foreign Fairs 17 7

Craft Show 7 3

Food Mela/ Exhibition 6 2

Dev of Newsletter for Cluster 3 1

Common Website 3 1

Common Purchase of Raw Materials 2 1

Loan Scheme 1 0

None 32 12

Total No. of Units Sampled 323 100

4.2.4 Responses on the Benefits Derived from Soft Interventions

The sampled beneficiaries were asked to indicate the extent of benefits that they had

derived form soft interventions carried out in their cluster. As seen in Table 4.5, only

27% of the sampled beneficiaries indicated that they had substantially benefited from

soft interventions, while 35% indicated that they had benefited to a limited extent. The

cluster actors indicating that they had not benefited were 11% while the respondents not

offering any opinion was as high as 27%. The responses obtained on this issue reflect

that the soft interventions have not been as effective as they are designed to be.

Table No.-4.5: RESPONSES ON EXTENT OF BENEFITS RECEIVED BY THE UNITS FROM

SOFT INTERVENTION ACTIVITIES

Responses Units Responding Percentage Distribution

Benefited substantially 86 27

Benefited to a limited extent 113 35

Did not benefit 37 11

No opinion/ No response 87 27

Total 323 100

4.2.5 Impact of Soft Interventions

The impact of soft interventions on the sampled cluster actors was assessed on the basis

of responses related to several important indicators such as feeling of togetherness,

better competitiveness, higher awareness regarding new technologies, trends in

marketing, awareness regarding reduction of waste/increase in productivity/quality,

improved skills, improved techniques, modern trends and demands, and better

manufacturing practices.

Having discussed these responses we may state that soft interventions are extremely

important initial steps that lay the basic foundation for the Cluster Development


83

Programme, and if carefully planned, selected, and sequentially implemented according

to the specific characteristics and related needs of a cluster, can have a lasting impact.

However it has been observed on the basis of our study that these soft interventions

have not been implemented scientifically and rigorously and that both the content and

efforts related to these interventions have been rather ineffective and diffused. As such

soft interventions have not had the desired impact. The present level of ineffectiveness

of these important interventions is likely to be on account of several important factors.

The major reasons however seem to be that the required competencies among the CDEs

is quite low. This can only be improved through proper recruitment, tennural conditions,

and the training of CDEs, issues that have been discussed in some detail in the earlier

chapters.

The second reason, we feel is due to the extended period of three years over which ‘soft’

interventions have been carried out, this is likely to cause slackness which in turn could

lead to a loss of interest among cluster actors who are always keen of quick and concrete

results.

The third major reason seems to be the use of the term “soft” which is likely to give the

impression that these interventions need not be taken too seriously. This does not mean

that soft interventions are ineffective and thus unnecessary. These interventions are

extremely important and need to be effectively implemented through the adoption of a

more focused and professional approach.

4.3 Earmarking of Funds for “Soft” Interventions

There are four major components that constitute enabling interventions. These are as

follows:

The conduct of a comprehensive diagnostic study and its proper evaluation. It is

desirable that the diagnostic study, be undertaken by a competent institution in detailed

consultation with the CDE and the Local Network Agent (LNA), and this important task

not be carried out by the CDE alone as is the practice at present. Moreover there is a

need to further evaluate this diagnostic study before it is finally accepted. This final

evaluation should also be undertaken by a competent agency having adequate expertise

on the subject.

Group and individual contact and interaction meetings between the Mentor /CDE and

LNA and the individual cluster actors. These meetings provide the opportunity to

familiarize the cluster actors with the objectives and related advantages of the Cluster

Development Programme. These meetings also lead to building trust and confidence

among cluster actors and induce the necessary attitudinal changes for joint and mutually

beneficial initiatives. This activity involves frequent travel by the key functionaries within

the cluster and also the dissemination of the collective plan of action and other related

information.

Demonstration visits to successful Clusters, Scientific and Research Institutions,

Industrial Fairs and Exhibitions enabling cluster actors to observe, interact and explore

the possibilities and potential of cluster development.


84

Lectures by Expert/ Seminars/Training enabling individual cluster actors to improve

perceptions and develop the confidence required for collective action.

The above mention activities should be carried out over a period of 6 quarters or 18

months, but not earlier than 4 quarters or 12 months providing a shorter and more

focused time frame in order to maintain the tempo of such interventions. The present

practice of extending these activities over a period of 3 years tends to dilute and defuse

the impact of these basic interventions.

It is also felt that the present funding for basic/enabling interventions is grossly

inadequate and needs to be considerably enhanced. Moreover there should be clear

earmarking of funds for each activity that constitutes basic/enabling interventions. It is

also important to ensure that these activities are regularly monitored on a quarterly

basis and funds are released in instalments only on the basis of satisfactory progress and

proper utilization of funds for each activity.

We are tabulating below the amount of funds likely to be required for effectively carrying

out the various activities as a part of basic /enabling interventions.

SNo. Expenditure Heads Amount(In Rs.)

1. Diagnostic Study and Evaluation Rs 8,00,000

2. Group and Individual contact/interaction meetings (includes the travel and other allowances for Mentor, CDE, and LNA apart from other incidental expenses)

Rs 8,00,000

3. Demonstration Visits to other Cluster, Scientific and Research Institutions, Industrial Fairs and Exhibitions (at least 30 individual cluster actors should undertake each visit and there should be at least 8 such visits during the intervention period)

Rs 14,00,000

4. Lectures by Experts/ Seminars/Training Rs 6,00,000

5. Quarterly Monitoring and Evaluation of basic/enabling interventions

Rs 12,00,000

6. Contingency Fund (to be used for designing and maintaining web site, printing of information brochures and other common advertising materials)

Rs 2,00,000

Total Expenditure on basic/enabling interventions Rs. 50,00,000

It may further be noted that the funds required for each activity has been worked out on

the basis of a costing exercise worked out on current prices and may be further refined.

It is also important to mention here that the cluster functionaries must be required to

maintain the proper accounts for all items of expenditure incurred so that these may be

inspected and scrutinized by the monitoring and evaluation agency.

4.3.1 Detailed Features of the ‘Diagnostic Study’

The diagnostic study constitutes an extremely important component for identifying and

systematically initiating various important interventions for the sustainable development


85

of clusters. This diagnostic study should thus be undertaken by an extremely competent

professional agency/institution and adequate funding needs to be earmarked for the

purpose. The diagnostic study should contain some basic features, which are as follows:

� Detailed Profile of the Potential Cluster

� The brief history of the cluster and its evolution.

� The cluster location, density, and geographical dispersion.

� Number, size and scale of individual cluster operators/ actors.

� Product range and diversification in the cluster.

� Present production operation and markets.

� Present value of production and exports.

� Present demand profile and major clients.

� Core Cluster Actors (Typical Units)

� Average size of investment in typical units.

� Average annual turnover in typical units.

� Value chain and its analysis.

� Profits and profitability in typical units.

� Size of the workforce and levels of skills in the typical units.

� Sources and availability of infrastructure (transportation, power and water supply)

raw materials and labour (in the short, medium and long run).

� Other facilitating Government Agencies/Institutions

� Industrial support and promotional agencies.

� Scientific and industrialist research organizations (specifically catering to the needs of

the cluster).

� Environmental agencies and regulatory bodies.

� Financial institutions (that can potentially cater to the cluster).

� Cluster Development Projects

� Other similar cluster development projects (in the vicinity).

� How this potential cluster can usefully tap these other cluster development projects.

� Business Development Service Providers

� Business Development Service needs of the cluster and their clear articulation.

� BDS providers that can assist the cluster.

� The type of services that can be utilized.

� Producer or Merchant Associations

� Details relating to the association (full address and telephone number).

� Services that they provide at present to the cluster actors.

� Their future plans of the development of the cluster (in brief).

� Obstacles perceived as hindrances to these plans.

� SWOT Analysis for the Cluster

� List of the perceived strength of the cluster.

� List of the perceived weaknesses of the cluster.

� List of the perceived opportunities of the cluster.

� List of the perceived threats to the cluster.

� Cluster Mapping

� Cluster Mapping of the present linkages (pre-interventions).

� Cluster Mapping of expected linkages (post-intervention).


86

The essential features of the Diagnostic Study listed above not only reflects the contents

of the study to be undertaken but also reflects some essential features that are

necessary for the Cluster Development Programme to be sustainable.

4.4 The Way Ahead (Actionable Issues)

The measures that are immediately required to induce the strong and long lasting impact

of such interventions are as follows:

Planning and selecting soft interventions according to the characteristics and needs of

the cluster identified and studied during the diagnostic study. These interventions also

need to be properly sequenced.

The period of implementation of these soft interventions, which currently extends over a

period of three years causes the diffusion and slackness of effort and thus needs to be

shortened to a period of 12-18 months.

The funds allocated for these interventions are at present inadequate and needs to be

enhanced and a portion of these funds earmarked for the concurrent monitoring and

assessment of these interventions, specially during the 11th Five Year Plan which

specifically aims at ‘inclusiveness’. The funds allocated should be released in a timely

manner and in accordance with the monitoring reports. They should be released for

specific well-sequenced interventions in instalments.

The training and focused skill development of the cluster development executive and the

necessary facilities for his or her effective functioning is a prime ingredient for the

successful implementation of soft interventions.

The term “soft” interventions should be avoided and replaced by a more appropriate

term such as ‘Basic’, or ‘Preparatory’ or ‘Primary’ or ‘Enabling’ or ‘Catalytic’ interventions.


87

ANNEXURE 4.1 – Table pertaining to major soft interventions carried out in various clusters Table No.-4.1 (a): MAJOR SOFT INTERVENTIONS CARRIED OUT IN THE SAMPLED CLUSTERS (I) Primary Goods Based Clusters

Bamboo Cluster

Dimappur

Food Processing Cluster

Muzffarpur

Leather Goods Cluster

Agra

Leather Goods Cluster

Shantiniketan

Plywood Cluster Peramb avoor

Rice Milling Cluster Karnal

Rice Flakes Cluster

Ahmedabad

Rice Milling Cluster Kalady

Rubber Cluster

Chengana cherry

Cluster Activity

Stipula ted

Condu cted

Stipula ted

Condu cted

Stipula ted

Condu cted

Stipula ted

Condu cted

Stipula ted

Condu cted

Stipula ted

Condu cted

Stipula ted

Condu cted

Stipula ted

Conducted

Stipula ted

Cond ucted

Diagnostic Study √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ Awareness creation and Interactions with Cluster Actors

√ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √

Exposure visits √ √ √ √ √ √ √ √ √ √

√ √ √ √ Skill Development Programme

√ √ √ √ √ √ √ √ √ √ √ √ √

Technology Up gradation

√ √ √ √ √

√ √

Programme for energy efficiency

√ √ √ √

Market Development

√ √ √ √ √ √ √

√ √ √ √

Participation in trade fairs/ Exhibitions

√

√ √ √

√ √ √ √

Creation of Marketing Brochure/ Website

√ √ √ √ √ √ √ √ √

Development of Financial Linkages

√ √ √ √

Development of BDS Data bank

√ √ √


88

Table No.-4.1 (a) (Contd.) (II) Secondary Goods Based Clusters (I)

Ball Bearing Cluster Jaipur

Bell Metal Cluster Khurda



Cotton Hosiery Cluster Kanpur

Diesel Engine Cluster Rajkot

Fan Industry Cluster

Hyderabad

Cluster Activity

Stipul ated

Cond ucted

Stipul ated

Cond ucted

Stipul ated

Cond ucted

Stipul ated

Cond ucted

Stipul ated

Cond ucted

Stipul ated

Cond ucted

Stipulated

Conducted

Diagnostic Study √ √ √ √ √ √ √ √ √ √ √ √ √ √

Awareness creation and Interactions with Cluster Actors

√ √ √ √ √ √ √ √ √ √ √ √ √ √

Exposure visits √ √ √ √ √ √ √ √ √ √ √

Skill Development Programme √ √ √ √ √ √ √ √ √ √ √ √

Technology Up gradation √ √ √ √


Market Development √ √ √ √ √ √ √ √ √ √


√ √ √ √


• • • • √ √ • • • • • √ √

Development of Financial Linkages • • • • • • • • •

Development of BDS • • • • √ √ • • • • • √


89

Table No.-4.1 (a) (Contd.) (II) Secondary Goods Based Clusters (II)

Foundry Cluster

Ahmedabad

Plastic Cluster Aluva

Sewing Machine Cluster Ludhiana

Surgical Instruments

Cluster Baruipur

Wet Grinder Cluster

Coimbatore

White ware Cluster Khurza

Cluster Activity

Stipul ated

Conducted

Stipul ated

Condu cted

Stipul ated

Condu cted

Stipul ated

Condu cted

Stipul ated

Condu cted

Stipul ated

Condu cted

Diagnostic Study

√ √ √ √ √ √ √ √ √ √ √ √

Awareness creation and Interactions with Cluster Actors

√ √ √ √ √ √ √ √ √ √ √ √

Exposure visits

√ √ √ √ √ √ √ √ √ √ √

Skill Development Programme

√ √ √ √ √ √ √ √

Technology Up gradation

√ √


√ √

Market Development

√ √ √


√ √ √ √ √


√ √ √ √ √ √ √

Development of BDS Data bank

√

Chapter No: 5– The Special Purpose Vehcile

90

5.1 Introduction

The Industrial Cluster occupies the role of a ‘prime mover’ in the overall policy

framework of the Ministry of Micro, Small and Medium Enterprises (MSME). The

development and strengthening of clusters thus forms the central and most important

part of the strategy for supporting micro and small enterprises in India. The Small

Industry Cluster Development Programme (SICDP) which is the flag ship programme of

the MSME launched in August 2003 is a broad based holistic programme incorporating

important features that enable the promotion of marketing, exports, skill development,

and technology up-gradation. Since its inception this programme had been

predominantly assisting clusters through “soft” interventions such as diagnostic studies,

trust building, counselling, training and capacity building, exposure visits, credit

facilitation, market research/development, and information systems. With the advent of

economic reforms and the opening up of the economy it became very essential to

strengthen the support systems particularly for small enterprises and enable them to

face the increasing competition from the larger entities both at home and abroad. It was

felt that soft interventions alone were not enough to protect a very large and politically

sensitive sector involving many million lives and livelihoods in India.

Considering the fast changing industrial scenario and some of its adverse consequences

particularly for the developing countries, it was felt necessary to introduce hard

interventions in the SICDP. These hard interventions directed towards assisting

technology improvements, quality control and standardization and testing involving

additional financial support for the creation of Common Facility Centers, was initiated.

The programme guidelines and norms were also revised in March 2006. These common

facilities normally unaffordable by individual small units, were considered necessary for

technology up-gradation, and maintaining quality standards. These facilities were

expected to ensure the collective exploitation of externalities and harnessing benefits of

the economies of scale. These hard interventions were planned to be implemented

thorough the Special Purpose Vehicle (SPV) in each of the identified clusters. In this

chapter we analyze various important aspects of the Special Purpose Vehicle such as the

need and rationale for the SPV, its organizational and legally recognized institutional

form, the general profile of SPVs in the sampled clusters, the present composition and

participation in SPVs, the reasons for participation or the lack of participation among

individual cluster units, the major challenges faced in SPV formation and other important

aspects. Our analyses is based on the information, both primary and secondary

gathered by our field team during the study. Most of this information was collected

through a specially designed field schedule or questionnaire, and also on the basis of

structured interviews and discussions with important programme functionaries of the

SICDP, the sampled SPVs, and the individual cluster units.

THE SPECIAL PURPOSE VEHICLE

CHAPTER 5


91

5.2 The Scope and Functions of the Special Purpose Vehicle

The revised guidelines of the SICDP framed in March 2006, emphases the need for

creating a collective institution called the Special Purpose Vehicle, its very name or

nomenclature reflects that it is a body specially setup for effectively undertaking certain

special collective tasks on behalf of the individual cluster units. The guidelines state in

Para 3.2 (please see Annexure 1 to Chapter I of this report) that there is a need for

creating an implementation agency which is “A clear legal entity with evidence of prior

experience of positive collaboration among its members, whether formally or other wise,

as the applicant of the proposed cluster development initiative assures sound

management ideally, therefore, all proposals for cluster development seeking assistance

under the SICDP must emanate from special purpose vehicles (SPV), consisting of the

actual/likely cluster beneficiaries/enterprises organized in any legally recognized form

like a cooperative society, registered society, trust, company, etc.”

The revised guidelines in Para 3.2.1 goes on to emphasize that “It will, however be

necessary to constitute the SPV at the earliest possible, with clear indication of the time

frame for completion of this essential requirement while submitting the proposal for

Government assistance.”

It may be emphasized that the official definition of the SPV provided in the guidelines

can be interpreted and utilized in a manner that may dilute the sound intentions of the

move as well as the very objectives of the SICDP. Nevertheless the intentions being

clear the definition of the SPV can be considerably improved to effectively optimize the

intent.

The formation of the SPV as stipulated in the present guidelines is justified as it enables

the following:

� Collective and democratic decision making and management

� Accountability to funding and financing institutions.

� Transfer of funds, procurement of credit and other financial assistance.

� Equitable participation and the sharing of benefits, responsibilities, and risks.

This legal/legitimate entity is then required to be registered with the appropriate

regulatory and controlling agencies of the state, allowing it to function within the

bounds/limits legally prescribed and stipulated.

The SPV thus formed and registered enables the selection of projects that serve the

common needs and requirements of the cluster as a whole, formulate the detailed

project report DPR, and obtain the required approvals and clearances, set up, manage,

and operate the common facility for the mutual benefit of the concerned cluster and all

its constituent units.


92

5.3 The Most Suitable Organizational and Legally Recognized Form of the Special Purpose Vehicle

As mentioned in the revised guidelines the SPV can be organized in several legally

recognized forms such as a Cooperative Society, a Registered Society, a Trust, or a

Company. It is therefore essential to evolve a strong consensus among the cluster

actors as to the organizational form most suitable for the specific cluster in conformity

with the nature and characteristics of the cluster. There is a fairly wide variation in the

nature and characteristics of clusters. The varying nature of the clusters in terms of

products, scale of operations, technology and processes, as well as markets determine

the needs and priorities of commonly shared facilities. It is therefore extremely

important to arrive at a common consensus on the organizational form that should be

adopted to serve these needs most effectively. The nature of the common facilities

required may also vary from cluster to cluster. Some may require a developmental

facility, or quasi-developmental common facility, while others may need a common

processing, or testing facility that can best be developed and sustained on purely

commercial lines to ensure viability and profitability.

Cooperatives and Registered Societies appear to be more suitable for clusters, which

have a large number of small and micro enterprises with a limited scale of operations, a

limited product range and limited financial capacities. These units are likely to be more

labour intensive predominantly employing family labour and requiring common facilities

that ensure quality and standardization, marketing support, and the collective

procurement of raw materials and other inputs.

On the other hand there are clusters where both the scale of operations and the product

range is large and diverse. The units may be relatively larger with higher financial

capacities. These units are also likely to be more capital intensive requiring common

testing and processing facilities. These common facilities may have to be run on purely

commercial lines and run like any other normal enterprise involving sharing of profits and

reinvestment in expanding these facilities. The SPV in the case of such clusters may be

best organized as private limited companies though in these cases the number of share

holders/enterprises would be statutorily limited. However it may be emphasized that in

the case of an SPV being registered as a private limited company the extent of benefits

and collective participation by cluster actors in general is likely to be limited and the

tendency of monopolizing the facility for the benefit of a few dominant cluster members

is most likely. However even in this case wider participation and sharing of benefits is

possible if shares are held by a group of individual cluster members/enterprises, in the

form of a ‘holding company’.

In principle as the objectives of Cluster Development aims to promote inclusiveness of

all cluster actors and the effective sharing of the benefits by the largest possible number

of cluster actors it is desirable to ensure that the organizational form adopted is

conducive to the maximum participation. The size and capacity of the common facility is

normally proposed on the basis of the number of cluster members who are ‘likely’ to

utilize the facility, however if the organizational form adopted restricts the participation

in the SPV and furthermore discriminates against the utilization of the common facility by

the non SPV members of the cluster, then the facility created for the cluster may be


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utilized by larger firms who are not a part of the cluster. At present there seem to be no

effective checks and balances to control such tendencies. The guidelines of the

programme must seriously take this into consideration such checks and balances,

especially when a substantial proportion of the funding for such CFCs comes through the

provision of “public” funding. It must be realized that requiring an SPV to be a “clear

legal entity” is not enough and may legitimize the use of public funds for private gain.

5.4 The General Profile of Sampled SPVs

It is encouraging to note that there are 11 clusters among our 22 sampled clusters

where a special purpose vehicle has been successfully formed and registered. This

implies that they have completed the earlier stage of the programme cycle involving soft

interventions and are now at a relatively more advanced stage of the programme cycle.

Of these 11 SPVs, are in Stage II and have only completed their formation and

registration.

Yet another SPV has achieved Stage III of the programme cycle, having prepared the

DPR for its common facility and obtained its approval. As many as 7 of the 11 SPVs

formed have successfully taken their clusters to Stage IV, and are in the process of

construction or setting up of their common facilities. There are 2 SPVs namely the SPV

for the Rubber Cluster in Chenganacherry, Kerala and the SPV for the Foundry Cluster,

Ahmedabad, Gujarat who have propelled their respective clusters to Stage V by setting

up and commissioning their common facilities.

The SVPs formed and registered in 5 of the 11 cases belong to relatively smaller clusters

with a lower number of constituent individual units. The SPVs formed and registered in

the remaining 6 cases belong to relatively larger clusters. In the case of smaller

clusters, two SPVs have been registered as societies while the remaining three have

been registered as Private Limited Companies.

Likewise in the SPVs formed and registered in the remaining 6 large clusters, as many as

5 have been registered as societies and only one as a Private Limited Company. It is

seen that in the case of large clusters the preference in organizational form of the SPV

seems to be of a Registered Society, though there is one exception that of the Rubber

Cluster, Chenganacherry which is relatively large with about 315 individual cluster units.

In the case of smaller clusters the preferred choice of the organizational form of the SPVs

is seen to be the Private Limited Company here too there are two exceptions namely the

SPV of the Foundry Cluster, Ahmedabad, and the Leather Cluster, Shantiniketan, which

have been registered as societies. It may be also emphasized that the remaining three

small clusters are all located in Kerala and have uniformly preferred to register their

SPVs as Private Limited Companies. This preference arises mainly on account of labour

market conditions, and a chronic fear of political interference in the functioning of

registered societies. It is seen that for the two small clusters located in Gujarat and

West Bengal, the SPVs have been registered as a societies and not a private limited

company. The state of Gujarat has a long and illustrious history of cooperation and

Gandhian traditions and so does Shantiniketan is West Bengal. The organizational form

of the SPVs does not necessarily have any strong correlation with size if one takes into

account specific regional factors and traditions. However the preferred organization


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most suitable for democratic collective action seems to be Societies rather than Private

Limited Companies.

It is also important to emphasize here that, while the effectiveness of soft interventions

are expected to enable clusters in the formation of SPVs, in several cases the SPVs have

been formed and registered while soft interventions may have continued to linger on. In

such cases as we shall see subsequently the larger involvement and participation of

cluster members in the formation and membership of the SPVs have been limited and

the inclusiveness of cluster actors in hard interventions has been low.

Table No.-5.1: SPECIAL PURPOSE VEHICLES REGISTERED IN SAMPLED CLUSTERS Sl Cluster Name

Total No of Units in Cluster

Organizational form of SPV

Year of SPV Registration

Stage of Operation

Viability and

Ranking

Initial Member ship

Present Member ship

Involvement and

Inclusiveness


80 Society 2006 III MVS (12)

10 87 H


85 Pvt. Ltd. Company

2003 IV VDS (16)

5 24 L

3. Rice Milling Cluster Kalady


2004 IV VDS (15)

28 41 H

4. Rubber Cluster Chengnacherry


2003 V MVS (9)

18 49 L**

5. Bell Metal Cluster Hazo

200 Society 2007 IV MVS (13)

346* NA H



100 124 H


76 Society 2006 V VDS (18)

41 41 L

8. Plastic Cluster Aluva


2006 IV MVS (1)

24 24 L



180 180 H

10.

Wet Grinder Cluster Coimbatore


30 30 L

11.

White Ware Cluster Khurza

494 Society 2007 II MVS (4)

10 10 L

Note: *Multiple memberships from same household allowed. **Low in account of statutory limits on shareholders (individual) however holding company

options are available. MVS- Most Viable and Sustainable VDS – Viable but Difficult to Sustain L – Low H - High

Yet another interesting observation based on Table 5.1 is that of the 11 SPVs formed

and registered as many as 8 (73 percent) belong to clusters, which are categorized as

most viable and sustainable (MVS). This clearly indicates that there is a definite positive

correlation between SPV formations and the Viability and sustainability of the cluster

based on its specific cluster configuration. It is therefore necessary to evolve very

comprehensive guidelines for the conduct of the diagnostic study which must incorporate

proper measures of cluster density, scale of operations, measures of homogeneity and

heterogeneity and other critical measures that can then be weighed against the desired

and clearly stipulated norms for the initial and critical selection of the clusters for


95

intervention. This process of selection must be devoid of subjective and political

considerations that lead to the improper selection of the cluster and the subsequent

failure or lack of impact of the SICDP. This clearly highlights the importance of the

diagnostic study and the proper selection and training of CDEs. These issues have been

more elaborately treated in earlier chapters.

The level of involvement or inclusiveness of the individual cluster actors in the SPVs is

also indicated and classified into two simple categories H and L. This has been compiled

using figures related to initial membership at the time of registration, present

membership, the percentage change in membership, as well as the total number of

individual cluster units in each of the clusters covered during the study.

The involvement of cluster members depends on how keen and motivated they are on

being a part of the SPV. There keenness will also depend on how aware they are of the

benefits of common facilities as compared to the risks and financial commitments

involved. Initially there may be only a few who are willing to join however as the

common facility project gets approved and starts to unfold more persons may be

attracted to join the SPV. These late applicants may or may not be encouraged to join

as SPV members by the existing incumbents, even if such late admission involves a

substantially higher financial commitment in terms of share money. Moreover there may

be statutory upper limit on the number of shareholders permitted depending on the

organizational form adopted. In the case of a private limited company for instance this

limit is fixed at 49 members. However even this statutory limit can be extended to cover

all cluster actors by allowing shares to be collectively held by “holding companies”

formed by a group of individual cluster actors.

The degree of involvement and inclusiveness will be high if a large numbers if not all the

individual members are shareholders in the SPV formed and registered. The degree of

inclusiveness would be high if the existing members of the SPV encourage more

members to join even at a later stage and constantly encourage enhanced involvement

and participation by those who initially prefer to stay out but later do not want to miss

the boat.

In Table 5.1 we see that the level of involvement and inclusiveness varies among the 11

SPVs covered during the study. In the case of 5 SPVs the involvement and inclusiveness

is observed to be high. Four of these 5 SPVs are registered as societies while only one of

them is registered as a private limited company. Not all these clusters that these SPVs

represent are large, indicating that democratic participation, involvement and

inclusiveness in a SPV does not really depend on whether the cluster is large or small but

is certainly determined by the organizational form adopted by the SPV representing the

cluster. In the case of 6 SPVs, the involvement and inclusiveness is low, among these 3

are registered as private limited companies while the remaining three are registered

societies. Here again these SPVs represent, both large and small clusters, and so the

size of the cluster does not have much to do with explaining involvement and

inclusiveness. However take the case of the Wet Grinder Cluster in Coimbatore having

as many as 700 individual units and thus a large and dense cluster making it most viable

and sustainable yet surprisingly at the time of registration of its SPV as a society, as far

back as 2005, it had only 30 members. To make matters worse, in 2008 March, when


96

our field team visited this cluster and the SPV, the membership of the latter was still 30.

The case of the SPV in the White Ware Cluster in Khurza is very similar. Valid

explanations of such low involvement and inclusiveness do not lie in just the

organizational form adopted by the SPV but other factors as well.

One important factor is the heterogeneity in these clusters, with very large units

operating along with very small ones. The second factor, which is related to the first, is

that large units in these clusters subcontract work to smaller units and also act as

intermediaries in both the market for inputs and finished goods. There is a fairly well

established system of ‘dependence’ and ‘dominance’ within the cluster that would be

seriously threatened by wider involvement and inclusiveness. The responses of cluster

units who are not members of the SPV would throw more light on this critical issue.

5.5 The Social and Ethnic Composition of and Participation in SPVs

One of the major non-economic features of homogeneity within clusters is the social and

ethnic composition of individual units owners in the cluster. Since the SPV is a sub set of

the larger cluster that it represents, the social and ethnic composition of the cluster is

most likely to be reflected in the membership of the SPV representing the cluster.

Moreover participation in the SPV may be on the one hand, confined to and monopolized

by the larger and more dominant players, while on the other units of different sizes may

participate equally in the SPV.

As seen in Table 5.2 all but one single SPV that we have covered, is dominated by single

caste or community, this most probably provides a strong cementing force in each of the

clusters. This homogeneity that has evolved over a long period of time is a major

characteristic of clusters in India. We thus need to recognize this and work within it

without attempting to assign it with any racial or communal connotations. In fact this

rich and diverse collage of communities reflects the talent expertise and contribution of

different castes and communications in industrial development.

Turning to the participation by units of different sizes in each SPV, it seen that in 4 of the

11 SPVs the participation is confined to large units only. These SPVs belong to clusters

that are relatively more heterogeneous in terms of size and scale of operation. However

in the case of as many as 7 of the 11 SPVs the participation is by units of all sizes which

often include very small units as well. These are clusters with a higher degree of

homogeneity in terms of size and scale of operations.


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Table No.-5.2: COMPOSITION OF, AND PARTICIPATION IN SPVs

Composition Participation Sl Cluster

Dominance of One Caste/

Community/ Religion

Mixed Castes/ Communities/

Religion

Participation by large units only

Participation by Units of all Sizes


√ √


√ √


√ √

4. Rubber Cluster Chengnacherry

√ √


√ √


√ √


√ √


√ √


√ √


√ √

11. White Ware Cluster Khurza

√ √

5.6 Perceptions Regarding Reasons for Non-Participation in SPVs

In order to enhance our understanding and clarity on various issues, and to design our

field instruments for canvassing the relevant data we organized a few pilot field visit to

some clusters. One of the important issues that emerged from our observations and

discussions with SPV functionaries and individual cluster unit owners/managers was the

lack of involvement and participation in the SPV while the SPV functionaries had their

own perceptions regarding the matter, so did many individual cluster units. While there

were common perceptions among these different respondents there were also

perceptions that were contradictory and at variance with each other. It may be

mentioned that the field instruments were canvassed among the functionaries of the 11

SPVs that had been formed, and also among the units in these 11 clusters where SPVs

had been formed. The individual units owners/managers were those that were aware of

the scope and functions of the SPV but were not SPV members, these were often those

that consisted of the more ‘peripheral’ and dissident units usually quite small in their

scale of operations. We covered 31 such units across the 11 clusters, which had

registered SPVs and were at various stages in the implementation of ‘hard interventions’.


98

As seen in Table 5.3, we have carefully identified eight major factors that affect

participation and involvement and compiled the responses obtained on these factors.

These factors include risk aversion, financial constraints, awareness regarding the

benefits, lack of contact, skepticism regarding the viability and sustainability of the CFC,

fear of the monopoly and dominance of strong and more influential players, the free rider

problem, and the appropriateness of the CFC.

Table No.-5.3: PARTICIPATION AND INVOLVEMENT IN SPVs Sl. Factors Affecting

Participation Responses of SPVs

% Distribution of Responses

Responses of Cluster Actors

% Distribution of Responses

1. High Risk Aversion

10 90.90 29 93.54

2. Financial Constraints

9 81.81 26 83.87

3. Lack of Awareness regarding Benefits

7 63.63 23 74.19

4. Lack of Contact

5 45.45 15 48.38

5. Skepticism and Doubts regarding Viability

11 100.00 28 90.32

6. Fear of the Monopoly and Dominance of a few

3 27.27 25 80.65

7. Free Rider Syndrome (or benefitting by the effort of others)

8 72.72 14 45.16

8. Common Facility Not Appropriate (not evolved on the basis of concerns)

2 18.18 23 74.19

As seen in the table there is a fairly high degree of agreement among the two sets of

respondents on some factors such as risk aversion, financial constraints, lack of

awareness, skepticism regarding viability, and the free rider problem. The highest

degree of agreement on the above issues is on factors such as skepticism regarding

viability, risk aversion, the free rider problem, and the lack of awareness regarding

benefits. The highest degree of disagreement is seen to exist on factors such as the

appropriateness of the CFC and the fear of monopoly and dominance of a few strong

players. The identification of these factors should enable the policy makers to

specifically direct efforts that will effectively lower the impact of such factors, if not

remove them altogether. The most feasible policy strategy to effectively solve some of

these rather intractable problems would be to permit and support the formation of sub

clusters and SPVs in order to lower the effects of homogeneity based on size and scale of

individual units. However this would only apply to large and dense clusters with a high

degree of viability and sustainability. It should also be emphasized that the guidelines

and norms related to the SICDP and particularly those related to the role and functions

of the SPV in the creation, management and sustenance of the CFC should be


99

comprehensively reviewed and revised before the implementation of the programme

during the 11th Five Year Plan.

5.7 Suggested Methods of Removing Constraints faced by SPVs

However while obtaining the responses of SPV functionaries on the constraining factors

affecting the formation and effective functioning of SPVs, we also obtained their

responses on measures to handle these constraints and challenges. Various useful

measures were suggested by the SPV functionaries that they considered to be important

and which they initiated in order to overcome constraints. These are classified in two

broad groups, the first consisting of Trust Building Initiatives/Measures required to be

undertaken by the SPVs themselves, and the second consisting of Facilitative

Initiatives/Measures that are required to be taken up by the Government and Public

Agencies.

There are 11 specific initiatives or measures on which the responses of the SPVs were

canvassed, while we have received a very high level of affirmative responses in the case

of each of the eleven measures highlighted it is clearly evident from Table 5.4, the

affirmative responses on seven of these 11 issues are relatively higher. The highest

affirmative response is seen for three trust building measures. The first is the clear

articulation of the concrete benefits and advantages of working together. The second is

the clear articulation of the concrete benefits of the CFC and its viability. The third

measure is the obtaining of clarification on guidelines and procedures and effectively

disseminating them among cluster actors to clear doubts and ambiguities that give rise

to skepticism. It may be mentioned here that the other measures listed in some detail in

this self-explanatory table 5.4 are equally important and there is considerable unanimity

in the need for, and effectiveness of these measures among most SPVs covered by us.

The table also highlights the measures actually undertaken by the responding SPVs.

Here it can be observed that at the level of actually implementing or undertaking these

initiatives most SPVs have not acted and the responses are few and far between.

Turning now to the facilitating initiatives/measures that should be taken by the

Government, it is observed that the affirmative responses of the SPVs are very high, with

all the responding SPVs unanimously endorsing the need for as many as four out of the

six measures listed in Table 5.4. Here the most important measures seem to be support

of the State Governments in the proper and timely enforcement of regulations, the

provision of infrastructure and assistance in land acquisition, provision of appropriate tax

concessions and other development incentives as well as the streamlining and

simplification of procedures. The second important measure that is desired from the

government is the support of the MSME to dovetail the relevant programmes and

schemes offered by other ministries and agencies including the financial institutions. The

third important initiatives is the proper selection and training of CDEs, and providing

these key catalytic functionaries with the resources and facilities to carry out their tasks

effectively. Last but not the least is the importance assigned to the revision and

elaboration of the programme guidelines and norms to remove all the present

ambiguities and lack of clarity. It is also seen that at the level of actual implementation

these measures are perceived to be deficient and far from satisfactory.


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Table No.-5.4: RESPONSES ON INITIATIVES AND MEASURES REQUIRED FOR EFFECTIVELY MEETING CHALLANGES

Sl . Required Initiatives/Measures Affirmative Response

Responses on Measures Undertaken

(A) Trust Building Initiatives by SPV 1. Frequent personal meetings with diffident cluster actors. 7 4 2. Articulation of the concrete benefits and advantages of

working together 10 3

3. Articulation of the concrete benefits of the CFC and its viability

10 2

4. Closely monitoring and supporting the work of the CDE 8 5

5. Obtaining detailed clarifications on guidelines and procedures and effectively disseminating this among cluster actors to remove ambiguities and skepticism

10 4

6. Keeping membership options open for late entrants 9 7

7. Maintaining transparency through circulation of accounts and annual report

9 8

8. Open access to MOAs and Rules framed at the time of registration

8 6

9. Collectively removing elements that impede grater participation by cluster members

9 2

10. Involving existing Associations in the cluster and leveraging on their influence.

8 5

11. Arranging Facilitating visits to exhibitions /industrial fairs both at home and abroad and also demonstration visits to other successful cluster development projects and common facilities created there in.

9 7

(B) Facilitative Initiatives by Government 1. Support of State Governments in regulations,

infrastructure and land acquisition and tax concessions/incentives, streamlining and simplifying procedures

11 3

2. Support of MSME-DIs 8 7

3. Support of Department of Science & Technology 9 1

4. Support of MSME to dovetail the relevant programmes of other ministries

11 1

5. Proper selection/Training and resources for CDEs 11 2

6. Revision and Elaboration of Programme Guidelines and norms to remove ambiguities and lack of clarity.

11 1

It is also important to stress that some of these initiatives require the provision of

additional resources through project funding for soft and hard interventions as also to

the MSME-DIs during the 11th FYP. Implementation of these measures will considerably

improve the effectiveness and impact of the SICDP.


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5.8 Perceptions Regarding the Role of the CDE and Effectiveness of Soft Interventions

The cluster Development Executive (CDE) is a key functionary in the SICDP as seen in

an earlier chapter. Among his important functions there is the conduct of diagnostic

study, the building of trust and confidence among cluster units, spreading of awareness

and advocacy for collective action and several other motivational and mobilization

measures that constitute what are broadly classified as ‘soft interventions’.

These soft interventions prepare the cluster for the hard interventions and their

effectiveness and usefulness enables the SICDP to steadily progress and be successfully

completed. The role of the CDP does not end with the completion of soft interventions,

as he continues to carry out key functions during the phase of hard interventions as well.

It is therefore important to obtain the perceptions of the SPVs regarding both the role of

the CDE, as well as regarding the effectiveness or ineffectiveness of various soft

interventions.

In Table 5.5 we have presented the perceptions of the SPVs regarding the CDE assigned

to the cluster. Table No.-5.5: PERCEPTIONS OF THE SPVs REGARDING THE ASSIGNED CDEs

Perception of SPVs Regarding the CDE Numbers of Responses

Very Effective and Helpful but could do better with training 6

Fairly Effective and helpful but could do better with training and necessary resources and facilities

4

Not Effective due to lack of training and the burden of other tasks 1

Extremely Indifferent and Ineffective 0

It is seen that in the case of 6 SPVs, the assigned CDE is perceived to be very effective

and useful, but could do much better if adequately trained and provided with additional

facilities to function effectively. In the case of 4 SPVs the perceptions regarding the CDE

are that they are fairly effective and helpful, but require proper training and necessary

skills along with additional resources and facilities to function effectively. However in the

case of one SPV the perceptions regarding the effectiveness of the CDE is rather

negative, in this case it is perceived that not only does he lack training but is also

burdened with tasks by his parent department that are not related to the CDP

programme. Fortunately none of the SPVs find the assigned CDE to be extremely

indifferent and ineffective.

The perceptions of the SPVs regarding various soft interventions are presented in Table

5.6. It is seen, that there are as many as 8 different types of activities that constitute

these soft interventions. A careful scrutiny of the responses recorded regarding these

interventions shows that, the first among the most effective soft interventions are group

meetings that enhance mutual trust and confidence among members and help in the

evolution of a consensual business or strategic plan. The second effective soft

intervention appears to be exposure visits to other clusters and CFCs. The third effective

soft intervention is the participation in exhibitions and trade fairs.


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Table No.-5.6: RESPONSES ON THE EFFECTIVENESS OF SOFT INTERVENTIONS

Responses Soft Interventions

Effective Not Effective

No Response

Group Meetings (to evolve a consensus on a business plan)

9 2 0

Personal visits and interaction with Cluster Members

4 3 4

Exposure visits to other Clusters or CFCs

8 2 1

Common Website/ Information Portal 0 0 11

Participation in Exhibitions/ Trade Fairs 6 4 1

Training Programmes and Seminars 5 5 1

Marketing Visit 2 5 4

Medical Conferences 4 2 5

It is also quite revealing to find that marketing visits, and the conduct of training and

seminars are perceived as being ineffective. Furthermore the number of No Responses is

quite high indicating a fairly high degree of cynicism regarding soft interventions and the

casual manner in which these activities are treated. At the SPV level one cannot take

this indifference lightly as it is the SPV that benefits most from these interventions.

It is therefore necessary to comprehensively revamp these soft interventions, by

adopting the required professional approach through the involvement of behavioral and

organizational experts, and expert agencies. It would be worthwhile to commission a

special study that puts together the best and most effective practices required to

mobilize and motivate collective action, resolve conflicts and interpersonal differences,

and effectively learn to cooperate.

Chapter No: 6 – Hard Interventions in Sampled Clusters

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6.1 Introduction

Hard Interventions are so termed in any cluster development industrial strategy because

they unlike soft interventions are expected to produce concrete results by way of

collectively reducing costs, improve productivity, maintain quality and standards of

individual units. Hard interventions thereby enhance competitiveness in globalised

markets and create a level playing field, especially for a large cluster or group of small

and micro-enterprises who in their individual capacities are unable to undertake the large

investments required for the purpose.

One of the main objectives of our evaluation study was to study the status and impact of

hard interventions in the sample clusters that are being assisted under the MSE-CDP.

Hard interventions involve a series of distinct processes arranged in pre-determined

stages. Each stage has to be successfully implemented before the next stage is taken

up. The end result of the successful implementation of these essential stages is the

setting up of a common facility that can be utilized by all cluster actors while they pursue

their individual enterprise activities. This common facility should be operated, managed,

sustained, and even expanded independently and needs to adopt a legitimate

organizational form like any industrial enterprise or firm. It thus needs a regular and

professional management structure, and a work force to run and maintain its facilities.

While the status of hard interventions can be judged by the specific stage that has been

achieved in each case, the impact of hard interventions emerge and can only be

assessed after each of these essential stages has been successfully completed and the

common facility built, tested and commissioned.

As seen in the previous chapter there are only eleven clusters out of the 22 clusters

sampled for this study that have started to implement hard interventions each of these

clusters are at different stages of implementing hard interventions and only two of these

eleven clusters have been able to successfully set up and commission common facilities.

Even in these two cases the common facility has been commissioned recently and have

only functioned for a limited period. In such a situation the impact is limited and unless

these facilities stabilize and overcome various ‘teething’ problems a full assessment of

their impact may not be possible at this early stage. Nevertheless their present

functioning provides early and useful indicators that help in streamlining policies and

procedures and thereby incorporating corrective features to strengthen and sustain the

MSE-CDP programme in the days to come.

In this chapter we shall therefore emphasize the justification for hard interventions, the

rationale and objectives of hard interventions, the necessary stages that have to be

successfully negotiated and the specific constraints that emerge in each of these stages

HARD INTERVENTIONS IN THE SAMPLED CLUSTERS

CHAPTER 6


104

that need to be removed, the current status of hard interventions in the sampled

clusters, and the impact of these hard interventions which are reflected in the functioning

of the CFCs.

6.2 The Justification for Hard Interventions

Hard interventions are those measures implemented by legally constituted group or

organizations called SPVs that are involved in different common functional areas

collectively serving a cluster or agglomeration of small and micro enterprises involved in

the processing and manufacture of largely similar goods or services.

These Special Purpose Vehicles or “Hard Networks” are constituted for the following

reasons:

� To enable individual cluster actors to access markets for goods and required inputs,

often with the intention of eliminating intermediaries along the supply chain.

� To enable the exploitation of the economies of scale in functional areas such as

purchase of essential and common inputs, procuring finance, production and

marketing.

� To increase bargaining strength vis-à-vis input suppliers or customers or distributors.

� To collectively bear the risks and costs involved in undertaking large projects

involving high investments and possible risks.

� To avail the benefits of support schemes and special assistance by the state, financial

institutions, and development agencies, which often requires the benefits to be

transferred to legally constituted and accountable entities that function under specific

regulatory statutes and rules.

� To effectively demonstrate the power and concrete benefits of collective action and

cooperation and also to provide a ‘safety net’ in a highly predatory and aggressively

competitive industrial system dominated by large national and multinational

enterprises.

Hard interventions can be implemented on a Public-Private Partnership basis, and the

benefits derived from these initiatives in such a context may have greater justification as

a long-term strategic measure rather than for short term commercial gain. It is also

seen that some of these hard networks are created entirely on the basis of private

initiatives, while others may be led by the State and State Agencies.

It should be emphasized that with the advent of liberalization and “reforms”, the

protection and support provided to small and micro enterprises have undergone a great

deal of change. The very definition of small enterprises has been considerably altered by

‘de-reservation’ and increasing the limits of investments and turnover that were earlier

used for defining a small enterprise. Many fear and have been often proved right about

the adverse effects of “opening up” the manufacturing sector in response to the call for

free multilateral trade. These adverse effects impact the developing countries more

seriously than they do, in the case of developed nations. The need for “safety nets” is

now universally justified perhaps fearing a major economic disaster that may have its

own political consequences. The Cluster Development Programme can also be visualized

as an effective industrial safety net in this era liberalization and ‘reforms’.


105

6.3 The Rationale and Objectives of Hard Interventions

There are several benefits that have accrued to SMEs who have collectively formed a

consortium in the form of a SPV, which is a legally constituted entity. These benefits

have been exploited in one or more ways and have helped in the improvement of

margins, and thus their individual incomes as well as competitiveness, we feel it is

essential to briefly describe these collective initiatives and highlight some of the cases

across clusters in India.

These hard interventions have been as follow:

SPVs to exploit Supplier/Market Access- The SPVs in this case directly access

suppliers and customers without individually having to interact with their clients through

distributors and other intermediaries. The margins that they surrender to

intermediaries, who are often large, and affecting their own margins are thus effectively

controlled and internalized. The foundry cluster units in Hyderabad have directly

approached the Steel Mills as against their suppliers who were basically steel distributors

and traders. The Wet Grinder Cluster in Coimbatore has been able to procure copper

wire for their individual cluster units directly from manufacturers rather than depending

on local traders. The cases of many small coir units in Alleppey have similarly organized

themselves to avoid middlemen and ‘coir depots’ to collectively access finance and

markets. These are all real instances of collectively organizing in the form of a legal

entity and accessing markets directly to improve individual incomes and margins.

Individual cluster units can collectively take up harnessing Economies of Scale- common

manufacturing processes on a large scale and of uniform quality and standards.

Common components procured from outside the cluster can be manufactured in a

common facility. The cost of manufacture of these individually by the cluster units

though possible would be prohibitively expensive. A common process can also be

collectively organized and the necessary investments (usually large) mobilized to

effectively exploit the economies of scales. The Wet Grinder Cluster in Coimbatore has

planned a common facility to produce certain common components that were being

outsourced from firms outside the cluster, this would not only reduce costs but also help

in controlling quality and standards. The export clusters producing home furnishings and

textiles in Kannur, Kerala, and Tirupur, Tamil Nadu respectively, have established their

own spinning mills to reduce units costs. Yet another example is of the Rubber Cluster in

Chenganacherry which has set up a mixing mill to reap the economies of scale, and

improve the quality and standards of the products manufactured and exported by the

individual units in the cluster.

Improving Bargaining Power- Common bulk procurement of raw materials is yet

another initiative that can benefit individual units considerably and improve the collective

bargaining power as compared to the low bargaining strength that small and micro units

would have. The Tery Towel Cluster in Sholapur, Maharashtra, has directly negotiated

with spinning mills and traders for bulk purchases and common procurement of yarn.

Harnessing of common energy options and use of by products and waste. There is an

increasing need for new and renewable energy sources that help in the progressive use

of cleaner fuels and effectively supplement the energy needs of small and micro

enterprises. Common initiatives for harnessing wind energy, biogas, and even micro


106

hydel power apart from viable solar energy applications can be collectively pursued

through hard interventions. Moreover the recycling of waste, the use of valuable by

products, and also the treatment of toxic effluents and wastes open up many useful

collective options for both lowering unit costs and protecting the environment. With

increasing environmental concerns come severe regulation and restrictions that are likely

to affect small and micro enterprises in particular as they can hardly take up these

initiatives individually. The only way out seems to be collective action through hard

interventions. The Rice Milling Cluster in Kalady, and the Rubber Cluster in

Chenganacherry are examples of some such hard initiatives.

Spreading or Collectively Sharing, Risks- Though it may be possible for an individual

unit to set up a facility that he himself can use and also hire out to others, he would have

to be sure that the others use the facility so that the capacity which is created is fully

utilized. These are however risks involved in such a venture. It is therefore preferred to

undertake such a project collectively so as to share the risks by spreading them over the

members of the SPV. The solvent extraction project taken up in the Rice Milling Cluster

in Kallady was viable even at the level of an individual unit, as long as there was

adequate demand for this facility by millers other than the unit setting up the facility on

an individual basis. The investment involved in plant and machinery was large but the

returns were also equally attractive, however considering the long-term viability of rice

milling in the state of Kerala, and also the uncertainty regarding the demand for the

services of this facility, the risks involved were substantial. The project was thus

commissioned in 2005 entirely as a privately led collective intervention in order to spread

the risks as well as share the benefits among the private consortia/SPV that was formed

for the purpose. No support except for soft interventions was provided for this project

under the MSE-CDP programme, clearly demonstrating that the logic of the programme

and its impact are very robust and more importantly that hard interventions can be

successfully carried out even without much support from the government.The Coir

Cluster at Alleppey is yet another example of the effective sharing of risks and

responsibilities as well as the benefits among SPV members. Yet another interesting

case is that of several SPVs belonging to the Handloom Cluster, in Kannur, Kerala joining

hands to invest in a common retailing outlet for products. This outlet was located in the

expensive up market locality in the city and involved large investments as well as risks

that were shared.

Availing Benefits of State Support – State and State promotional agencies make

support conditional to the formation of a legally constituted and accountable SPV. The

State often expects the equitable and widespread participation of cluster units and at

times clearly defines the minimum number of cluster units that are required to be

members of the SPV formed for the proper channelization of State funds. Though hard

networks/ SPVs can be based entirely on the basis of private involvement with no state

support, it is seen that most Cluster Development Initiatives adopt the PPP mode. The

State is the ‘hand holder’ in the earlier stages of cluster development but progressively

takes a ‘back seat’ as the cluster matures and becomes a self sustaining collective.


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6.4 The Role of the State in Supporting Hard Interventions

Though State support is required to play a supportive role in the setting up of SPVs and

common facilities there is a need to carefully target this support for the equitable benefit

of the entire cluster. The MSE-CDP is designed to support these initiatives but it appears

weak in regard to the targeting of this support. What is being stressed here is that

unless it is carefully directed at clusters that are genuinely composed of small and micro

enterprises there may be a tendency to treat the programme as a convenient mode of

utilizing public funds for the private ends of a few influential and powerful cluster actors.

In such a case State support only leads to the strengthening of the dominance of a few.

Ideally the State should support large and densely constituted clusters wherein the

individual units are predominantly small. The identification and selection of these

clusters should specifically incorporate criteria that lead to the selection of such clusters

only.

The second issue related to State support is that it becomes most essential for the state

to progressively decrease its financial commitment and play only a handholding role.

The third issue related to the State support is the organizational form of the SPV that the

state should encourage. The form, which is most conducive to the most widespread

collective participation by cluster units, should be preferred.

The fourth issue related to state support for hard interventions is the size and bankability

of the project. If the project is bankable then the funding burden of the State can be

reduced to support a larger number of cluster initiatives with the resources available,

and the accountability and responsibility of the beneficiaries considerably enhanced. The

policy framework specially relating to hard interventions need to explicitly incorporate

these issues in order to avoid the dangers of ‘unhealthy’ privatization. The State must

‘partner’ the private sector by strongly targeting its support towards measures that

strengthen and support small and micro enterprises, measures that build the strong

roots of democratic collective strength among those who need to be supported the most.

6.5 Hard Interventions in Sampled Clusters

In what follows we will be analyzing the various hard interventions that have been

initiated in the sampled cluster that were covered during this study. As seen in earlier

chapters (Chapter 2), hard interventions are implemented in stages and culminate with

the commissioning and functioning of the CFC. Each stage of hard intervention is

important in itself and is necessary for enabling the next stage. We shall first highlight

the status of hard interventions by examining the various stages that have been

achieved. The profile of hard interventions will then be briefly analyzed to throw some

light on the implementation of the hard interventions and the problems thereof. We

shall then finally look at the functioning of the CFC and comment on what could be

considered the early indications of the impact of the MSE-CDP.


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6.6 Stages of Intervention under MSE-CDP

At the time this evaluation study was conducted it was observed that of the 22 sampled

clusters as many as 11 were still at the 1st stage of soft interventions, as indicated in

Table 6.1. This by itself is a fairly disturbing revelation and indicates the need to

catalyze soft interventions with added vigour during the 11th plan period. This

stagnation also reflects the ineffectiveness of soft interventions and requires the

immediate attention of programme functionaries.

Table No.-6.1: SUMMARY TABLE ON STATUS OF INTERVENTIONS Sl.

Coverage and Stages of Progress

Stage of Programme

Implementation

Number of Sampled Clusters

% Distribution

1. Total Number of Clusters Covered (during Study)

NA 22 100.00

2. Clusters Implementing Soft Interventions (as on date)

I 11 50.00

3. Number of Clusters where in SPVs have been formed and Registered

II 11 50.00

4. Number of Clusters where in SPVs are formulating DPRs for Approval

III 2 9.09

5. Number of Clusters where in Construction and Installation of CFC is in Progress

IV 7 31.82

6. Number of Clusters where in CFCs have been Commissioned & are Functional

V 2 9.09

It is however encouraging to note that the remaining 11 sampled clusters have

successfully negotiated the IInd stage of the formation and registration of SPVs.

However Table 6.1 also indicates that in the case of 2 SPVs the DPR is either yet to be

formulated or has been formulated but not approved. They are thus stuck in the IIIrd

stage and have not progressed beyond it. There are as many as 7 SPVs who have now

progressed to the IVth stage and where the CFC is in the process of being constructed.

It may be mentioned that there have been delays in the construction process mainly on

account of the release of funds and disbursement of payments to equipment suppliers.

In some cases as we shall see later, the conditions of sale have not been enforced and

suppliers have defaulted on the timely delivery and installation of equipment. It is only in

the case of two clusters that the respective SPVs have commissioned the CFC and these

are functional.

It may be mentioned here that the timely implementation of various stages of the MSE-

CDP depends to a great extent on the clarity and lack of ambiguity in the programme

guidelines and though it is claimed that these guidelines and norms were

comprehensively revised in March 2006, it is felt that immediate efforts are necessary to

review and reformulate the detailed guidelines of the programme to remove existing

ambiguities and lack of clarity.


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6.7 Implementation Profile of Hard Interventions in the Sampled Clusters

We have various important indicators related to hard interventions in Table 6.2. These

indicators provide us with a convenient tabulation of the profile of the implementation of

hard interventions in the concerned clusters. First of all it is seen that only in 3 of the 11

cases have the SPVs been formed and registered after the revised guidelines for the

MSE-CDP were issued by the MSME. In the 9 other clusters the SPVs were formed much

earlier so it is clear that the concept of hard interventions and the SPV predates the

MSE-CDP. In some cases it predates even the earlier version of the programme that was

called the SICDP. This indicates that programme is still in its infancy and in the process

of being structured. It is also therefore obvious that the development of clusters under it

have only started to bear an impact.

It is also seen that a larger number of SPVs have preferred to be organized as registered

societies while only four are registered as Private Limited Companies. All the four SPVs

adopting the company format are located in Kerala.

It needs to be mentioned that since a lot of information particularly that related to the

date of DPR submission, the date of DPR approval and the date of receipt of funds were

not made available, we were unable to judge the pace of implementation in many of the

cases. However wherever this information was provided we were on a case-by-case

basis, able to comment on the pace of implementation.

It may also be stressed that the information provided are partial and incomplete in many

cases and so we have not attempted any interpretation. We have however attempted to

assess the pace of implementation in the case of 9 clusters for which some information

has been provided and needs to be confirmed. So as a word of caution it may be stated

that the interpretation may not be entirely correct.

There are five distinct processes involved during the different stages of implementation

and these processes may take varying periods of time. The five distinct processes are

the formulation of DPR, the approval of DPR, the release of funds, the period of

construction, and the period of Functioning of the CFC.

As seen in Table 6.2 the time taken for the formulation of the DPR has varied in the

range of 3 to 24 month in the different cases. While in the case of 4 SPVs namely those

of the Bell Metal Hazo, Foundry, Ahmadabad, Surgical Instruments, Baruipur, and the

Wet Grinder, Coimbatore the process of DPR formulation has been completed within 6

months. In the case of the SPV of the Rice Milling Cluster Kalady the Formulation of DPR

has taken 9 months, while in the case of the Plywood and Leather Clusters SPVs in

Perimbavorr and Shantiniketan it has taken up about 22 to 24 months. While in most

cases the time taken has been reasonable in two cases it has taken very long.

The time taken for the approval has in general taken up to 6 months in the case of 4 of

the 6 SPVs providing data while in the case of surgical Instruments SPV it has been

delayed over a period of 21 months. Overall the time taken by the authorities to


110

approve the DPR has been quite reasonable but their seems to be scope for improving

and speeding up this process and completing it within a period of 3 month at the most.

Table No.-6.2: PROFILE OF IMPLEMENTATION OF HARD INTERVENTIONS Sl Cluster Date of SPV

Registration Type of SPV

DPR Submission

Date

DPR Approval Date

Date of Receipt of funds from MSME

Stage of CFC


27.11.2004 Pvt. Ltd. Company

09.08.2005 07.02.2007 21.03.2007 Under Construction



2003 2003 NA CFC Functional



04.08.2005 07.02.2007∗ 15.03.2007 Under Construction


Jan 2006 Society Feb .2008 Yet to be Approved

NA DPR submitted



NA 22.12.2006 20.03.2007 Under Construction

6. White Ware Cluster Khurza

27.07.2007 Society Not Submitted

Yet to be Approved

NA No progress


23.12.2004 Society NA NA NA Under Construction


17.06.2007 Society 02.11.2007 15.02.2008 15.03.2008∗ Under Construction


02.01.2006 Society 15.05.2006 26.03.2007 26.04.2007∗ CFC Functional


Nov 2005 Society 02.02.2006 Nov 2007 NA Under Construction


19.08.2004∗ Society 28.01.2005 28.02.2005 15.03.2008 Under Construction

Note- NA- Information not made available as yet. ∗ to be confirmed

The third important process is the release of project funds (the first installment, the

subsequent releases depending on the utilization of funds and the submission of

utilization certificates). It is seen in Table 6.2 that in nearly all the cases for which data

was provided, the release of funds look a period of 1 to 3 months. Only in one case that

of the Wet Grinder SPV in Coimbatore was the fund reported to be released after a lapse

of 37 months. This is an exceptional delay and needs to be probed further to unravel the

reasons behind such a delay.

The period of construction of the CFC has also varied considerably and since it has not

been completed and is in progress, it is difficult to judge the time taken. Moreover since

projects vary considerably in nature and complexity it is possible to expect such

variation. However it is expected that the SPVs would make all efforts to complete

construction at the earliest so that themselves and the cluster actors can obtain the

actual benefits of the project. The pace of construction should be also speeded up in

order to avoid the escalation in cost that would have to be met by the SPV.

6.8 The Functioning and Impact of the CFC

As seen earlier there are only two clusters in the entire sample of 22 clusters covered by

this study where the CFC has been commissioned and has started functioning. The first


111

case is that of the CFC at the Rubber Cluster in Chenganacherry, Kerala, here a large

automated rubber mixing plant has been constructed. This common facility is reported

to enable the uniform mixing of raw rubber with various other chemicals and agents to

produce treated rubber which is further processed into various products. The quality of

the mixing determines the final quality and finesse of the goods produced by the

individual SMEs in the cluster and also substantially reduces the ‘rejection rate’.

As seen in Table 6.3 this common facility has been functioning since February 2007, and

at the time of our visit to Chenganacherry in early March 2008 it had completed 13

months of operations providing us a glimpse its monthly revenue, expenditure and

operating surplus/deficits. Table No.-6.3: REVENUES, EXPENDITURE AND OPERATING SURPLUS/DEFICIT OF CFC

(RUBBER CLUSTER CHENGANACHERRY) All figures in this table are in Rs. unless specified otherwise) Month User

Charges Wages Acces

sories Consumables

Lubricants

AMC & Renewals

Electricity Charges

Rubber Oil for Pumps

Total Operating Surplus/ Deficit

Feb 07 2310 4800 181 200 591 5772 -3462

Mar 07 93008 37552 27433 4555 3700 67659 23810 164709 -71701

Apr 07 145524 37800 2737 3100 2703 157715 37254 241309 -95785

May 07 181458 31035 3116 11426 103937 46454 195968 -14510

June 07 180888 41615 2103 3740 3300 109988 46307 207053 -26165

July 07 226341 40695 2695 1185 700 110447 57943 213665 12676

Aug 07 239790 42985 2140 3525 3150 10450 136594 61386 260230 -20440

Sept 07 171358 40310 825 2123 4760 300 129298 43868 221484 -50126

Oct 07 221990 44944 3990 4552 1040 1200 105579 56829 218134 3856

Nov 07 240544 41784 377 4887 5990 20522 140367 61285 275212 -34668

Dec 07 264697 50684 5267 1040 11876 140762 28358 237987 26710

Jan 08 306579 56645 861 2342 5946 146058 32883 244735 61844

Total 2274487 470849 35626 38083 24205 72123 1348404 496968 2486258 -211771

It is encouraging to see that the revenues earned by way of monthly user charges has

steadily risen over the 12 month period while the monthly expenditure on various items

have remained largely stable. This has resulted in operating deficits mainly in the initial

months but also moderate operating surplus as the functioning of the facility has

progressed. While there have been operating deficits during 5 of the initial six months

and only one month during which there has been an operating surplus the working

results seem to have improved in the last 6 months with only three months of operating

deficit and three months of operating surplus. While electricity charges account for the

largest single component of total expenditure (54.23%), the second largest component

of expenditure is that incurred for the Rubber Oil for Pumps (19.99%), these two


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expenditure items account for as much as 75 percent of the total expenditure. Labour

costs account for the third largest component of expenditure (18.94%). The entire

process is energy intensive and with no immediate supplementary energy sources in

sight this will continue to remain a major challenge. This facility is also reported to be

working at a fairly low level of capacity utilization at present. The facility was reported to

be working on a single shift and at a capacity utilization of 33 percent. It is also reported

by SPV functionaries that a majority of the individual cluster units are making low end

rubber products which do not require high quality rubber, and thus the utilization of this

facility is low. However this scenario is likely to change once the cluster starts moving

up the value chain. The increasing competitiveness, and quality consciousness is also

likely to force this movement up the value chain.

Moreover the strong demonstration effects that the CFC has already induced, is expected

to improve its capacity utilization quite significantly in the near future. Some large firms

from outside the cluster are reported to be using this facility and if the spare capacity

continues to persist the SPV is likely to continue allowing the use of this facility to non-

cluster members. However in such a situation a higher differential tariff for non-cluster

member needs to be introduced in order to attract cluster members, who are not yet

attracted sufficiently to use this common facility.

The Second case is that of the CFC built to serve the Foundry Cluster in Ahmedabad,

Gujarat. The common facility that has been created here is a testing laboratory and a

fairly large conference hall. It is important to recollect that this cluster is highly

dispersed with units located far apart. One is hard pressed to find an adequate number

of users from within the cluster. The cluster is also reported to have only a limited

number of individual units raising doubts regarding the full utilization of this facility on

the basis of its use by cluster members alone. It is most likely that in an attempt to

generate additional revenue to meet the operating costs this facility will have to be

thrown open to non cluster users. The size of the auditorium is also disproportionate to

the actual needs of the cluster members and is likely to be hired out for users unrelated

to the common needs of cluster actors. Turing to the working results complied in Table

6.4 for period of seven months, one finds that the figures on revenues as compared to

expenditures incurred are not very encouraging with fairly large operating deficits in 6

out of the seven months during which this facility has functioned.

Table No.-6.4: REVENUES, EXPENDITURE AND OPERATING SURPLUS/DEFICIT OF CFC

(FOUNDRY CLUSTER AHMADABAD) (All figures in this table are in Rs. unless specified otherwise)

Month User Charges

Labour expenses

Electricity Raw Materials

Other Exp

Total Expenses

Profit/ Loss

Oct-07 17150 32002 4416 34730 71148 -53998

Nov-07 27675 41295 3984 14100 59379 -31704 Dec-07 29850 41770 3325 34536 79631 -49781

Jan-08 43800 41623 4232 28310 74165 -30365

Feb-08 81825 41723 3770 30812 76305 5520

Mar-08 134688 52261 7282 137178 196721 -62033

Apr-08 31600 48360 2151 5669 56180 -24580

Total 366588 299034 29160 285335 613529 246941


113

Unlike the common processing facility seen in the first case this facility is a

developmental facility and the very nature of this facility makes it difficult to sustain

specially when the size of the cluster and thus the cluster users are limited.

On the basis of detailed discussions with cluster actors in both clusters the following

perceptions emerge regarding the impact of these common facilities.

In the case of the CFC in the Rubber Cluster the following responses were recorded:

� The CFC has improved the quality of products considerably.

� The CFC has opened up the possibilities of diversification and moving up the value

chain.

� The CFC has had a positive demonstration effect.

� The CFC has to some extent led to greater trust and cohesiveness.

� The CFC needs to enforce a differential tariff structure for cluster and non-cluster

members.

� Larger units as compared to smaller units would better use the facility.

Considering the responses above, the overall impact of the CFC on the cluster actors

whether they be users or non users has been significantly positive.

In the case of the CFC in the Foundry Cluster in Ahemdabad the following responses

were recorded:

� The CFC has improved the quality of products to some extent.

� The CFC is likely to open up possibilities for diversification into very high-end

markets.

� There are serious doubts regarding the full utilization of the facilities by cluster

members thus viability is in doubt.

� The CFC has not had any significant demonstration effect as yet.

� The CFC has not brought about any trust or cohesiveness.

� The CFC is the captive facility of a very few and does not benefit the cluster as a

whole to any significant extent, as access is difficult and involves high transactions

cost.

Considering the responses above the overall impact of the CFC on individual cluster

actors has been rather mixed if not insignificant.

Chapter No: 7 – Conclusions nd Recommendations

114

Before listing the specific conclusions and recommendations of our study it is important

to clearly stress that, at the overall level, our assessment of the CDP leads us to the

definite conclusion, that the programme is most essential, and can be extremely

effective.

It should also be emphasized that it provides the much-needed support for the SME

sector at a time when we are opening up the economy and exposing our small industry

to fierce global competition. This programme in fact provides the only ‘safety net’ for

small and micro enterprises in the country. It is therefore recommended that the efforts

of the MSME should be fully supported through the provision of additional resources

during the 11th Plan Period. Since the plan document clearly states its intentions

regarding inclusiveness, further support for this programme is certainly justified. In

what follows we highlight the specific conclusions and recommendations of this study.

7.1 Need for a Scientific Definition of a “Cluster”

A clear definition of a cluster is conspicuously absent in the present guidelines of the CDP

programme. This may have led to the identification of a very large number of clusters

far beyond those which can be taken up considering the present capabilities of the

institutions and functionaries involved. A more focused, feasible and prioritized set of

clusters needs to be identified for effective interventions. The basic criteria for the

selection of clusters require the consideration of the following issues:

� The need to clearly focus on goods producing clusters.

� The need to identify those sectors wherein the contribution of SMEs are predominant

and where traditional skills combined with an abundance of locally available inputs

which enables the production of goods which can compete nationally and

internationally because of their uniqueness and high quality.

� Clusters, which are already organized and assisted, by strong associations, unions

and lobbies should be preferred.

The need for determining a critical mass of viable and functional individual and strictly

independent units, which have sustained their activities profitably over the last 5 years.

This critical mass should reflect low dispersion and high density ensuring its effective

management. Moreover a high degree of homogeneity (in terms of size / turnover /

product range and other social characteristics) needs to be seriously considered to

ensure cooperation and collective action between the constituent units.

Experts or institutions that have the requisite capabilities, and are capable of carrying

out this task in a definite time frame, should undertake the identification and

prioritization of clusters for effective interventions. These institutions should also be

required to conduct the diagnostic study for which standard guidelines should be

CONCLUSIONS AND RECOMMENDATIONS

CHAPTER 7


115

carefully evolved and framed. (some suggestions in the regard have been made in

Chapter IV of this report)

The choice of persons or institutions selected for the identification of clusters and the

conduct of the diagnostic study should be from among those persons or institutions that

are independent, autonomous and strictly devoid of vested interests of any kind.

While identifying clusters and preparing a diagnostic study these persons or institutions

may consult and be assisted by the State governments, Scientific Institutions and the

MSME-DIs covering specific regions. The assigned Mentor, CDE and the LNA should be

closely associated with the institution conducting the diagnostic study.

7.2 A Clearer Articulation of the Objectives and Scope of the CDP

The objectives and scope of the cluster development programme needs to be more

clearly articulated. It should be focused and avoid the objectives and scope which are

not feasible in the context of the present administrative and financial resources available

for the programme. The general objectives and scope of the CDP should be to enhance

the productivity and competitiveness of the cluster actors through the exploitation of

existing economies of scale and helping these cluster actors to help themselves. This

general objective should be based on the following principles:

� Ensuring access to appropriate technologies and their adoption.

� Ensuring market development and prospecting for new markets.

� Diversifying the range of products and improving their quality.

� Facilitating skill formation and upgradation.

� Facilitating the formation of appropriate types of organizations to enhance collective

action.

The specific objectives and scope of the CDP should be clearly focused on the following:

� To assist in the setting up common facilities for the cluster, such as

� Processing and standardization of common inputs.

� Testing and certification.

� Procurement of common inputs and spare parts / machine accessories.

� Common repair and maintenance facilities.

� Common information systems on technologies, R&D institutions, products and

markets, and information on fiscal incentives, concessions and regulations.

� To assist in the setting up of Common Infrastructure for the cluster, such as

� Development of Industrial Estates/ Plots.

� Common power and water supply arrangements.

� Common drainage and effluent treatment.

� Common Display Facilities/ Centers.

� Common Canteens, basic first aid centres and crèches for workers.

� To assist in addressing environmental concerns related to the cluster, such as

� Energy audit and conservation.

� Development of new and renewable energy sources to supplement existing energy

needs.

� Pollution control and self-regulation.

� To assist in addressing Common Social Responsibilities of the cluster such as


116

� Safety and accident insurance.

� Proper working conditions.

� Health and sanitation facilities.

7.3 Facilitating Agencies and Functionaries:

The success of the cluster development programme depends on a large number of

facilitating agencies and functionaries. The concerned Central Ministry/ Department, the

concerned State Government and its line department, the regional offices and

developmental institutions of the MSME, the scientific establishments of the MSME,

specialized technical and research institutions dealing with small industries,

entrepreneurship and industrial research and several technical NGOs are involved directly

or indirectly in the cluster development programme. The functionaries particularly those

dealing with the programme in the central and state governments and those who are

employed in the regional institutions of the MSME require to be specially trained and

equipped to manage the programme effectively. The areas that need to be specifically

considered in this regard are:

� The programme specific training of functionaries.

� The strengthening of the regional offices and developmental institutions of the MSME,

the proper deployment of staff therein and the fuller utilization of the existing

facilities.

� Enhancing the involvement of the relevant scientific institutions through specially

funded programmes.

The earmarking of additional funds for the study of training and other institutional

needs, as well as for the specific initiatives mentioned above, would require additional

funds for the CDP during the 11th plan period.

7.4 The Role and Functioning of Cluster Development Executives (CDE):

The CDEs are an extremely important set of functionaries under the cluster development

programme. They carry out several vital functions and act not only as essential

intermediaries between cluster participants but also between the cluster participants and

the various state bodies. There are several important issues that concern them which

need to be addressed.

Presently most CDEs are drawn from different departments and are inadequately trained

to carry out the specialized functions related to cluster development. A majority of them

are drawn from the field offices of the MSME or from the state industries department and

have a very diverse educational background not necessarily related to the tasks that

they are required to carry out. Most of them are fairly advanced in age and near

retirement with little motivation to be trained and deployed in their present position. It

is therefore necessary to select younger persons with the necessary background in

disciplines such as management, economics, finance and engineering. The post of CDEs

should also be opened up to the private sector so that young and qualified persons are


117

provided an opportunity to carry out these challenging tasks. A campus recruitment

programme can also be launched for the purpose.

In the present situation the CDEs are not adequately trained and familiarized with cluster

development. There is a need to provide a comprehensive long-term foundation course

to freshly appointed CDEs. There is also the need to strengthen their skills and abilities

through regular refresher courses specially designed on subjects such as financial

management, project management, organizational behaviour, team work, and

cooperation.

At present the facilities and allowances provided to the CDEs are extremely deficient.

Matters are made worse by assigning them with additional responsibilities not directly

related to the CDP, and also the responsibility of managing more than one cluster at a

time. The tenure conditions of the CDEs are very unstable and they are frequently

transferred from one place to another. It is also important to mention here that the

success of a CDE largely depends on the goodwill and rapport that he develops over a

sufficiently long tenure. His frequent transfer from one cluster to another does not really

allow him to settle down to serious work de-motivating him, as well as the cluster actors.

The appointment of a “Mentor” for a set of contiguous clusters would also go a long way

in guiding and assisting the work of the CDE. This Mentor could either be a retired

officer/executive with the necessary competence and experience or could also be an

institution, which assists and guides the CDE in his day-to-day functions. It is also very

essential to appoint a Network Development Agent (NDA) or Local Organizer to assist the

CDE in his work. This Local Organizer should be appointed from within each cluster,

knowing the local language, and acting as a constant link between the CDE and

individual units.

Additional funding and support is urgently required for the purposes highlighted above

during the 11th FYP.

7.5 Soft Interventions, their Content, Scheduling, Evaluation, and Validation:

Soft interventions are important measures designed to spread the necessary awareness

regarding the benefits of the cluster development programme. These interventions are

normally targeted at individual cluster actors. These interventions are meant to bring

the individual constituents of the cluster on a common platform and provide an

opportunity for the democratic firming up of common objectives and to collectively meet

the common challenges faced by the cluster. Soft interventions also provide

opportunities for visiting and learning from the experiences of other successful clusters

thereby effectively bringing about a conducive mindset for cooperation. Based on our

study the following issues have emerged and require attention:

The funds presently allocated for soft interventions needs review and revision. They

should be increased from the present level of Rs 10 lacs to Rs 50 lacs of which Rs 10 lacs

should be specifically earmarked to meet the cost of monitoring these interventions.


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These enhanced funds should be released without delays in order to provide adequate

time for the full utilization of these funds over a stipulated period of time.

The present provision of 3 years to carry out these interventions is far too long and the

pace of intervention far too slack to have any significant impact. Cluster actors tend to

loose interest in the programme in such a situation. Therefore all soft interventions

should be carried out within a period of 12 to 18 months at the most.

In the event of the cluster actors not being able to form and register an SPV within the

period provided for soft interventions, further interventions in the cluster should be

terminated.

In order to ensure that the soft interventions are effectively implemented they should be

closely monitored by a suitable monitoring agency appointed for the purpose. The

agency should be required to submit a detailed quarterly report on the progress of soft

interventions and the utilization of funds. The soft interventions should be suspended in

the event of an adverse report. The funds allocated for soft interventions may be

released in two or three installments subject to the proper utilization of funds as reported

by the monitoring agency.

If the cluster succeeds in forming and registering the SPV during the period in which soft

interventions are in progress, the hard intervention may be simultaneously initiated.

The term ‘Soft’ is inappropriate and sends out undesirable signals to most implementers.

A more appropriate term such as ‘Basic’, ‘Primary’, ‘Enabling’, or ‘Catalytic’ should

replace the term ‘soft’, which is currently used.

7.6 Special Purpose Vehicles (SPV):

The Special Purpose Vehicle is an important institution that enables the delegation of

specific responsibilities and the transfer of funds for the creation of a common facility

centre catering to the needs of the individual units in the cluster. Our study of sampled

clusters indicates the following:

Institutional Form of the Organization: SPVs can be established in the form of

Cooperative Societies or Private Ltd. Companies. In the case of dense clusters with a

large number of individual units the formation of a registered Cooperative Society is

more suitable. In the case of clusters with a limited number of individual units the

formation of the SPV as a Private Ltd. Company seems more suitable. However one

must be warned that the upper limits normally stipulated on the number of persons

forming the company often restricts participation and leads to the domination of the SPV

by those who are members of the board. Constituent units combining to jointly own the

controlling shares in the SPV however can overcome this problem.

Democratic Participation and Inclusiveness: In order to sustain and equitably share

the benefits of hard interventions it is most essential to maintain democratic participation

and inclusiveness. It is therefore necessary to ensure that all willing cluster actors who


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desire to join as members of SPV even at a later stage are allowed to do so by

purchasing controlling share at a higher price.

A Clear Statement of its Strategic Intentions: It is observed that few SPVs that

have been formed from among the sampled clusters do not have a clear mission or

strategy document which will avoid its deviation from the strategic goals of the cluster.

It is essential to require the SPVs to formulate this mission and strategic statement and

commit itself to following the stipulated strategy prior to the release of central

assistance.

Clear Definition of its Objectives and Scope: It is equally important for the SPV to

clearly articulate its objectives and scope in order to avoid attempting more than what is

viable and feasible or subsequently diluting its objectives and scope.

Democratic and Representative Choice of Common Facilities: The common

facilities are the basis of the creation of the SPVs and the large expenses incurred to

create these facilities can only be justified if allowances are made to arrive at a proper

consensus on the type of common facilities that are needed by the cluster at large. The

future viability and proper capacity utilization of these facilities will only be sustained if

such facilities are selected and created with the active participation of all the potential

users. Arrangements therefore should be made to consider the opinions of cluster actors

under the close supervision of the CDE/CDA. It is noticed that at present, common

facilities are being selected by a set of influential office bearers and dominant

personalities in the SPV Board of Directors.

The Proper and Time Bound Formulation of a DPR: The DPR is a critical document,

which guides the creation of common facilities. It should therefore be very carefully

formulated as the planned project it often involves the use of fairly advanced technology

and procurement of expensive equipment. The DPR should be formulated on the basis of

detailed consultations with technical experts and should be a time bound exercise.

Adequate provisions should be made for consulting experts and expert institutions, and

the costs related to consultancy should be factored into the estimates submitted for

approval. The careful formulation of a DPR and its time bound approval is most essential

in order to avoid subsequent revisions and modifications. These are likely to be not only

time consuming but also lead to cost escalations. Costs escalations arising from

subsequent modifications are not likely to be sanctioned by the sponsors. In many cases

it has been observed that the sponsor has insisted that the escalations or additional costs

be born by the SPV or alternatively a revised proposal resubmitted and considered

afresh.

7.7 Hard Interventions,heir Contents, Scheduling, Evaluation and Validation

The entire CDP programme ultimately works towards the implementation of hard

interventions in the form of a common facility centre. It is only with the completion and

commissioning of the CFC that the real benefits of cluster development are

demonstrated. The successful implementation of these hard interventions provides

substantial gains in productivity thereby helping the cluster to sustain itself and grow.


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The SPV is enabled to generate its own resources and expands its activities

independently without further handholding by the state. Our study of hard interventions

reveals the following:

Hard interventions have been successfully initiated in only a few sampled clusters while

in seven clusters the common facilities are being presently constructed they have yet to

be commissioned. It is only in the case of two clusters that the hard interventions by

way of common facility centers have been commissioned and have started to function.

The setting up of Common Facility Centers in nine other clusters is at different stages of

development. Therefore the impact of hard interventions is limited.

Though SPVs have been formed in a fairly large number of clusters, long delays in the

formulation of the DPR has brought the entire programme to a grinding halt with hardly

any forward movement. The SPVs in many cases require immediate assistance in the

formulation of DPRs. Therefore efforts are immediately required to provide additional

assistance for these SPVs in the formulation of DPRs. The MSME and the concerned

state government should identify competent professional agencies to assist the SPV in

this critical task.

The flow of funds and its utilization for implementing hard interventions involves many

cumbersome procedures. These procedures need to be carefully studied and

streamlined. A special study should be commissioned in this regard to carefully look into

the various procedural delays and constraints and recommend the elimination of a

multiplicity of agencies through which the flow of funds are presently being cleared and

canalized. A proper assessment of the need and justification for such agencies should

also be included in the terms of reference for the study.

It is also noticed that the common facilities created are not being fully utilized. This low

level of utilization is affecting the profitability of SPVs. At present many cluster actors

are not using the facilities. This is being compensated by allowing these facilities to be

used by other large private firms, which negates the objectives of cluster development.

Attempts should be made to price the services of the common facilities in such a manner

as to attract the individual units in the cluster who are not using this facility. This may

mean that the SPV only covers the cost of operating the facility for the moment.

However fuller utilization of the capacities is likely to lead to substantial profits in the

long run. The equitable use of common facilities is also an issue that needs to be looked

into as there is a tendency for the larger units to monopolize the use of common facility

as they are located closer to the common facility as compared to the smaller units who

are inevitably located in the outlying area, or periphery of the cluster.

The MSME should also seriously consider implementing a second phase of hard

interventions wherein the financial commitments of the State is substantially lowered.

This will go a long way in sustaining the further strengthening and development of the

cluster, till a stage is reached when the cluster is self sufficient, and does not require any

further state assistance.


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7.8 Ensuring the Involvement of Prominent Scientific and Research Institutions through Dedicated Grants

There are a large number of scientific institutions in the country supported and funded

by the Government of India. Some of these are involved in research and development

pertaining to many relevant areas such as food processing, aromatic herbs, leather,

rubber, plastics, metallurgy and metals, wood and wood based products, and ceramics.

They normally have a large number of young scientists and technologists who are

carrying out commendable work in their fields. It is very paradoxical to observe, that

while such vast scientific talent and resource exists in this country, the numerous

clusters are often starved for scientific guidance and support. It is therefore suggested

that the MSME make a very special effort to solicit the active cooperation of these

scientific institutions through the provision of dedicated grants to establish projects or

cells in these institutions, in order to enable an active linkage between science and small

industries. The active involvement of the MSME in “The Innovation Project” recently

initiated by TIFAC with the support of the World Bank would help in realizing this

important linkage. We strongly recommend that additional resources be earmarked in

the XIth Plan for this purpose.

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