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General

Approach to Clusters Development in India

SME WORLD Bureau
Mar 2010

Below is the Executive Summary of a status paper by Foundation for MSME Clusters

1. Cluster Development is Widespread: Across the globe in at least fifty developed and transition economies; micro, small and medium enterprises (MSMEs) producing same or similar range of products; have often been found to naturally co-exist in typical geographical locations - "clusters". While clusters have benefited from natural external economies; only those have excelled, where firms have gone for promotion of selective "active cooperation" or "targeted joint action" and also taken the benefits of linking to winner value chains within and outside the cluster. As a result clusters worldwide are being acknowledged as a strategic mechanism through which regions and nations can attain higher level of industrial development.

2. Typology of clusters from a policy perspective: In India, as per current estimates,there are over 6400 clusters. Agencies have come up with a range of definition of clusters by specifying a minimum number of units in a given measured location. However, from a policy perspective it makes sense to typify cluster by their broad challenges relevant for policy intervention. Accordingly, clusters in India can be classified into three broad categories, namely, high-tech clusters (very few at present) targeting innovation for existence, traditional manufacturing clusters (around 400 plus) targeting competitiveness and consequent employment responsibility and low-tech micro enterprise 'poverty intensive' clusters (around 6000) that have both employment as well as poverty implication.

3. Global initiatives in cluster development: Cluster development is primarily driven by public sector, with overall share in such efforts varying between 75 to 90 per cent, irrespective of the level of development of a country. While developed economies emphasise on promoting innovativeness in clusters, in developing countries stress is given on productivity and linking up with winner value chain partners. There is clear time framework of implementing a cluster initiative in most countries, although in many cases such programmes are carried out as a dynamic long-term process. A notable aspect of cluster initiatives in most countries has been the collaboration between ministries, other external agencies and private sector. Selection of clusters is done both as per priorities and judgment of the funding institution as also by self-selection through call for proposals or a combination.

However, providing a blanket approach to leading or lagging region/dynamic or sinking clusters can be ineffective and dilute available resource and focus. Role of facilitators in promoting this process is also recognized. At the operational level, disappointment comes often due to insufficient funding and timeframe. Success is measured through a wide spectrum of parameters ranging from take up rates of project to number of jobs, spin-offs, innovations created, increased cooperation, ability to attract additional funds and specific goals per individual project.

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