Improving the Productivity & Competitiveness

of Industrial Clusters
A holistic strategy for India

November 2012
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Acknowledgements

The Planning Commission has been assisted by various individuals and agencies in its analysis of
how India should go about increasing the performance and productivity of its manufacturing
Clusters. This report is the result of this collaborative effort.

The principal contributors are the team from KPMG, Ankit Jain from Massachusetts Institute of
Technology and the team from Paradigm Consulting working at the Planning Commission.

KPMG worked on developing a detailed description of the capabilities and role of the ‘Cluster
Stimulation Cell’ and also on its implementation roadmap. Ankit worked extensively to profile
Cluster policies in select developing and developed economies and has also been instrumental
in creating the FACTS Framework for Cluster evaluation. The team from Paradigm Consulting -
the adjunct team assisting the Planning Commission for the Manufacturing Plan – worked with
KPMG and Ankit on their reports and also on developing the Cluster Competitive Index.

Various agencies also lent their support (both in terms of knowledge as well as field-testing) to
this report. A few of these are The World Bank, METI Japan, IL&FS Cluster team, FISME,
Foundation of Management of Clusters (FMC), National Innovation Council, Ministry of MSME,
and the Ministry of Textiles.

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Contents

1. Introduction …………………………………………………………………………………………………………….…… 2

2. Challenges facing MSMEs ……………………………………………………………………………………….……. 5

3. A Cluster approach to improve productivity and innovation of MSMEs ………………….……. 6

4. International analogs of good Cluster policies and practices ………………………………….…….. 8

a) Cluster Policies in Japan ………………………………………………………………………………………...……. 8

b) Cluster Policies in China ……………………………………………………………………………………….…..…. 10

c) Cluster Policies in Korea …………………………………………………………………………………………...…. 11

d) Cluster Policies in Brazil …………………………………………………………………………………………...…. 13

5. A Cluster Strategy for India ………………………………………………………………………………………….. 15

5.1) Cluster Stimulation Cell ……………………………………………………………………………………….……. 16

5.2) FACTS Framework ………………………………………………………………………………………………..…… 22

5.3) Cluster Competitiveness Index …………………………………………………………………………….……. 24

6. Implementing the Strategy ……………………………………………………………………………….…………. 24

7. Annexure …….………………………………………………………………………………………………………………. 29

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1. Introduction

A Cluster is a geographically proximate group of interconnected companies and associated

institutions in a particular field, that share common markets, technologies, worker skill needs,
and which are often linked by buyer-seller relationships. Industrial clusters are increasingly
recognized as an effective means of industrial development and promotion of small and
medium-sized enterprises. In fact the Ministry of Micro, Small and Medium enterprises (MSME)
adopted the cluster approach as a key strategy for enhancing the productivity and
competitiveness as well as capacity building of small enterprises. The issue of effective Cluster
management has gained immense popularity amongst policy makers as a very important tool of
intervention. Recognizing this, Clustering and Aggregation is one of the identified areas for
focus in the National Manufacturing Plan (NMP).

There are multiple bodies that are associated with Cluster development initiatives. These
include Government bodies, Public Sector Undertakings and Industry Specific bodies. Various
central ministries (e.g. Ministry of MSME, Textiles and Commerce & Industry etc.) run multiple
schemes related to cluster development. Given the multiplicity and importance of these
initiatives, they would benefit from the creation of a shared repository of theoretical and
practical knowledge related to cluster management and cluster development. The
Manufacturing chapter in the 12th Five Year Plan document suggests the formation of a ‘Central
Cluster Cell’ (renamed as the Cluster Stimulation Cell) with the objective of maintaining cluster
information, performance evaluation and identification and facilitation of sharing of best
practices among the cluster participants.

The basic ingredient for the government to make incisive, relevant and impactful interventions
at the Cluster level is having information on the units within Clusters. A study by UNIDO
mapped over six thousand Clusters in traditional handloom, handicrafts and modern SME
industry segments. Moreover, each Cluster has many manufacturing and services units - both
registered and unregistered. Further, very few of these Clusters are organized and have ‘Cluster
Associations’ – a body formed to represent the interests of the Cluster units and interface with
various government departments and other agencies to promote the state of productivity and
profitability of its members.

Therefore, it is imperative that a mechanism for gathering reliable data on Clusters and their
units should be instated. The data needs to be collected on performance parameters of
individual units as well as indicators of competitiveness at the Cluster level. Needless to say this
cannot be a one-time exercise but needs to be a practice in perpetuity. We need reliable,
quantifiable data which is gathered annually on defined parameters and gets recorded in a
repository for easy extraction and analysis. This information will serve as the indicator to

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 determine where the Cluster (and units) may require assistance, and may also highlight success
stories worth understanding, decoding and emulating.

The Cluster Stimulation Cell (CSC) can play this role of creating, disseminating and recording
useful information and practices on better Cluster management. However, for the CSC to do its
work, data is required on Cluster unit performance. A framework (FACTS framework) has been
developed that would gather inputs on key parameters at the Cluster and Cluster unit level for
this purpose. Further, to create a pull effect of Clusters volunteering to get organized and share
data, an incentive structure works better than a mandate. To this end, creation of a Cluster
Competitiveness Index (CCI) has been proposed.

This paper begins with discussing the challenges facing small and medium manufacturing firms
and builds the case for how adopting a Cluster approach would help spur greater productivity
of these enterprises. It imperative for the country to improve the manufacturing capability of
its MSMEs since it is from these small and medium units that tomorrow’s large enterprises
would emerge to boost industrial growth of the country. The paper further examines successful
cluster policies across few developing as well as developed economies. It then assimilates and
contextualizes these lessons and builds on the current thinking around cluster development to
suggest a three pronged strategy for improving cluster performance and development in India.

2. Challenges facing MSMEs

Despite its strategic importance in any industrialization strategy, the opportunities that the
Indian landscape presents and its immense potential for employment generation, the MSME
sector confronts several challenges. They face problems at every stage of their operation,
whether it is buying of raw materials, manufacture of products, marketing of goods or raising of
finance. Some of these challenges facing Indian MSMEs are:

i. High cost of credit: Access to adequate and timely credit at a reasonable cost is the
most critical problem faced by this sector. The major reason for this has been the high
risk perception among the banks about this sector and the high transaction costs for
loan appraisal. Further, players in MSME sector are not in a position to provide collateral
in order to avail loans from banks and hence denied access to credit.
ii. Lack of access to global markets: With the liberalization and globalization of the Indian
economy, the small enterprises in India have unprecedented opportunities on the one
hand, and face serious challenges, on the other. While access to global market has
offered a host of business opportunities in the form of new target markets, possibilities
to exploit technological advantage, etc., the challenges in this process have flowed

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 mainly from their scale of operation, technological obsolescence, and inability to access
institutional credit and intense competition in marketing.
iii. Low technology levels and lack of access to modern technology: The MSME sector in
India, with some exceptions, is characterized by low technology levels, which acts as a
handicap in the emerging global market. As a result, the sustainability of a large number
of MSMEs will be in jeopardy in the face of competition from imports.
iv. Lack of skilled manpower for manufacturing, services, marketing, etc.: Although India
has the advantage of a large pool of human resources, the industry continues to face
deficit in manpower with skills set required for manufacturing, marketing, servicing, etc.
v. Innovation, restructuring of operations, sharing of knowledge and best practices: As
liberalization prevails in the global economy, small firms will be under tremendous
pressure of factors like innovation, restructuring of operations and problem in achieving
production efficiencies. The competition between a small and big firm is not only in
price and size, but also compete on the basis of their ability to innovate. Hence, in order
to maintain sustainability in this ever-changing global economy, SMEs should also adopt
innovative techniques and should undergo with continuous improvement in their
product, process, like big players.
vi. Procurement of raw materials at a competitive cost: This is a growing challenge faced
by this sector as procurement for raw materials is carried out within local territory due
to their financial constraints and procurements are much smaller in scale as compared
to industry at large.
vii. Inadequate infrastructure facilities, including power, water, roads, etc: To ensure
competitiveness of the MSMEs, it is essential that the availability of infrastructure,
technology and skilled manpower are in tune with the global trends. MSMEs are either
located in industrial estates set up many decades ago or are functioning within urban
areas or have come up in an unorganized manner in rural areas. The state of
infrastructure, including power, water, roads, etc. in such areas is poor and unreliable.

3. A Cluster approach to improve productivity and innovation of MSMEs

A cluster approach can help firms achieve competitive advantage by promoting their common interests,
identify the most promising opportunities to encourage further innovation, develop worker skills, and
address issues that affect productivity. The easy reach to specialized suppliers of raw materials,
parts and components, machinery, skills and technology as well as other supporting services
can enable enterprises to improve competitiveness. Cluster development not only improves the
competitiveness of industry, rather it also acts as an instrument for alleviation of poverty,
generation of sustainable employment, fostering innovation, enabling better, effective and

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 sustainable credit flow, thus addressing many of these challenges that MSME enterprises are
currently facing in India. The following table lists six key benefits accruing to firms that operate as part
of a Cluster.

Benefit Explanation Illustration

In Lucknow a textile cluster got together and
Policies enabling collective action allow invested INR 40CR in an Effluent Treatment
enterprises better access to final customers Plant which would not have been possible if
Collective Action
A more cogent voice for lobbying the done individually.
of Enterprises
government The Cluster is now a 'Zero Discharge' cluster,
Joint investment in infrastructure etc. conforming to stipulations required to sell in
certain international markets

A cluster allows companies to operate more

productively in sourcing inputs; accessing The TAMA cluster in Tokyo, Japan, has
information, and learning and adopting contributed to improving the linkages of its
technology member units with universities for better R&D,
Innovation and
Clusters also play a vital role in a company’s set up facilitates for prototyping and testing,
Productivity
ongoing ability to innovate - Companies gain and shares knowledge on better management
knowledge early about evolving technologies, of enterprises, access to funds and new
component and machinery availability, markets
servicing and marketing concepts

Members of a cluster get access to extensive

market, technical and competitive information In India, co-operation between OEM’s, key
Access to accumulated within a cluster. In addition, suppliers and subcontractors in the auto-
specialized personal relationships and community ties components space during the early 1990’s
information foster trust and facilitate the flow of increased on issues of quality which led to the
information. These conditions make adoption of TPM and TQM.
information more transferable.

Many new companies grow up within an

existing cluster. New suppliers proliferate
within a cluster because a concentrated In the Gurgaon automotive belt, many
New business customer base lowers their risks and makes it packaging and logistics units were setup when
formation. easier for them to spot market opportunities a need to transport components to OEM’s was
Individuals working within a cluster can better identified as a gap in the supply chain process.
perceive the gaps in products or services
around which they can build businesses

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 Clusters offer deep and specialized supplier By encouraging the setting up of primary and
base. Sourcing locally lowers transaction costs secondary ancillary units around auto
Lower transaction for producers. It minimizes the need for manufacturing plants in Pune and Gurgaon, the
costs and access to inventory, eliminates transportation costs and whole ecosystem of manufacturers benefits
specialized supply delays. from having the supply chain players present
base. Proximity also improves communication and locally. Lead times in being able to work
post sales service, leading to overall together and innovate has significantly
production efficiency improvement. reduced.

A clear benefit is the ability of industry,

government, and education to work
cooperatively to strengthen both state and
regional economies.
In some clusters in China, the industry
This leads to more efficient and effective use
association takes over some responsibilities of
Benefits to the of public and private resources and helps a
the government like spurring local
state and local region or state develop strong and dynamic
manufacturing, holding lectures on new
authorities. clusters.
technologies and manufacturing techniques,
It also helps a region or state address critical
human resource development etc.
issues such as human capital and workforce
development, infrastructure planning and
creation, and rural and community
development.

4. International analogs of good Cluster policies and practices

Many countries have successfully used Cluster policies to improve industrial output and increase the
competitiveness of their enterprises, particularly the small and medium firms. A few such innovative
policies and interventions in Japan, China, Korea and Brazil are chronicled below. India can learn a lot
from these examples and selectively contextualize and apply relevant practices.

a) Cluster Policies in Japan

Following Japan’s “lost decade” of the 1990s, the Japanese shifted their policy targets from the more
traditional approach of encouraging production linkages (i.e. linkages across a supply chain) to
developing technology and innovation linkages among members of a cluster.

Prior to the launch of the ICP (Industrial Cluster Program) and KCI (Knowledge Cluster Initiative) policies,
the industrial agglomeration-focused policies prioritized the maintenance of efficiency in production
networks. Policies were aimed at optimizing the business environment for “parts-processing” or sub-
contracting SMEs. Under the new policies, more emphasis has been placed on “product-developing”

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SMEs, which have research and design capabilities and which sell their original products directly to
customers. This is a direct effort to increase Japanese companies’ depth of value addition.

One major thrust of the policy is the provision of credit and grants to stimulate R&D. The Cluster
Association receives funds from the Ministry of Education for various projects. Grants provided by METI
(Ministry of Economy Trade and Industry) are subject to meticulous oversight and controls. METI also
requires that milestones are achieved and documented for continued access to funds. Finally METI
grants typically cover only one-third to one-half of the cost of a project. In addition to public grants, the
inclusion of financial institutions in the member base of cluster associations has the bonus effect of
spurring private sector lending to SMEs. Participation in cluster activities increases banks’ trust in cluster
members, and a symbiotic knowledge sharing relationship increases the cluster’s awareness of the
potential of different sectors.

R&D funding and grants have been useful in spurring innovation, but the Japanese realize that the key to
sustainable success is the presence of an efficient mechanism for commercialization of IP and
involvement of private capital. Hence, the government has recognized 24 Technology Licensing
Organizations (TLOs) based in universities or in cluster associations.

These TLOs facilitate the creation of revenue sharing contracts among universities, researchers, and
private companies. They also act as the lead company in a consortium when competing for grants from
METI or other funders. The typical royalty arrangement for IP is that 3% of revenues from product sales
are shared between the researcher, the university and the TLO (40%, 30% and 30% respectively). This
arrangement ensures that all involved parties are incentivized to work towards commercialization of
research. The TAMA TLO is run by the association and is notable for having more autonomy than TLOs
based in public universities. Thus, Tama TLO is highly “guided research”-oriented i.e. research projects
will be started by the TLO’s parent consortium only on the basis of industry needs. For smaller or newer
companies, the TLO provides assistance with the documentation required for applying for grants. The
Association also showcases the work done by its cluster units to larger enterprises so that they can enter
into joint ventures and help fund R&D efforts of the TAMA units and universities.

Shared Testing and Research Facilities:

The Tokyo Metropolitan Research Institute (TIRI) is a research institute first started by the Tokyo
Metropolitan Government and now run independently. The purpose of the institute is to provide
technological support and access to high capital cost equipment to Small and Medium Enterprises in the
area. TIRI has 5 facilities in the Tokyo area. The TAMA region Techno Plaza facility focuses on providing
prototyping and testing equipment in one place to member firms of the TAMA cluster. The testing
services include strength and fatiguing, LED optical quality and anechoic chamber testing. The
prototyping services include 3D rapid prototyping, advanced composition analysis, temperature-
humidity, vibration, impact, degradation and corrosion testing. There is also a separate sub-facility in the
Techno Plaza for the development and testing of modern textiles. While the Techno Plaza facility is
focused on testing and prototyping, the 4 other TIRI facilities have a broader scope which includes R&D
and HR development as well. These facilities apply for grants from the government, research

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foundations or companies and then conduct research either independently or in partnership with other
universities/SMEs in the area. They also conduct technical seminars relating to new technology, industry
trends and internationalization

While the Techno Plaza facility does not subsidize the costs associated with accessing its equipment, it
still provides a valuable utility as it would be difficult and impractical for a single SME to purchase the
millions of Yen worth of equipment that TIRI makes available. The Techno Plaza facility maintains a high
utilization rate and is therefore a sustainable model. TIRI maintains an ongoing practice of regularly
polling its member companies to ensure that existing equipment is serving its purpose and to determine
whether new equipment purchases are necessary.

b) Cluster Policies in China

The key experiences of China’s SEZs and industrial clusters can best be summarized as gradualism with
an experimental approach; a strong commitment from central leadership and the active, pragmatic
facilitation of the state. It is also characterized by broad institutional autonomy, recognizing the
importance of preferential policies, rigorous benchmarking, monitoring, and competition.

A crosscutting theme across special economic zones and industrial clusters in China is the independence
afforded to the local administrative body. SEZs tend to have an independent committee that has
complete control over economic planning, pricing, labor wages, business management, and foreign
economic activities. The ‘township governments’ that manage other industrial clusters, also have
significant powers in terms of taxation and market regulation. The SEZs also lead the way in policy
experimentation sharing their experiences with rest of the country to build upon.

Another feature that stood out in Chinese clusters was the presence of active industry associations.
They bridge the gap between government and private enterprise. In most cases, these associations are
quasi-government bodies being led by a govt. appointed or a party nominated secretary. In some
clusters, the industry association would take over some responsibilities of the government like
publicizing the regional brand, holding lectures on new techniques and equipment and inviting
delegations from developed countries.

Key Lessons:
The success of Chinese industrial clusters is inseparable from local governments’ strong support and
nurturing. This support often come during the middle or later stages when the clusters have
demonstrated their potential. The prerequisite for this support is however a capable, invested and
powerful civil society at the local government level and the administrative efficiency in the governance
apparatus.

Upgrading clusters through Infrastructure investment

Local governments in China have tried to build a specialized market or industrial park to
facilitate business activities. Such a market brings suppliers, producers, sellers, and buyers

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 together and helps build the forward and backward linkages, thus greatly facilitating the scaling
up of the clusters. For example, in Wenzhou, the municipal government invested RMB 557
million to build an industrial zone—the “Chinese Shoe Capital”—in Shuangyu Town Lu Cheng
City, a large industrial complex integrating technological training, trading, testing, production,
information services, and shoe-related cultural exhibitions.

Investing in skilled labor and technology

Since majority of the clusters in China are labor intensive with little innovation capacity, the
local governments considered it worthwhile to invest directly into innovation and skill
development. In
Guangdong since 2000, the provincial government has invested RMB 300,000 in each specialized
town, with matching funds from local governments, to build a public technology innovation
center (TIC) to support the clusters’ innovation and technology activities.

Preferential policies and financial support

To attract qualified enterprises to the clusters, local governments often offer certain incentives,
including desirable land, tax reduction or exemption, and access to credits and loans. In the
Puyuan sweater cluster, the local government set up an industrial park and granted preferential
land, tax, and credit policies to attract enterprises with famous brands to locate in the cluster.

Branding cluster and Regulating Quality

Local governments in China often enact specific regulations, especially those related to
investment type, product quality, and standards, to ensure that the products made in the
clusters have a market future. They simultaneously invest in branding the cluster products to
the rest of the world. This two pronged approach ensures that their get maximum bang for their
buck. In the 1980s, Wenzhou shoes experienced a rapid expansion of quantity without quality;
as a result, they offered low prices but suffered from a bad reputation. To correct this problem,
the municipal government issued strict regulations and quality standards for Wenzhou shoes
and helped firms develop branded products.

c) Cluster Policies in Korea

Korea’s rapid economic growth and catching up with the OECD countries in 70s and 80s is characterized
by sustained technological innovation and trade liberalization. Industrial clusters played an important
role in this and account for 72% of exports, 59% of production, 15% of business entities and 43% of
employment in the manufacturing industry (as of 2008). Korea’s rapid economic growth began in the
1960s when the first Five Year Economic Development Plan was implemented. Over the years, the
development and growth of its industrial parks was characterized by the overarching goals of the
National Industrial Plans.

At the end of 2009, the number of industrial parks was 815 and strengthening of competitiveness of
existing industrial parks emerged as a more important challenge for the industrial location policy than

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creating new parks. This led to the ICCP program by KICOX (Korea Industrial Cluster Corporation) and
Innopolis.

ICCP (Industrial Complex Cluster Program)

Most of the industrial clusters in Korea were just agglomerations and not equipped with sufficient R&D.
As a result, Korean clusters were falling behind in competitiveness. Specifically, the ICCP has focused on
complementing research functions to current industrial complexes including consolidating open
networks (industry university-institutes etc.), reinforcing R&D capabilities, enhancing inter-cluster
exchange and collaboration, and improving the living and working conditions. A total of $280 Bn were
spent by the government on the program in its first 5 years starting 2005.

Innopolis
Innopolis are defined as specially designated clusters/ regions in Korea that have been set aside in
accordance with the Special Act. In this special global innovation cluster, efforts are ongoing to achieve a
virtuous circle in business where R&D, technology industrialization and reinvestment activities reinforce
each other. So far, there are 3 Innopolis in Korea each with its own unique vision.

The focus of cluster policies in Korea has increasingly moved towards increasing productivity through
innovation, increasing collaboration through knowledge sharing and encouraging entrepreneurship.

Key Lessons
Region based Management of Clusters
The industrial clusters in Korea are managed by KICOX (Korea Industrial Complex Corporation),
which reports to the Ministry of Knowledge Economy. The country is divided into 7 regions each
having a Pan-regional Planning and Coordination Department which works closely with the
various dedicated Cluster Development Agencies.

Fostering Innovation through collaboration

Industrial clusters in Korea have benefitted greatly from increased ties with Universities and
other research organizations. Under the ICCP, KICOX has encouraged collaboration through
small size industry-university alliances, supported projects to cope with difficulties, and provided
access to experts.
There have been many cases of technology innovation where new technologies of university
labs are transferred to businesses and commercialized. Korea Marine University, Busan National
University and Pukyung National University and examples of universities working directly with
clusters.

Knowledge Sharing and Cooperation:

The Korean government has setup ‘ecluster’, an online cluster based information sharing portal,
for clusters to share best practices with each other. This has led to increased collaboration

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 between clusters from different regions tackling similar issues. In addition, the government has
entered into a number of alliances and signed MOUs with cluster organizations in other
countries. There is much ongoing collaboration with Germany due to their strong business
relations and export driven economies focussed on technological innovation.

Focus on SMEs and Entrepreneurship:

The government is taking steps to encourage SMEs and entrepreneurs as opposed to the
traditional Chaebols. They did this by reforming the tax code, changing bankruptcy laws and
making high speed broadband widely available. The government is also working hard at
changing the perception of startups that are still considered to be secondary to working to
Chaebols. Entrepreneurs are being invited to major events and being given a lot of media
exposure to change the mindset of people.

Increased exposure to global markets:

Instead of assisting large enterprises, the government its focusing its marketing efforts on
increasing the exposure of SMEs and other upcoming technologies to foreign markets. There is
an increased focus on multilateral overseas marketing so companies can deal directly with
foreign buyers. Reports are written and shared overseas and exhibitions held domestically and
overseas.

d) Cluster Policies in Brazil

In 2011, with a per capita GDP of approximately $12,000, Brazil is a middle income country faced with
the daunting task of upgrading its manufacturing value adds through largely technological advancement.
As noted, Brazil’s abundant natural resource endowment is a principal driver in the country’s economy.
The geographic dispersion of natural resources is such that they usually create the necessary factor
conditions for clustering of downstream industry around the resource. Thus the case for cluster based
policies is especially important in Brazil.

In 2004 the federal government, recognizing the need for such policies, brought cluster management
under the aegis of the Ministry of Development, Industry and Foreign Trade (MDIC). The MDIC
proceeded to set up a standing working group to develop best practices – the GTP-APL - that is chaired
by the MDIC, and has representatives from state and nongovernmental agencies.

Small Business Cluster Administration

One notable non-governmental organization is SABRAE, a government sponsored not for profit
organization, which is a principal actor in coordinating the development of Micro and Small businesses
in Brazil. Micro and Small Businesses account for over 99% of all enterprises in Brazil and employ in
excess of 28 million Brazilians, and as such is an important pillar of the Brazilian economy.

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An expansive and decentralized organization, SABRAE is represented in all of the country’s states and
federal districts through 750 point of service outlets. The guidelines and priorities for the organization
are set nationally, but local units are tasked with developing local actions appropriate to their region.

Cluster Policies
The primary focus of the organization appears to be an emphasis on collective action and knowledge
dissemination. By organizing local cooperative association that can assess and lobby for the collective
interests of enterprises in the region, SABRAE attempts to overcome market failure that arise from
disparate small participants.

Key Lessons
Collective action of enterprises
Small and micro enterprises would most likely suffer from the failures in market systems
promulgated in the literature on economic agglomerations. In particular, policies enabling
collective action may allow enterprises better access to final customers, a more cogent voice for
lobbying government, joint investment in infrastructure and so forth. The literature of clusters
in Brazil would seem to confirm that small and micro enterprises clearly benefit from policies
encouraging collective action.

Resource clusters
A natural resource endowment may serve as the initial impetus for the formation of an
industrial cluster. However, the formation of a cluster does not appear to be a sufficient
condition for further and continued development. Thus economic policies have been adopted
that specifically target technological advancement and human resource development within
resource clusters.

Key role for civil society

The most efficacious cluster initiatives invariably involve an empowered civil society
organizations. The origins of the organizations may vary, but each organization appears to share
the common characteristics that they are i) situated locally ii) broadly representative of the
cluster participants iii) long standing members of the community iv) empowered and
appropriately financed to represent the cluster’s interests.

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5. A Cluster Strategy for India

As observed in the preceding pages, many countries have deliberately nurtured and developed Clusters
to become productive units that contribute significantly in volume (GDP) and value (jobs, innovation) to
the country’s economy. Two major lessons for India that surface are:

(i) Data Collection and Cluster Mapping

The first step for India to approach reforming Clusters must be to engage private and public
leaders to produce an economy-wide map that shows cluster locations and their linkages with
the wider economy. The aim is to understand actual cluster behavior and performance. In
developed countries where data is available at the cluster, sub-cluster and firm levels, actual
linkages within and between clusters are tracked through detailed analyses of their sourcing and
selling behaviors as well as their business alliances. This analysis then allows the mapping of
clusters across geographies, indicating the locations and perimeters of the given clusters.

(ii) Knowledge sharing and collaboration

There is a strong emphasis in Brazil and particularly, in Japan and Korea, to encourage
collaboration between clusters enterprises, universities, research institutes and foreign cluster
bodies in order to spur innovation and growth. This has been made possible through the
presence of strong universities and researchers in the countries. However, the government has
taken steps such as setting up knowledge management systems (e-cluster in Korea, TLO’s in
Japan), revising financial incentives for universities and researchers, and actively pursuing MOU
signings with foreign entities to further enable collaboration.

Traditionally, all the innovation in Korea was either imported or through large conglomerates.
By making ‘engagement with industry’ an evaluation criterion for professors, by enabling
movement of personnel between universities and industry, and by giving universities the rights
to jointly own patents that are funded by industry, Korea has enabled greater university
involvement in industry research. Brazil too has enabled university-industry collaboration
mechanisms by setting up dedicated incubation centers and grants and Japan set up the
Technology Licensing Office to foster Industry-Corporate partnership in R&D.

Efforts such as these have resulted in great innovation (in the form of patents, R&D spend) and
thus increased competitiveness of clusters globally. Herein lies an important learning for India,
which has a stronger network of universities, and with the right enabling mechanisms could
increase knowledge sharing across the board for the benefit of clusters.

However, adopting the international models in India presents certain challenges. These include the lack
of theoretical research on the discipline of cluster management in the Indian context, relatively less
participation by academic institutions in cluster development research, low degree of maturity of a
majority of Cluster Management Associations, low penetration of ICT (Information Communication

15
Technologies) amongst cluster management organizations, and the relatively large number of agencies /
institutions across industries and geographies which are working in the area of cluster management.

Recognizing this, in order to improve the state of Cluster management and performance in India, a
holistic solution is required that acts on the many challenges facing Clusters are various levels, viz:
Challenges at the Cluster unit level; Cluster aggregate level; Government departments and other
agencies involved in Cluster work.

Over the course of the last year, the Planning Commission has consulted wide and deep with experts,
govt. officials, industry and cluster units to develop the approach for systematic improvement in Cluster
management and coordination. This three-pronged strategy includes:
1) Setting up a Cluster Stimulation Cell
2) ‘FACTS Framework’ of Cluster performance measurement
3) Cluster Competitiveness Index

5.1 Cluster Stimulation Cell

The CSC would be a central coordination body tasked with knowledge creation, capture and
dissemination. The key objective for the CSC would be the creation of a knowledge repository related to
cluster profiles, frameworks for measuring cluster performance and content to improve cluster
competitiveness. Also, it should be able to disseminate this knowledge through appropriate platforms to
various cluster related agencies. Additionally, it may undertake the task of coordinating and achieving
collaboration amongst various agencies - government and non-government - with stakes in Cluster
development. The CSC would refrain from directly intervening at the cluster level and would work
through existing agencies to achieve the objectives of improved cluster (unit) performance indirectly.

Owing to the large number of clusters in the country, the best way to reach the cluster units would be
through the Cluster Management Associations, or Cluster Associations, in short. However most clusters
do not have mature, professional representation and this is likely to be a key challenge for the CSC.
Additionally, disseminating knowledge through ICT platforms, as is the practice internationally, may not
work in India due to low penetration levels of ICT platforms. At the same time, simple ICT solutions like
websites and emails are the cheapest and quickest ways to reach the large number of clusters and
various intervention agencies.

The CSC would have the following objectives:

1. Improving the competitiveness of Clusters in India by improving the state of performance of cluster
units by: building awareness of latest relevant technologies, better access to finance, improved
utilization and training of manpower, access to new markets and knowledge of best practices in
analogous clusters.

16
 2. Promote collaboration among various Cluster related agencies by building collaboration platforms
and knowledge networks
3. Improve the state of “Cluster Management” in the country by creating, sourcing and disseminating
literature relevant to this end

These objectives may be achieved by undertaking the following distinct activities:

Creating underlying framework and definitions for mapping of clusters, cluster

1 Cluster Mapping / Profiling
profiles and performance data.
Codify existing research and information to be able to share with Cluster
2 Research and Analysis development related agencies. Additionally undertake independent research for
creation of theoretical frameworks and toolkits.
Build collaboration platform for cluster related organizations to be able to better
Collaboration with cluster related align and direct cluster interventions and exchange of best practices. This can be
3
organizations ideally achieved through an online platform supported by other offline activities like
events.
Facilitate sharing of management practices among Cluster managers and create
platforms for Cluster Managers and associations to interact. This activity is towards
Supporting collaboration /
4 achieving the goal of improving the “Cluster Management” capabilities. It is
knowledge sharing across clusters
understandable that the Clusters would not be willing to share competitive
information related to processes, technology, customers and suppliers.
Provide policy advice to various ministries involved in Cluster development to help
Policy Advisory related to Cluster
5 them design and improve their schemes. This activity would depend on the quality
Development
of Research and Analysis that the CSC is able to undertake and execute.
Create underlying framework for performance measurement or quality labeling of
Performance Measurement / Clusters and Cluster Managers. The CSC should also coordinate this activity through
6
Quality Labeling partnerships. This is an important activity to be able to set in motion a continuous
improvement orientation for Cluster management.

i. Cluster Mapping / Profiling

Cluster Mapping and Profiling would aim to create and maintain an up-to-date repository of
cluster information in India and create an “Observatory” where this information is accessible.
Such observatories exist in multiple countries. As a result, there is existing architecture that can
be leveraged to gain a quick start on this activity. At the minimum, the Observatory may capture
information related to the following:
 Geography and location of the Cluster and unique identifier ( combinations of the name,
location etc)
 Economic activity and Value Chain in the Cluster
 Quantitative Indicators such as number of units, employment, revenues, exports etc

17
  Organizations associated with the Cluster such as academic institutions, technology houses,
export promotion councils, non-government bodies etc
 Profile of the Cluster Associations, members and their contact information.
 Details of interventions made in the past by various agencies, including any diagnostic
reports or impact assessments.

The Forum for MSME Clusters (FMC) has created one such Cluster Observatory. It would be
relatively easier to create the Observatory in terms of the technology and the framework,
however getting the Clusters and related agencies to maintain the latest information is likely to
be the key challenge and would require dedicated efforts and incentive mechanisms.

ii. Research and Analysis

There are multiple components of Research and Analysis that the CSC may choose to undertake.
First is the creation of a repository of all existing and ongoing research, national and
international in this area in a codified manner. This may include the diagnostic reports,
implementation reports, impact assessment studies, case studies, made by implementation
agencies and administrative ministries. In order that the repository is effective, this research
needs to be codified and analyzed to be useful for future interventions.
Second, the CSC may undertake independent research in collaboration with other agencies to
create frameworks, inform policy, design and refine schemes and programs. As an illustration,
the research areas may be of the following nature:-
i. Diagnostic framework for assessment of issues impeding Cluster Performance and a
Performance Evaluation Framework for Clusters
ii. Principles of active management of Clusters through professional Cluster management
associations
iii. Relative impact of various kinds of interventions: soft vs. hard interventions, technology,
finance, export linkages etc
iv. Social development within Clusters
v. Competitiveness studies at industry or geography level
Third, the CSC may undertake or collaborate with international organizations for broad-based
research at an international level. However, this may not form the primary research agenda.

iii. Collaboration with Cluster Related Organizations

Bringing together all cluster-related organizations on one platform could be one of the most
important objectives of the CSC. This collaboration would also go towards ensuring that the
Cluster Mapping and Research and Analysis objectives of CSC are supported.

18
 The creation of some or all of the below collaborative platforms would assist in achieving the
above objective:-
 Internet Portal based platform which may be an extension of the Cluster Observatory or
vice versa: This platform could serve the purpose of dissemination of best practices,
research and analysis, latest emerging thinking amongst participants, and provide
discussion forums to debate issues.
 Offline ‘calendarized’ events facilitated and coordinated by the CSC: These forums can
form the basis for discussions around best practices, emerging research and sharing of
ideas.
The above are only ‘platform’ suggestions, and the real success of this objective would be
measured by the collaborations, joint projects and flow of ideas amongst the group on a regular
basis. Examples of this are listed below:-
 Ministries coming together to discuss and review policies to improve policy making and
scheme design. The underlying research and analysis of existing schemes, successes and
failure of projects may be shared to refine interventions which are being made.
 Multiple agencies representing converging for “systems analysis” for a cluster can
produce better solutions and coordination actions for a particular cluster.

 Exchange of experts and services amongst agencies

 Development, review and implementation support for frameworks which are laid out by
the CSC. For example if a performance measurement framework for Clusters and Cluster
Managers can be collaboratively developed and reviewed by various agencies who are
part of the network.
The CSC may concentrate on developing the framework underlying such platforms, advise on its
on-going governance and act as a coordinating agency.

iv. Supporting Knowledge Dissemination and Collaboration Across Clusters

The objective of achieving inter-cluster collaboration, though significant, is also the most
resource intensive and difficult to achieve. There are multiple benefits to be derived from
networking the clusters with each other so that they can share information and practices
amongst themselves and benefit from the same. At the same time, connecting the dots within
the cluster in terms of connecting units, cluster management associations, financing
organizations, technology institutes, common procurement and sales organizations etc. may
also have strong upsides.
A clear differentiation needs to be made here with regards to the subjects of collaboration or
“practice sharing” amongst Clusters. Cluster participants would be reluctant, and
understandably so to share or collaborate on first order issues related to business
competitiveness. This would mean practices related to manufacturing processes, technology,

19
 customer and supplier bases etc. However it is not unreasonable to expect Cluster Managers
and association to connect with each other on second order issues related to “Cluster
Management” practices, joint policy representations, etc. The analogy to this would be industry
associations and bodies wherein such knowledge sharing and collaboration exists.
The CSC may restrict itself to the objective of connecting Cluster representatives amongst
themselves. These representative may be the Cluster Management associations, SPV (Special
Purpose Vehicles) managers or similar such bodies.
The primary tool for achieving these objectives may need to be a combination of an online
platform, which is an extension of the Cluster Observatory, and through offline regional events
and forums. The key challenge is to build incentives for collaborating for which active promotion
of the available forums would be required, apart from providing and actively promoting tangible
benefits of participation.
Some of the tangible benefits that could be offered to Cluster participants are as follows:-
 Thematic events around technology upgradation issues in a cluster, along with potential
service providers, international agencies etc. Similar events for other issues related to
financing, export linkages, skill development, infrastructure development, etc.
 Help lines for providing understanding, eligibility and effective utilization of central
government and state government schemes and funds for clusters
All of the above are resource intensive and are best catered through partners and collaborators,
with the CSC facilitating and providing the frameworks. In all events, the CSC may wish to avoid
creating parallel initiatives in these areas and concern itself with providing.

v. Policy Advisory
The policy advisory objective is an important and “measurable” output that the CSC may
undertake to advise various ministries running schemes and spending development funds
towards improving cluster performance. We emphasize the importance of this activity due to its
tangible nature and the level of direct impact it can have on improving the quality of cluster
interventions in the country.
The data repository and the research and analysis outputs would be the underlying foundation
for the CSC to advice on policy matters on a solicited basis. The CSC will also have to build
expertise on the subject on its own or through partner networks.
However to begin with, the policy advice may have to be disseminated through publications and
through the collaborative platforms to various stakeholders.
Some of the examples on Policy Advisory are as follows:-
 Advising Central Ministries on design of schemes and outlays

20
  Advising on relative merits and demerits of types of interventions e.g. Hard infrastructure
vs. soft interventions like training programs, skill building initiatives, connectivity etc
 Advising on changes to implementation and monitoring mechanisms

vi. Performance Measurement / Quality Label

One of the levers used by the EU model is a performance measurement and quality labelling
program for Cluster Managers. The performance measurement and goals for improvement are
linked to availing of various schemes and incentives. As a result, there is a direct incentive for
Cluster Managers to participate and provide information about key management practices and
the performance of the cluster in order to get certified.

A similar approach may be adapted to the Indian context, wherein the CSC could provide the
framework for evaluation of performance of Cluster Managers / associations and overall
labelling program. The implementation of the same could be achieved through certifying
partners who are trained and empanelled by the CSC directly or through a set of partners.

The longer term benefits would be in the form of encouraging Clusters to build formal and
professionally staffed Cluster associations with a focus on continuous improvement of
management practices. The approach is in line with, and supportive of the objective of creating
representative organizations for each cluster, which demonstrate commitment towards
continuous improvement.

Organization of the CSC:

In order to ensure that the CSC remains lean, it should adopt a partnership model and partner with
various institutions and agencies for support in its activities. One of the key partnerships should be with
one or multiple academic institutions which will support the CSC in its Research and Analysis activity.
Principally, the CSC should look for partners to be able to access subject matter expertise, gain funding
and sponsorships and augment its own management bandwidth. It is also important that the CSC be a
neutral body having no affiliations with respect to industries, geographies and solutions – this is key to
establish its credibility and to work impartially on its objectives.

In order to execute its work, the CSC may organize itself around the following capabilities /
competencies:
 Research and Advisory: Expertise in the area of Clustering and aggregation, analytical abilities
and respect and credibility with government agencies
 Collaboration and Networking: Ability to build networks, interact with multiple agencies, Indian
and international

21
  Project Management: Project Management skills to undertake multiple initiatives, experience
with leading new initiatives with help of multiple external partners.

5.2 Framework To Assess CompetiTiveness of Spatial Agglomerations (FACTS Framework)

There is a dearth of accurate and relevant data on the performance of Cluster units and on the area of
Cluster development. Despite the efforts of many agencies – government and private – working in the
field of Cluster development, there is no compendium or repository of reliable, comprehensive and
insightful data on Clusters across the country. The primary reason for this is the lack of a coordinated
and uniform framework to evaluate Clusters on.

Although, many agencies collect data on Clusters, there is a serious lack of both data integrity and
depth. The only agency which collects data at a unit level in a district is the District Industries Centre
(DIC). This data is only captured during registration of a firm and the data is updated on the basis of
certain arbitrary estimations such as y-o-y increase in production by 10%.

Similar challenges exist with other sources of data -

 Lead Bank Data - Only high level numbers collated (manufacturing vs. trading and priority sector
vs. non-priority sector)
 DGFT Data - Data collated at state level only
 Electricity Data - Cant be broken down by industry
 ASI Data – Organised sector data only, sampled at state level

There is also a huge gap between figures actually reported to the surveyors and the real figures. Firms
typically underreport figures for the fear of audits or to avoid attention from the various government
authorities. Many units availing benefits as SME’s tend to underreport figures for the fear of losing the
SME status along with the benefits.

Thus, limited availability of data at a district makes it extremely challenging to evaluate the need and
impact of various initiatives. There is also limited amount of coordination among intervening agencies.
Most agencies also have a solution bias like technology, financing, innovation etc. The theoretical
research and framework underlying the design of these initiatives is inadequate. Moreover there is
limited focus on documentation and dissemination of impact analysis, case studies and best practices.

Thus emerges the need to collect and analyze “real” data based on “on the ground” research under a
common framework. FACTS (Framework To Assess CompetiTiveness of Spatial Agglomerations) is a tool
developed to aid evaluation of an industrial clusters across different dimensions like competitiveness,
infrastructure, technology, etc. The framework lies somewhere in the gap left between top level
industrial statistics and a full blown cluster diagnostic study.

22
The FACTS framework aims to capture and assess data in a standardized and, simple and easy to
understand format. With fields ranging from unit specific information on financials, output, workforce
etc. to information on the role and activities of the Cluster (organization) as a whole, It will help policy
makers and researchers in evaluating the competitiveness of Clusters and to identify areas of
intervention required across the clusters.

Various public bodies in India (including state governments, central ministries and
international development organizations) have been studying and supporting industrial clusters through
different kinds of interventions. There was a need to develop a common language to aid collaboration
and coordination amongst the various players. This framework is one of the first steps in developing that
common language. The framework aims to form part of the CSC and work as a strategic tool to
determine actions required at the cluster level to measure and improve competitiveness.

The framework is meant to be used to capture and assess data in a standardized format across various
clusters. It is developed primarily for Indian policymakers and researchers to identify areas of
intervention required across clusters, deploy the interventions, measure the effectiveness of such
interventions and take appropriate action.

The immediate benefits of FACTS will be:

 Monitoring the implementation of projects and schemes, their impact and deriving learning.
 Documenting the impact of the scheme or project against the intended objectives.
 Ensuring that issues at the individual cluster level are diagnosed comprehensively, and appropriate
schemes or interventions identified.
 Design of method and mode of interventions and monitoring their progress based on y-o-y
collection and analysis of data.
 Comparison of similar clusters in one region against another and bringing to light the reasons for
better/poor performance.

The framework will record information on the following parameters:

1) Details on Cluster profile (industries, number of units, Cluster GDP, Avg. wage etc.)
2) Cluster Competitiveness variables (share of local industry GDP, growth in production, patents etc.)
 Hard Inputs (basic infra parameters, specialized infra parameters, raw material parameters,
financial infra parameters etc.)
 Soft Inputs (Tech and R&D, Human Capital, Marketing and branding, Quality standards etc.)
3) Cluster Unit information
4) Cluster Collective (Cluster Association parameters, collective action parameters etc.)
5) Regulations and policy related parameters (Doing Business indicators, policy incentives to innovate
etc.)

23
5.3 Cluster Competitiveness Index

The Cluster Competitiveness Index (CCI) will evaluate and benchmark Clusters on various fields
of performance and competitiveness, which will reveal the ability of Clusters to innovate and
improve their productivity. It is an inter Cluster comparative index that will highlight how
Clusters (aggregate of Cluster units) compare against others in similar sectors or geographies.
To create the index, data on Cluster units and the Cluster will be recorded using the FACTS
Framework. This information will be collected afresh and existing data from ASI or data with
State Industrial Development Corporations will not be used for formulation of this index. Only
those Clusters that meet the requisite criteria of having reliable data on its members, and which
have an organized Cluster Association, will partake in this evaluation.

The benefit would be that this Index would serve as a compass for various agencies and govt.
bodies to direct their efforts and funds to these Clusters to help them become better at areas
that need attention, and leverage their current strengths. It would bring to light the strengths
and good practices of certain Clusters that make them more productive and competitive –
these can be then explored and emulated; and will also reveal the lacunae and weaknesses in
Clusters on various parameters – this is where State and Central bodies can direct and focus
support.

Over time, the intention is that we create a movement where Clusters start becoming
organized, share data and communicate transparently on key parameters and become aware of
their peer groups and their levels of progress. In effect, this would raise the bar on various
parameters of technology absorption, skilling manpower, improved financing and smarter
marketing. Awareness of latest trends, technologies and practices will proliferate amongst the
CCI linked Clusters and there would be continuous incentive to benchmark, measure and
improve their levels of performance on many fronts impacting their competitiveness and
productivity.

6. Implementing the Strategy

To implement the recommendations outlined above, certain partnerships and collaborations

needs to be formed, roles and responsibilities assigned and a core team of managers recruited
to coordinate all the activities. Detailed below is the plan for the three pillars of Cluster
development:

24
1) Cluster Stimulation Cell

The CSC would undertake many activities related to improving Cluster management and
increasing the productivity of Cluster units. These activities can be classified under four key
themes:

S.No. Category Activities

 Cluster mapping/profiling (FACTS framework)

1 Data and Knowledge Support
 Research and Analysis

 Policy advisory and advocacy

2 Advisory services  Consultancy on Cluster performance
improvement

 FACTS Framework
3 Performance Measurement
 Cluster Competitive Index

 With other Cluster related organizations

 With content creation bodies (academia)
4 Networking and Collaboration
 International linkages
 Online platform

For performing all this work, the CSC needs internal as well as external resources. It would need
a core team working on managing the many relationships it would have with other agencies
and ensuring that the CSC’s activities are coordinated and delivered as planned. Following is the
configuration of resources and web of partnerships that will enable CSC to function:

 A core team of coordinators (managerial bandwidth)

The CSC will require a staff of 6-8 full time professionals to manage the 4 distinct set of
activities that it must perform. They would act as coordinators and project managers
who plan, execute and oversee various tasks related to each CSC activity. These
professionals can be managers seconded from the private sector, or from the civil
services, or on deputation from Industry Associations etc.

 A network of knowledge developers and contributors

Academic institutions, researchers, policy think tanks, Industry associations, cluster
associations all would form part of this network that contributes knowledge, case
studies, management principles and practices to improve the quality of cluster
management and improve its performance. The Core team members will need to model
a system of continuous interaction with these bodies, a method of creating and

25
 recording cluster related knowledge and forums for exchanging ideas (like UNDP’s
“Solution Exchange”).

 Partner agencies for data collection and analysis

The nature of the data required to be collected is mainly of cluster performance and
competitiveness. Two kinds of agencies are required: few that administer the FACTS
framework and one that deploys and manages the Cluster Competitiveness Index. Also,
agencies like FMC would be required to maintain the database of information on
Clusters. Finally, firms like Opera Solutions can help with simplifying with data analysis
and making it more versatile to facilitate spotting of intervention areas and aid in
decision making.

 Team of consultants for improving Cluster performance (subject matter experts)

For focused intervention at Clusters, ‘Consultants’ will be required to be commissioned
who would act as counselors and mentors to the Clusters to overhaul their capabilities
for better Cluster management, workforce development and enterprise performance.
Certain advisory services would be required from time to time – could be on tax and
legal matters, or on skill development, or on policy advocacy issues.

The following chart details the scope of activities and potential partners with whom the CSC can
collaborate to proceed with its objectives.

Potential Partner
Objectives / Activities Potential Partnership Model
Organization

• Tie-up to augment research bandwidth, and

• Educational Institutions /
I Research & Analysis access research f rameworks and
Universities ( e.g. IIMs, IITs)
methodology
WAVE I

• Sponsorship and day to day governance to

Collaboration with cluster • National Manuf acturing
II be provided by Partner, CSC to bring in
related organizations Competitiveness Council (NMCC)
underlying f ramework

• Consulting organizations, NGO • Partner brings in expertise and analytical

III Policy advisory
(e.g. FISME) bandwidth

Online platform
IV • Ministry of MSME, NMCC • Similar to II
(for inter cluster cooperation)

• CSC provides underlying f ramework,

• Forum f or MSME
WAVE II

partners contribute with day to day

V Cluster Mapping / Profiling Competitiveness, International
governance as well as subject matter
Collaboration ( EU)
expertise

• Partners provide sponsorship and project

Performance management /
VI • Standards Bodies, CII, Ministries management, CSC provides f ramework and
certification governance

26
2) FACTS Framework:

There is a dearth of accurate and relevant data on the performance of Cluster units and on the
area of Cluster development. Despite the efforts of many agencies – government and private –
working in the field of Cluster development, there is no compendium or repository of reliable,
comprehensive and insightful data on Clusters across the country. The primary reason for this is
the lack of a coordinated and uniform framework to evaluate Clusters on.

The FACTS framework aims to capture and assess data in a standardized and simple format.
With fields ranging from unit specific information on financials, output, workforce etc. to
information on the role and activities of the Cluster (organization) as a whole, It will help policy
makers and researchers in evaluating the competitiveness of Clusters and identify areas of
intervention.

Agencies involved in recording Cluster data:

Currently, agencies like GIZ, IL&FS, FMC, UNIDO, Cluster Kraft etc. are involved in a supporting
few cluster initiatives. The efforts of these agencies are inherently guided by their own agendas
for e.g. IL&FS aims to provide infrastructure support to clusters which satisfies their own
business objectives. Naturally, the data collected by these agencies leans towards these
objectives and cannot be easily compared with data of other clusters. . Government agencies
such as DIC collect data at a unit level; however this data is collected only during the time of the
registration of the firm and does not cover all aspects which are important to measure the well
being of a cluster over a period of time.

ASI (Annual Survey of Industries) is the only regularly updated set of data which collates
information at a unit level, however ASI data is not completely reliable as 1) It is based on a
sampling format 2) It is only collected for registered or organised units and 3) The data reported
by most cluster units is inaccurate owing to their fear of being denied currently applicable sops
and subsidies; this point has been highlighted in the Cluster Strategy Document.

Possible solutions:

1) With its vast pool of resources, a pan-India network and the official fiat to collect data on
performance of industrial units, ASI is the ideal body to collect data at the cluster level. If the
FACTS Framework is deployed by ASI under the guidance of the CSC, it can become a huge
knowledge base which can be accessed by the various policy makers. Since ASI is already in the
field and collecting data at a unit level, it won’t be a resource constraint on them to take up the
responsibility to collect data at a cluster level.

27
2) The other agencies which can deploy FACTS Framework for data collection of Clusters are:
Ministry of MSME, Ministry of Textiles, Ministry of Small Scale Industries. Other quasi
government and private institutions which support various clusters are: NiNC, UNIDO, GIZ,
IL&FS and SIDBI. However all these bodies suffer from restricted access to Industries as they
would only have access to industries/ clusters which come under their purview or scope of
work. That said, these ministries/agencies will play an integral role in the deployment of the
FACTS framework as any and all efforts in the deployment of this common framework will assist
the CSC in analyzing and offering recommendations and designing interventions.

3) Another option to deploy the FACTS framework is through an external research agency. This
option however will require government or private funding as on the ground research will
requires extensive use of manpower. The research model will also need to be sustainable and
would need to be carried out annually. While this would represent an ideal way to go about
this, considering the scale of the exercise and the recurrent nature of the task, the government
will have to provision funds for instituting such an annual exercise. Instead of securing funding
from any one department, it could be a collective from many government departments and
also from multilateral institutions operating in this space.

3) Cluster Competitiveness Index

The development of the Cluster Competitiveness Index entails the following activities:

i. Administration of the FACTS framework across Clusters

ii. Creation of an econometric model for Cluster competitiveness
iii. Interpreting the data and creation of the index
iv. Analysis of findings and publishing the report

The capability for carrying out these activities lies within many consulting and data research
firms. These agencies will need to undertake the complete gamut of activities outlined above.
The chief reason of going in for data collection independently and not borrowing from other
sources of cluster data (ASI, State DICs etc.) is that this data is the foundation of the CCI. If this
data is challenged and found incorrect, the accuracy and credibility and CCI will come into
question. Hence, data collection needs to be managed in-house by the agency creating the
index.

Several firms like Monitor Group, Opera Solutions, Frost & Sullivan, PwC, Indicus Analytics etc.
have expressed interest in taking this up. For guidance on creation of the methodology and
index, senior economists from the World Bank Group have agreed to be part of the team.

28
To ensure that this is an annual exercise, a commercial arrangement needs to be made with the
agency developing the CCI. For this, the government needs to provision funds. In addition to
this, funds can also be sourced from certain multilateral institutions working in the field of
Cluster development.

7. Annexure

Agencies in India working on Cluster programs and initiatives

Several institutions (Gov.t, Quasi Govt. and Private) in India are working on Cluster
improvement programs across a variety of fields: improving access to technology, facilitating
credit, workforce capacity building, infrastructure, innovation etc. The major ones being:

I. Central Government bodies

 Ministry of Textiles
The Development Commissioner (Handicrafts), Government of India, has launched
the Baba Sahab Ambedkar Hastshilp Vikas Yojana Scheme (AHVY) which aims at
promoting Indian handicrafts by developing artisans clusters into professionally
managed and self reliant community enterprises on the principles of effective
member participation and mutual cooperation.

The Textiles Committee has elaborated a National Program for capacity building of
textile SMEs. The methodology and approach for this program are drawn from
experiences of UNIDO, Textiles Committee and other Central and State government
institutions in implementation of cluster based initiatives. 23 clusters have been
identified for implementation under this program. In 2 of these clusters, the Textiles
Committee is collaborating with UNIDO.

 Ministry of Micro, Small and Medium Enterprises (MSME)

The Ministry of MSME has adopted the cluster development approach as a key
strategy for enhancing the productivity and competitiveness as well as capacity
building of Micro and Small Enterprises (MSEs) and their collectives in the country

Objectives of the Scheme:

 To support the sustainability and growth of MSEs by addressing common issues
such as improvement of technology, skills and quality, market access, access to
capital, etc.

29
  To build capacity of MSEs for common supportive action through formation of
self-help groups, consortia, up gradation of associations, etc.
 To create/upgrade infrastructural facilities in the new/existing industrial areas/
clusters of MSEs.
 To set up common facility centres (for testing, training centre, raw material
depot, effluent treatment, complementing production processes, etc).

 Department of Science & Technology, Ministry of Science & Technology

The Department of Science & Technology (DST) was established in May 1971 with
the objective of promoting new areas of Science & Technology and to play the role
of a nodal department for organising, coordinating and promoting S&T activities in
the country. Together with UNIDO, DST is presently implementing cluster
development initiatives in 2 clusters.

II. National Support Institutions (Quasi-Govt.)

 Small Industries Development Bank of India (SIDBI)

SIDBI’s cluster development work started in 1991 and has intervened in around 30
clusters till date. SIDBI’s mandate is to work for technology up-gradation in clusters’
small and medium enterprises. The cluster development program is implemented
through external agencies and consulting firms with the collaboration of the local
office of SIDBI.

 National Innovation Council (NInC) and Council of Scientific and Industrial

Research (CSIR)
To diffuse innovation culture, NInC in partnership with Council of Scientific and
Industrial Research (CSIR) is promoting Cluster Innovation Centres (CICs) in industry
clusters. This centre will act as a networking hub/arm of the cluster, forge linkages
between various stakeholders, initiate and assist innovation activities acting as
catalysts and facilitators

 State Bank of India (SBI) UPTECH Program

Project UPTECH takes up clusters through an elaborate process that initially involved
primarily technology oriented interventions. Work in 12 clusters has so far been
completed and is still going on in 5 more

 National Bank for Agriculture & Rural Development (NABARD)

30
 Its objective is to strengthen existing clusters towards sustainable competitive
advantage through technology upgradation/ transfer, raw material access, skill
development, managerial inputs, credit and market support. Out of the 51 clusters
identified so far NABARD’s promotional programmes have been launched in 35
clusters in 17 States.

III. Other Institutions

 UNIDO Cluster Development Program

UNIDO aims to develop capabilities at both the local and the national levels so to
promote SSI networking and cluster development. This is done by:
 Assessing the competitiveness and organization of SSI clusters
 Assisting the clusters' actors (suppliers of raw materials, plant & machinery,
buyers of SSI goods and services, testing laboratories and research agencies,
industrial associations, training institutions, local government, financial
institutions) in developing a common vision of what their cluster can achieve in
national as well as international markets.
 Building up (through training, workshops and study tours), the capacity of cluster
actors to implement such a vision.
 Providing advisory services at the policy level.

The project is implemented through a Focal Point based in New Delhi, currently
comprising of four national consultants. These consultants have been trained by
UNIDO in the principles of cluster re-structuring and networking. At the cluster level,
the Focal Point forges working partnerships with one or more institutions (NGOs,
producers' consortia/associations, providers of business development services).This
is done to facilitate the implementation of various initiatives and to pass on the
competence acquired as a result of UNIDO training and hands-on experience
gained in the pilot cluster. The programme also draws strength through
collaborative support from national developmental institutions like Small Industries
Development Bank of India (SIDBI) and more recently office of the Development
Commissioner Small Scale Industry (DCSSI)

 German Society for International Cooperation (GIZ)

GIZ uses the Cluster approach to instill responsible business behavior in groups of
MSMEs, by demonstrating how such practices are directly linked to the profitability
of the firms and clusters. The project is currently working with three clusters
consisting of business member organizations representing 100 energy-intensive

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 steel foundries. It is helping them to integrate CSR into their core business practices.
The firms have begun implementing a range of simple measures, such as energy
efficiency and safe and hygienic working conditions. In collaboration with GIZ's
“MSME Umbrella Program”, the number of clusters is now set to rise to 18, involving
25 business member organizations.

 IL&FS
IL&FS Education along with its subsidiary IL&FS Clusters, develops modern industrial
clusters in textiles, pharmaceutical, leather, light engineering, agro and food
processing and other industry verticals across India. This spans the entire delivery
cycle of industrial park development from concept to commissioning for developing
micro, small and medium enterprises (MSMEs), employing a cluster based Public
Private Partnership (PPP) model to enable them become globally competitive

 United Nations Development Program (UNDP)

UNDP has been working for many years in various areas of intervention in Clusters,
with a focus building capacity for better welfare of workers.

 Federation of Indian Micro and Small & Medium Enterprises (FISME)

FISME represents the interests and needs of the Micro, Small and Medium sized
enterprises that are found mostly in Clusters. They are focused on polices for
promotion and growth of these enterprises and are the most prominent national
chamber for the MSME industrial units.

 ClusterKraft
Delhi based consultancy firm with the key role is to increase awareness in the area
of the challenges faced by MSME. The major tools used to achieve this are
awareness generation, training, advocacy, breaking of isolation of cluster based
MSMEs' and most importantly, forging synergic growth processes of the cluster with
that of the sectoral global changes.

 Rajasthan Chamber of Commerce and Industry (RCCI)

The RCCI has taken activities in 16 clusters. Cluster related intervention objectives
are:
 To develop an effective institutional framework
 To develop and modernise textile and gem and jewellery sub-sectors
 To conduct need based training programs for small enterprises
 To promote the products of SMEs, nationally as well as internationally

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  To focus on environmentally sustainable development process in the region

The State governments which have started cluster development initiatives are Andhra Pradesh,
Gujarat, Kerala, Madhya Pradesh and Tamil Nadu.

The following table gives a snapshot of which agency is involved in what area of Cluster
development:

Area of Work-> Access to Access to Access to Easy Capability Infrastru Innovation &
Agency Technology New Markets Finance Building cture Best Practices
Central Government
Ministry of Small Scale      
Industries
Ministry of Textiles      
Ministry of (MSME)      
Ministry of Science &

Technology
National Support
Institutions
SIDBI  
NInC & CSIR 
SBI UPTECH 
NABARD     
Other Institutes
UNIDO      
GIZ 
IL&FS      
UNDP 
FISME      
ClusterKraft   
RCCI   

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