Evaluation MSME Cluster

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 Rationale For The Evaluation Study.................................. 5 1.6.1 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 1.6.6 1.6.7
Selection of Sample Clusters........................................... 7 Sample Size covered ..................................................... 8 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 T HE 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 ...................................................................... 4.1.1 Awareness Creation..................................................... 4.1.2 Confidence Building..................................................... 4.1.3 Capacity Building ........................................................ 4.2 SOFT 4.2.1 4.2.2 4.2.3 4.2.4 4.2.5 66 67 67 67
INTERVENTIONS UNDER THE CDP .......................................... 67 Allocation and Utilization of Funds for Soft Interventions ... 68 Beneficiary Responses on Awareness of Soft interventions. 71 Beneficiary Responses on Participation in Soft Interventions . 71 Responses on the Benefits Derived from Soft Interventions 72 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 (AgroBased 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
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
COMMONLY USED ABBREVIATIONS BDS CC&S CDE CDP CFC DPR EDI FYP GOI IIE KBIP LNA LVS MSE-CDP Business Development Services Cluster Configuration and Status Cluster Development Executive Cluster Development Programme Common Facility Centre Detailed Project Report Entrepreneurship Development Institute Five Year Plan Government of India Indian Institute of Entrepreneurship Kerala Bureau of Industrial Promotion Local Network Agent Least Viable and Sustainable Micro and Small Enterprises Cluster Development
Programme MSME MVS PGBC S&T SGBC SICDP SPV SSI UPTECH VDS Ministry of Micro Small & Medium Enterprises Most Viable and Sustainable Primary Goods Based Cluster Science and Technology Secondary Goods Based Cluster Small Industries Cluster Development Programme Special Purpose Vehicle Small Scale Industry Technology Up-gradation and Management Programme Viable but difficult to Sustain
PROJECT TEAM
SNo.
Name
Designation
Qualifications
1. 2. 3.
Dr. Anil Chandy Ittyerah Ms. Rajni Choudhary Mr. Devender Singh Ms. Gayathri Singh Mr. C. D. Mishra Mr. O.S. Dwivedi Mr. Subarna Pyne Mr. Arjun Singh Mr. Inderjit Singh Hira Mr. Prayag Joshi Ms. Kavita
Project Director Sr. Research Associate Chief Field Coordinator Chief Field Coordinator Field Associate Field Associate Field Associate Field Associate Field Assistant Project Assistant Project Assistant
M.A., Ph.D. (Economics) M.Sc. (Maths) MBA, P.G.Dip. (Advt. & PR) M.A M.Sc. M.A. M.Com. MCA B.A. B.A. B.A.
Research Experience (in years) 28 10 18
4. 5. 6. 7. 8. 9. 10. 11.
19 8 20 16 4 19 1 1
LIST OF PERSONS MET DURING EVALUATION STUDY ON MSE-CDP OFFICIALS: Sl 1. 2. 3. 4. 5. 6. 7. 8. 9. Name Mr. Lambert Joseph Mr. V. Rajgopal Mr. S. Van Roy Mr. S. Santhosh Mr. Arvind Kumar Mr. P.R. Joshi Mr. R.K. Gupta Mr. K.R. Sharma Mr. C.P. Khattar Principal Director Assistant Director CEO Director Principal Director Designation Director CEO Executive Assistant to CEO Department/ Institution MSME- Development Institute, Thrissur, Kerala Bureau of Industrial Promotion, Kerala Bureau of Industrial Promotion, Kerala Bureau of Industrial Promotion, Kerala MSME Technology Development Centre, Agra MSME Technology Development Centre, Agra Centre for Development of Stone, Jaipur MSME- Development Institute, Jaipur MSME-Tool Room, Jallandhar
CLUSTER DEVELOPMENT EXECUTIVES:
Sl 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21.
Name Mr. M.K. Handique Mr. K.M. Bangar Mr. G.P Agarwal Mr. D. Ghosh Mr. Chandan T.S. Mr. B.N. Kapoor Mr. P.N. Solanki Mr. B. Sivaprasad Mr. Sathyaraj N. Mr. Ajay Sharma Mr. B.B. Panigrahi Mr. S. Deka Mr. D.K. Singh Mr. B.C. Singh Bisht Mr. Mr. R.S. Nirwan Mr. Arvind Patwari Mr. Neelambaran K.V. Mr. S.S. Bedi Mr. S.K. Roy Mr. V. Ramakrishanan Mr. K.C. Singh
Cluster Bamboo Cluster Dimapur Food Processing Cluster Muzffarpur Leather Goods Cluster Agra Leather Goods Cluster Shantiniketan Plywood Cluster Perambavoor Rice Milling Cluster Karnal Rice Flakes Cluster Ahmedabad Rice Milling Cluster Kalady Rubber Cluster Kottayam Ball bearing Cluster Jaipur Bell metal Cluster Khurda Bell metal Cluster Hazo Brass Utensil Cluster Pareo Cotton Hosiery Cluster Kanpur Diesel Engine Cluster Rajkot Fan Industry Cluster Hyderabad Plastic Cluster Aluva Sewing Machine Cluster Ludhiana Surgical Instruments Cluster Baruipur Wet Grinder Cluster Coimbtore White ware Cluster Khurza
HEADS OF SPV:
Sl 1. 2. 3. 4. 5. 6. 7. 8.
Name Mr. Budhadeb Sengupta Mr. C.K. Abdul Majid Mr. N.P. Antony Mr. K.J. Louis Mr. Abhadur Rahman Mr. Tulsi Prasad Mr. K.K. Ibrahim Mr. Kamal Das
Designation Cluster President Leather Goods Cluster Shantiniketan President Managing Director Managing Director General Secretary Secretary Managing Director Secretary Secretary Secretary President Plywood Cluster Perambavoor Rice Milling Cluster Kalady Rubber Cluster Kottayam Bell metal Cluster Hazo Brass Utensil Cluster Pareo Plastic Cluster Aluva Surgical Instruments Cluster Baruipur Wet Grinder Cluster Coimbtore White ware Cluster Khurza Foundry Cluster Ahmedabad
9. Mr. N. Rajan 10. Mr. Rajiv Kalra 11. Mr. P.N. Bhagawati
Note: In addition to the above interactions were held with 30 cluster actors in each cluster that were covered in the study.
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CHAPTER
1
1.1
INTRODUCTION
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 The The The proximity to sources of raw materials and other inputs, availability of suitably customised business development services (BDS), abundance of clients attracted by the cluster tradition in that industry, and presence of a skilled labour force.
A cl u ster 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
11
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 Indias 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
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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
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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 agencys 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 agencys 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 agencys intervention shifts towards softer co-ordination and a progressive transfer of responsibilities to the cluster actors is ensured.
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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
1.6.1
Evaluation Study: Objectives and Methodology

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 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 To identify the specific areas of improvement in the existing schemes.
2.
3.
15
4. 5. 6. 7. 8. 9.
Role of the schemes in bringing cohesiveness among the enterprises and increasing their ability to face external competition. To examine the systems and procedures for approval and receipt of funds. Development of benchmark indicators for periodic evaluation of the progress of different schemes in the future. To examine the role of the scheme in improving the economic status of special population groups. To assess the outreach and access of the scheme in general and particularly in the northeast region. To develop strategies for increasing the outreach of the scheme. Study Methodology and Process
1.6.3
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.
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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 2 3 4 5 6 7 1 2 3 4 5 6 7 Rice Milling Cluster Karnal, Haryana Sewing Machine Cluster Ludhiana, Punjab Leather Goods Cluster Agra, Uttar Pradesh Cotton Hosiery Cluster Kanpur, Uttar Pradesh White ware Cluster Khurza, Uttar Pradesh Food Processing Cluster Muzffarpur, Bihar Brass Utensil Cluster Pareo, Bihar Plywood Cluster Perambavoor Rice Milling Cluster Kalady Leather Goods Cluster Shantiniketan Rubber Cluster Kottayam Plastic Cluster Aluva Wet Grinder Cluster Coimbatore Fan Industry Cluster Hyderabad
South Zone
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Table No. - 1.1 (contd.)
East/ North East Zone 1 2 3 4 1 2 3 4 1.6.6 Surgical Instruments Cluster Baruipur, West Bengal Bell metal Cluster Khurda, Orissa Bell metal Cluster Hazo, Assam Bamboo Cluster Dimapur, Nagaland Ball bearing Cluster Jaipur, Rajasthan Foundry Cluster Ahmedabad, Gujarat Rice Flakes Cluster Ahmedabad, Gujarat Diesel Engine Cluster Rajkot, Gujarat Sample Size covered
West Zone
The size and composition of the sample drawn for the study is given in the table below:
Table No. - 1.2 SAMPLE SIZE
Sl. 1 2 3 1.6.7
Target group Cluster Development Executive Functionary of SPV Other Cluster Actors Field Instruments Used
Sample Per Cluster 1 1 15
Total Sample 22 22 323
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.
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1.7
Chapterisation of this Report

The chapter
This report contains seven chapters in all (including chapter annexure). 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
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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
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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
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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.
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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.
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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
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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.
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Chapter No:2 The General Profile of Sampled Clusters
CHAPTER
2
2.1 Introduction
THE GENERAL PROFILE OF SAMPLED CLUSTERS
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.
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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.
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Table No.-2.1: GEOGRAPHICAL SPREAD OF THE SAMPLED CLUSTERS
Primary Goods Based Clusters

Sl Cluster Compact (C) Compact (C) Dispersed (D) Dispersed (D) Area (in Sq Kms) 100 800 625 90 962 3000 3000 314 30 Area (in Sq Kms) 225 25 2 1 400 100 28 2500 45 25 225 150 224
1 2 3 4 5 6 7 8 9
Bamboo Cluster Dimapur Food Processing Cluster Muzffarpur Leather Goods Cluster Agra Leather Goods Cluster Shantiniketan Plywood Cluster Perambavoor Rice Milling Cluster Karnal Rice Flakes Cluster Ahmedabad Rice Milling Cluster Kalady Rubber Cluster Chenganacherry Cluster
Secondary Goods Based Clusters Sl

10 11 12 13 14 15 16 17 18 19 20 21 22
Note:
Ball bearing Cluster Jaipur Bell metal Cluster Khurda Bell metal Cluster Hazo Brass Utensil Cluster Pareo Cotton Hosiery Cluster Kanpur Diesel Engine Cluster Rajkot Fan Industry Cluster Hyderabad Foundry Cluster Ahmedabad Plastic Cluster Aluva Sewing Machine Cluster Ludhiana Surgical Instruments Cluster Baruipur Wet Grinder Cluster Coimbatore White ware Cluster Khurza
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.
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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

Sl 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Cluster Bamboo Cluster Dimapur Food Processing Cluster Muzffarpur Leather Goods Cluster Agra Leather Goods Cluster Shantiniketan Plywood Cluster Perambavoor Rice Milling Cluster Karnal Rice Flakes Cluster Ahmedabad Rice Milling Cluster Kalady Rubber Cluster Chenganacherry Ball bearing Cluster Jaipur Bell metal Cluster Khurda Bell metal Cluster Hazo Brass Utensil Cluster Pareo Cotton Hosiery Cluster Kanpur Diesel Engine Cluster Rajkot Small Cluster (S) Large Cluster (L) NCU 120 NA 2300 80 85 221 70 70 315 101 110 200 500 467 4180
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Table No. -2.2 (Contd.)
Secondary Goods Based Clusters

Sl 16 17 18 19 20 21 22 Cluster Fan Industry Cluster Hyderabad Foundry Cluster Ahmedabad Plastic Cluster Aluva Sewing Machine Cluster Ludhiana Surgical Instruments Cluster Baruipur Wet Grinder Cluster Coimbatore White ware Cluster Khurza Small Cluster (S) Large Cluster (L) NCU 300 76 108 800 600 700 494
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
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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

Sl 1 2 3 4 5 6 7 8 9 Sl 10 11 12 13 14 15 16 17 18 19 20 21 22 Cluster Bamboo Cluster Dimapur Food Processing Cluster Muzaffarpur Leather Goods Cluster Agra Leather Goods Cluster Shantiniketan Plywood Cluster Perambavoor Rice Milling Cluster Karnal Rice Flakes Cluster Ahmedabad Rice Milling Cluster Kalady Rubber Cluster Chenganacherry Cluster Ball bearing Cluster Jaipur Bell metal Cluster Khurda Bell metal Cluster Hazo Brass Utensil Cluster Pareo Cotton Hosiery Cluster Kanpur Diesel Engine Cluster Rajkot Fan Industry Cluster Hyderabad Foundry Cluster Ahmedabad Plastic Cluster Aluva Sewing Machine Cluster Ludhiana Surgical Instruments Cluster Baruipur Wet Grinder Cluster Coimbatore White ware Cluster Khurza ATBI 11.30 L NA 200 Cr 2.50 Cr 305 Cr 1200 Cr 80 Cr 2000 Cr 300 Cr ATBI 108 Cr 20 Cr 2 Cr 30 Cr .52 Cr 4980 Cr 200 Cr 400 Cr 70 Cr 365 Cr 5.2 Cr 225 Cr 123 Cr ATAI 139.10 L NA 265 Cr 5.50 Cr AAT 1.16 L NA 11.52 L 6.88 L Turnover Status M M M M H H M H M Turnover Status H M M M M M M H H M M M M
680 Cr 800.00 L 1300 Cr 588.24 L 110 Cr 157.14 L 2890 Cr 4128.57 L 500 Cr 158.73 L ATAI 200 Cr 24 Cr 5 Cr 36 Cr 10 Cr 5000 Cr 300 Cr 425 Cr 350 Cr 425 Cr 100 Cr 350 Cr 283 Cr AAT 198.02 L 21.82 L 2.50 L 7.20 L 2.14 L 119.62 L 100.00 L 559.21 L 324.07 L 53.13 L 16.67 L 50.00 L 57.29 L
Note: ATBI- Aggregate Annual Turnover Before Intervention ATAI- Aggregate Annual Turnover After Intervention AAT- Average Annual Turnover
H - High Turnover M - Modest 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.
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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.
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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.
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Table No.-2.4: CLUSTER CONFIGURATION, VIABILITY AND SUSTAINABILITY All Sampled Clusters Sl Cluster Dispersion C 18. 10. 15. 22. 19. 21. 20. 13. 9. 16. 11. 4. 12. 1. 8. 5. 6. 17. 3. 2. Plastic Cluster Aluva Ball bearing Cluster Jaipur Diesel Engine Cluster Rajkot White ware Cluster Khurza Sewing Machine Cluster Ludhiana Wet Grinder Cluster Coimbatore Surgical Instruments Cluster Baruipur Brass Utensil Cluster Pareo Rubber Cluster Chenganacherry Fan Industry Cluster Hyderabad Bell metal Cluster Khurda Leather Goods Cluster Shantiniketan Bell metal Cluster Hazo Bamboo Cluster Dimapur Rice Milling Cluster Kalady Plywood Cluster Perambavoor Rice Milling Cluster Karnal Foundry Cluster Ahmedabad Leather Goods Cluster Agra D L Size S Turnover H M Cluster Configuration & Status MVS MVS MVS MVS MVS MVS MVS MVS MVS MVS MVS MVS MVS MVS VDS VDS VDS VDS LVS Rank
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19
Food Processing Cluster LVS 20 Muzffarpur 14. Cotton Hosiery Cluster LVS 21 Kanpur 7. Rice Flakes Cluster LVS 22 Ahmedabad Note: C - Compact; D - Dispersed; L - Large; S - Small; H - High Turnover; MModest Turnover MVS-Most Viable and Sustainable; VDS-Viable but Difficult to Sustain (due to Heterogeneity) LVS- Least Viable and Sustainable
34
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
Predominant Type of Units in the Sampled Cluster Independent Units Ancillary Units Export Oriented Units
Primary Goods Based Clusters 8 5
Secondary Goods Based Clusters 12 2 2
Total Sampled Clusters 20 2 7
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.
35
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.
36
Table No.-2.6: INPUT PROFILE OF SAMPLED CLUSTERS

Current Sl 1 2 3 4 5 6 7 8 9 Cluster Bamboo Cluster Dimapur Food Processing Cluster Muzaffarpur Leather Goods Cluster Agra Leather Goods Cluster Shantiniketan Plywood Cluster Perambavoor Rice Milling Cluster Karnal Rice Flakes Cluster Ahmedabad Rice Milling Cluster Kalady Rubber Cluster Chenganacherry Abun dant Adeq uate Short age Medium term Abun dant Adeq uate Long term Adeq uate Shor tage Short Abun age dant

Current Sl 10 11 12 13 14 15 16 17 18 19 20 21 22 Cluster Ball bearing Cluster Jaipur Bell metal Cluster Khurda Bell metal Cluster Hazo Brass Utensil Cluster Pareo Cotton Hosiery Cluster Kanpur Diesel Engine Cluster Rajkot Fan Industry Cluster Hyderabad Foundry Cluster Ahmedabad Plastic Cluster Aluva Sewing Machine Cluster Ludhiana Surgical Instruments Cluster Baruipur Wet Grinder Cluster Coimbatore White ware Cluster Khurza Abun dant Adeq uate Short age Medium term Abun dant Adeq uate Shor tage Long term Abun dant Adeq uate Shor tage
37
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 Keralas 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
Sl 1. 2. 3. 4. 5. 6. 7. 8. 9.
Sl 10. 11. 12. 13.
Primary Goods Based Clusters Inputs are available in Cluster Close Regional National Proximity Proximity Proximity Bamboo Cluster Dimapur Food Processing Cluster Muzaffarpur Leather Goods Cluster Agra Leather Goods Cluster Shantiniketan Plywood Cluster Perambavoor Rice Milling Cluster Karnal Rice Flakes Cluster Ahmedabad Rice Milling Cluster Kalady Rubber Cluster Chenganacherry Secondary Goods Based Clusters Inputs are available in Cluster Close Regional National Proximity Proximity Proximity Ball bearing Cluster Jaipur Bell metal Cluster Khurda Bell metal Cluster Hazo Brass Utensil Cluster Pareo
38
Table No.-2.7 (contd.)
Sl 14. 15. 16. 17. 18. 19. 20. 21. 22.
Secondary Goods Based Clusters Inputs are available in Cluster Close Regional National Proximity Proximity Proximity Cotton Hosiery Cluster Kanpur Diesel Engine Cluster Rajkot Fan Industry Cluster Hyderabad Foundry Cluster Ahmedabad Plastic Cluster Aluva Sewing Machine Cluster Ludhiana Surgical Instruments Cluster Baruipur Wet Grinder Cluster Coimbatore 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

Sl 1. 2. 3. 4. 5. 6. 7. Cluster Bamboo Cluster Dimapur Food Processing Cluster Muzaffarpur Leather Goods Cluster Agra Leather Goods Cluster Shantiniketan Plywood Cluster Perambavoor Rice Milling Cluster Karnal Rice Flakes Cluster Ahmedabad Unskilled Manpower Skilled Manpower Abundant Adequate Shortage Abundant Adequate Shortage
39
Table No.-2.8 (contd.)

Sl 8. 9. Cluster Rice Milling Cluster Kalady Rubber Cluster Chenganacherry Unskilled Manpower Skilled Manpower Abundant Adequate Shortage Abundant Adequate Shortage

Sl 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. Cluster Ball bearing Cluster Jaipur Bell metal Cluster Khurda Bell metal Cluster Hazo Brass Utensil Cluster Pareo Cotton Hosiery Cluster Kanpur Diesel Engine Cluster Rajkot Fan Industry Cluster Hyderabad Foundry Cluster Ahmadabad Plastic Cluster Aluva Sewing Machine Cluster Ludhiana Surgical Instruments Cluster Baruipur Wet Grinder Cluster Coimbatore White ware Cluster Khurza Unskilled Manpower Skilled Manpower Abundant Adequate Shortage Abundant Adequate Shortage
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
40
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 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 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
Sl 1. 2. 3. 4. 5. 6. 7. 8. 9.
Cluster
Primary Goods Based Clusters Sufficient Access Bamboo Cluster Dimapur Food Processing Cluster Muzaffarpur Leather Goods Cluster Agra Leather Goods Cluster Shantiniketan Plywood Cluster Perambavoor Rice Milling Cluster Karnal Rice Flakes Cluster Ahmedabad Rice Milling Cluster Kalady Rubber Cluster Chenganacherry
Limited Access
No Access
41
Table No.-2.9 (Contd.)
Sl 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22.
Secondary Goods Based Clusters Cluster Sufficient Access Ball bearing Cluster Jaipur Bell metal Cluster Khurda Bell metal Cluster Hazo Brass Utensil Cluster Pareo Cotton Hosiery Cluster Kanpur Diesel Engine Cluster Rajkot Fan Industry Cluster Hyderabad Foundry Cluster Ahmadabad Plastic Cluster Aluva Sewing Machine Cluster Ludhiana Surgical Instruments Cluster Baruipur Wet Grinder Cluster Coimbatore White ware Cluster Khurza
Limited Access
No Access
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

Current Sl 1 2 Cluster Bamboo Cluster Dimapur Food Processing Cluster Muzaffarpur Leather Goods Cluster Agra Leather Goods Cluster Shantiniketan Plywood Cluster Perambavoor Rice Milling Cluster Karnal Rice Flakes Cluster Ahmedabad Rice Milling Cluster Kalady Rubber Cluster Chenganacherry Good Adequate Low Good Medium term Adequate Low Good Long term Adequate Low
3 4
5 6 7
8 9
42
Table No.-2.10 (Contd.)

Current Sl 10 11 12 13 14 15 16 Cluster Ball bearing Cluster Jaipur Bell metal Cluster Khurda Bell metal Cluster Hazo Brass Utensil Cluster Pareo Cotton Hosiery Cluster Kanpur Diesel Engine Cluster Rajkot Fan Industry Cluster Hyderabad Foundry Cluster Ahmedabad Plastic Cluster Aluva Sewing Machine Cluster Ludhiana Surgical Instruments Cluster Baruipur Wet Grinder Cluster Coimbatore White ware Cluster Khurza Good Adequate Low Good Medium term Adequate Low Good Long term Adequate Low
17
18 19
20
21
22
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 individual cluster units in each of the sampled clusters belonging to both the PGBCs and
43
SGBCs groups is presented in Tables 2.18(a) and 2.18(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.
2.8
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
Sl 1. 2. 3. 4. 5. 6. 7. 8. 9.
Primary Goods Based Clusters Cluster Sufficient Access Bamboo Cluster Dimapur Food Processing Cluster Muzaffarpur Leather Goods Cluster Agra Leather Goods Cluster Shantiniketan Plywood Cluster Perambavoor Rice Milling Cluster Karnal Rice Flakes Cluster Ahmedabad Rice Milling Cluster Kalady Rubber Cluster Chenganacherry
Limited Access
No Access
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Table No .-2.11 (Contd .)
Sl 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22.
Secondary Goods Based Clusters Sufficient Limited Cluster Access Access Ball bearing Cluster Jaipur Bell metal Cluster Khurda Bell metal Cluster Hazo Brass Utensil Cluster Pareo Cotton Hosiery Cluster Kanpur Diesel Engine Cluster Rajkot Fan Industry Cluster Hyderabad Foundry Cluster Ahmadabad Plastic Cluster Aluva Sewing Machine Cluster Ludhiana Surgical Instruments Cluster Baruipur Wet Grinder Cluster Coimbatore White ware Cluster Khurza
No Access
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 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 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.
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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.
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Table No.-2.12: ACCESS TO INFORMATION IN SAMPLED CLUSTERS
Primary Goods Based Clusters Sl 1. 2. 3. 4. 5. 6. 7. 8. 9. Sl 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. Cluster Sufficient Access Limited Access No Access
Bamboo Cluster Dimapur Food Processing Cluster Muzaffarpur Leather Goods Cluster Agra Leather Goods Cluster Shantiniketan Plywood Cluster Perambavoor Rice Milling Cluster Karnal Rice Flakes Cluster Ahmedabad Rice Milling Cluster Kalady Rubber Cluster Chenganacherry Secondary Goods Based Clusters Cluster Ball bearing Cluster Jaipur Bell metal Cluster Khurda Bell metal Cluster Hazo Brass Utensil Cluster Pareo Cotton Hosiery Cluster Kanpur Diesel Engine Cluster Rajkot Fan Industry Cluster Hyderabad Foundry Cluster Ahmedabad Plastic Cluster Aluva Sewing Machine Cluster Ludhiana Surgical Instruments Cluster Baruipur Wet Grinder Cluster Coimbatore White ware Cluster Khurza Sufficient Access
Limited Access No Access
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.
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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
Primary Goods Based Clusters Sl 1. 2. 3. 4. 5. 6. 7. 8. 9. Sl 10. 11. 12. 13. 14. 15. 16. 17. 18. Cluster Sufficient Access Limited Access No Access Limited Access No Access
Bamboo Cluster Dimapur Food Processing Cluster Muzaffarpur Leather Goods Cluster Agra Leather Goods Cluster Shantiniketan Plywood Cluster Perambavoor Rice Milling Cluster Karnal Rice Flakes Cluster Ahmedabad Rice Milling Cluster Kalady Rubber Cluster Chenganacherry Secondary Goods Based Clusters Cluster Ball bearing Cluster Jaipur Bell metal Cluster Khurda Bell metal Cluster Hazo Brass Utensil Cluster Pareo Cotton Hosiery Cluster Kanpur Diesel Engine Cluster Rajkot Fan Industry Cluster Hyderabad Foundry Cluster Ahmedabad Plastic Cluster Aluva Sufficient Access
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Table No -2.13 (Contd.)
Sl 19. 20. 21. 22.
Secondary Goods Based Clusters Cluster Sufficient Access Sewing Machine Cluster Ludhiana Surgical Instruments Cluster Baruipur Wet Grinder Cluster Coimbatore White ware Cluster Khurza
Limited Access
No Access
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
1. 2. 3. 4. 5. 6. 7. 8. 9.
Primary Goods Based Clusters Generates Environmental Concern Bamboo Cluster Dimapur Food Processing Cluster Muzaffarpur Leather Goods Cluster Agra Leather Goods Cluster Shantiniketan Plywood Cluster Perambavoor Rice Milling Cluster Karnal Rice Flakes Cluster Ahmedabad Rice Milling Cluster Kalady Rubber Cluster Chenganacherry
Does not Generate
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Sl
10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22.
Secondary Goods Based Clusters Cluster Generates Environmental Concern Ball bearing Cluster Jaipur Bell metal Cluster Khurda Bell metal Cluster Hazo Brass Utensil Cluster Pareo Cotton Hosiery Cluster Kanpur Diesel Engine Cluster Rajkot Fan Industry Cluster Hyderabad Foundry Cluster Ahmedabad Plastic Cluster Aluva Sewing Machine Cluster Ludhiana Surgical Instruments Cluster Baruipur Wet Grinder Cluster Coimbatore White ware Cluster Khurza
Does not Generate
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.
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Table No.-2.15: TYPE OF ENVIRONMENTAL CONCERNS IN SAMPLED CLUSTERS
Sl
1. 2. 3. 4. 5. 6. 7. 8. 9.
Sl
10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22.
Primary Goods Based Clusters Type of Pollution Cluster Air Water Non-degradable Pollution Pollution Toxic Solid Waste Bamboo Cluster Dimapur Food Processing Cluster Muzaffarpur Leather Goods Cluster Agra Leather Goods Cluster Shantiniketan Plywood Cluster Perambavoor Rice Milling Cluster Karnal Rice Flakes Cluster Ahmedabad Rice Milling Cluster Kalady Rubber Cluster Chenganacherry Secondary Goods Based Clusters Type of Pollution Cluster Air Water Non-degradable Pollution Pollution Toxic Solid Waste Ball bearing Cluster Jaipur Bell metal Cluster Khurda Bell metal Cluster Hazo Brass Utensil Cluster Pareo Cotton Hosiery Cluster Kanpur Diesel Engine Cluster Rajkot Fan Industry Cluster Hyderabad Foundry Cluster Ahmadabad Plastic Cluster Aluva Sewing Machine Cluster Ludhiana Surgical Instruments Cluster Baruipur Wet Grinder Cluster Coimbatore 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
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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
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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
Primary Goods Based Clusters Sl 1. 2. 3. 4. 5. 6. Cluster Rice Milling Cluster Karnal Rice Flakes Cluster Ahmedabad Rice Milling Cluster Kalady Food Processing Cluster Muzffarpur Rubber Cluster Chengnacherry Bamboo Cluster Dimapur
Stage
I I IV II V I
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Primary Goods Based Clusters Sl 7. 8. 9. Sl 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. Sl 1. 2. 3. 4. 5. Cluster Plywood Cluster Perambavoor Leather Goods Cluster Agra Leather Goods Cluster Shantiniketan Secondary Goods Based Clusters Cluster Cotton Hosiery Cluster Kanpur Plastic Cluster Aluva White ware Cluster Khurza Brass Utensil Cluster Pareo Bell metal Cluster Khurda Bell metal Cluster Hazo Foundry Cluster Ahmedabad Ball bearing Cluster Jaipur Hand tool Cluster Jallandhar Surgical Instruments Cluster Baruipur Sewing Machine Cluster Ludhiana Wet Grinder Cluster Coimbatore Fan Industry Cluster Hyderabad Diesel Engine Cluster Rajkot All Sampled Clusters Stage I II III IV V
Stage
IV I III Stage I IV II IV I IV V I I IV I IV I I Numbers 11 2 1 7 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.
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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 2 (13) Leather Footwear Industry Cluster, Agra 8 (53) 1 (7) 1 (7) 1 (7) 2 (13) 1 (7) 1 (7) 6 (40) 1 (7) 3 (20) 3 (20) 2 (13) 1 (7) 1 (7) 2 (14) 2 (14) 1 (7) 3 (20) Leather goods industry Cluster, Shantiniketan 4 (27) 1 (7) 6 (40) 1 (7) 1 (7) Plywood Cluster Kerala Rice Industry Cluster Karnal Rice Flake Mill Ahmedabad Rice Mill Cluster Kerala Rubber Cluster Kerala
Nos Raw Material Availability Labour Availability % Nos % Power Supply Nos % Shortage of Skilled Manpower High Salaries & Wages Nos % Nos % High Transportation Cost Land is Expensive Nos % Nos % No Poor Quality of Inputs High Cost of Inputs % Nos % Fluctuation in Prices of Inputs Restrictions on Pollution Nos % Nos %
3 (20)
2 (13)
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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 8 (53) Bell metal Cluster Hazo Brass Untensil Cluster Pareo Hosiery Cluster Kanpur Diesel Engine Cluster, Rajkot Fan Cluster, Hyderab ad Foundry Industry Cluster Ahmedaba d 3 (20) Aluva Plastic Cluster Sewing machine Ludhiana Surgical Instrument s Cluster Baruipur Wet Grinder Cluster White ware Industry Cluster Khurja 1 (7) 1 (7) 1 (7) 5 (33) 1 (7) 2 (13) 1 (7) 1 (7) 1 (7) 0 (0) 3 (20) 1 (7) 2 (14) 1 (7) 1 (7) 2 (13) 2 (13) 3 (19) 1 (7) 1 (7) 4 (27) 8 (50) 4 (41) 3 (20) 1 (6)
Availability of Raw Materials Availability of Labour
Nos % Nos %
9 (60) 3 (20) 13 (87)
1 (7)
1 (7)
15 (100)
1 (7)
9 (60) 4 (27)
Power Shortage Shortage of Skilled Manpower High Salaries & Wages Transportation Cost is High Land is Expensive
Nos % Nos % Nos % Nos % Nos %
9 (60) 1 (7) 2 (13) 5 (33)
13 (87)
1 (7)
2 (13)
11 (73)
Quality Inputs
Nos %
High Cost of Inputs
Nos % Nos % Nos %
Fluctuation in Prices of Inputs Restrictions on Pollution
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Table No.-2.18(a): RESPONSES ON MARKET RELATED IMPEDIMENTS TO FURTHER GROWTH (AGRO-BASED CLUSTERS)
Bamboo Cluster Dimapur Food Processing Industry Cluster Muzpur 13 (87) Leather Footwear Industry Cluster, Agra 6 (40) 2 (13) 1 (7) 2 (13) 3 (20) 1 (7) 3 (20) 3 (20) 2 (13) 1 (7) Leather goods industry Cluster, Shantiniketan Plywood Cluster Kerala Rice Industry Cluster Karnal Rice Flake Mill Ahmedabad Rice Mill Cluster Kerala 1 (7) 1 (7) 1 (7) Rubber Cluster Kerala
Marketing/Access to Markets Credit Sales
Nos % Nos %
1 (7)
2 (14)
1 (7)
2 (13)
Highly Competitive Market Market Assistance Lack of Support for Exports Ban on Exports Availability of Substitutes
Nos % Nos % Nos % Nos % Nos %
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Table No.-2.18 (b): RESPONSES ON MARKET RELATED IMPEDIMENTS TO FURTHER GROWTH (METAL & MANUFACTURING BASED CLUSTERS)
Ball bearing Cluster Jaipur Brass and Bell metal Industry Cluster Khurda Bell Metal Cluster Hazo Brass Utensil 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 5 (34)
Marketing/ Access to Markets Credit Sale
Nos % Nos %
2 (14)
6 (40)
2 (13)
1 (7)
1 (7) 2 (13)
7 (47)
6 (39) 1 (7)
Highly Competitive Market Market Assistance
Nos % Nos %
Lack of Support for Exports Ban on Exports Availability of Substitutes
Nos % Nos % Nos %
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Table No.-2.19 (a): RESPONSES ON FINANCE & TECHNOLOGY RELATED IMPEDIMENTS TO FURTHER GROWTH (AGRO-BASED CLUSTERS)
Bamboo Cluster Dimapur Food Processing Industry Cluster Muzpur 4 (27) Leather Footwear Industry Cluster Agra 9 (60) 3 (20) 2 (13) 12 (80) 8 (54) 3 (20) 1 (7) 2 (13) Leather goods industry Cluster Shantiniketan Plywood Cluster Kerala Rice Industry Cluster Karnal 2 (13) Rice Flake Mill Ahmedabad Rice Mill Cluster Kerala Rubber Cluster Kerala
Working Capital
Nos %
6 (40) 1 (7)
7 (46)
3 (50)
5 (33)
4 (27) 1 (7)
Non Availability of Loan High Interest Rate
Soft
Nos % Nos %
Non Availability of New Technology Non Availability of CFC Others Impediments Government License
Nos % Nos %
Nos %
4 (27) 2 (13) 1 (7) 7 (47) 5 (33) 3 (20)
State Government Policy Nothing/ Can't Say
Nos % Nos %
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Table No.-2.19 (b): RESPONSES ON FINANCE AND TECHNOLOGY RELATED IMPEDIMENTS TO FURTHER GROWTH (METAL AND MANUFACTURING BASED CLUSTERS)
Ball bearing Cluster Jaipur Brass and Bell metal Industry Cluster Khurda Bell metal Cluster Hazo Brass Utensil Cluster Pareo Hosiery Cluster Kanpur Diesel Engine Cluster, Rajkot Fan Cluster, Hyderabad Foundry Industry Cluster Ahmedabad Aluva Plastic Cluster Sewing machine Ludhiana Surgical Wet Instruments Grinder Cluster Cluster Baruipur White ware Industry Cluster Khurja
Working Capital
Nos %
3 (20) 4 (27) 6 (40) 7 (47) 5 (33) 4 (27) 7 (47) 9 (60) 1 (7) 1 (7)
4 (27) 7 (47)
2 (13) 2 (13)
5 (31)
2 (13) 3 (20) 6 (40)
9 (56)
Finance Non Availability of Soft Loan Non Availability of New Technology ISI Certification
Nos % Nos % Nos % Nos %
1 (7) 4 (27) 1 (7) 1 (7) Others Impediments 1 (7) 1 (6) 4 (27) 4 (27) 2 (13) 6 (40)
No R&D Facilities
Nos %
Nothing/ Can't Say State Government Policy
Nos % Nos %
3 (20) 5 (33) 5 (33)
2 (13) 2 (13)
2 (13) 7 (44)
1 (7)
1 (7)
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Chapter No: 3 The Cluster Development Executive/Agent
CHAPTER
3
3.1 Introduction
THE CLUSTER DEVELOPMENT EXECUTIVE/AGENT
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.
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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.
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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 NonGovernmental 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.
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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.
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Table No.-3.1: PROFILE OF CLUSTER DEVELOPMENT EXECUTIVE IN SAMPLED CLUSTERS Sl Cluster Name CDE Name Parent Age of Educational Years of Years Department CDE Qualification Service of Service as CDE 1 Bamboo Cluster M.K. Handique IIE 47 M. Com 21 3 Dimapur 2 Food Processing K.M. Bangar MSME 56 M.Sc. 29 8 Cluster Muzffarpur Months 3 Leather Goods Cluster G.P. Agarwal MSME 48 Diploma in 27 4 Agra Footwear Technology 4 Leather Goods Cluster Debashish Ghosh MSME 48 B.Sc. (Tech) 27 3 Shantiniketan 5 Plywood Cluster Chandan T.S. Kerala 43 M.A. 18 6 Perambavoor Industries (Economics) Months Department 6 Rice Milling Cluster B.N. Kapoor MSME 49 M.A., Master of 27 4 Karnal Marketing Management 7 Rice Flakes Cluster P.N. Solanki MSME 42 Diploma in 23 1.4 Ahmedabad Metallurgy 8 Rice Milling Cluster B. Sivaprasad Kerala 51 M.A. 19 1 Kalady Industries Department 9 Rubber Cluster Sathyaraj N Kerala 48 B. Tech. 18 5 Chengnacherry Industries Department 10 Ball bearing Cluster Ajay Sharma MSME 44 B.E. 12 2.5 Jaipur 11 Bell metal Cluster B.B. Panigrahi MSME 41 M.A. 17 2 Khurda 12 Bell metal Cluster Hazo S. Deka MSME 44 B. Tech. 23 3 13 Brass Utensil Cluster D.K Singh MSME 55 M. Tech. 30 1.5 Pareo 14 Cotton Hosiery Cluster B.C. Singh Bisht MSME 54 Diploma in 27 3 Kanpur Footwear Technology 15 Diesel Engine Cluster R.S. Nirwan IIE 31 B.Com. 6 3 Rajkot 16 Fan Industry Cluster Arvind Patwari MSME 50 M. Tech. 17 3 Hyderabad 17 Foundry Cluster NO CDE was Ahmedabad appointed 18 Plastic Cluster Aluva Neelambaran K.V. Kerala 47 B.A., Diploma 24 1 Industries in Cooperation Department 19 Sewing Machine S.S. Bedi MSME 52 B.A. (3 yr. 30 6 Cluster Ludhiana Diploma) 20 Surgical Instruments S.K. Roy MSME 59 Diploma in 37 4 Cluster Baruipur Metallurgy 21 Wet Grinder Cluster V. Ramakrishanan SIDO 40 B.E., MBA 20 5 Coimbatore 22 White ware Cluster K.C. Singh Govt of India 47 B. Tech. 25 3 Khurza (Ministry of Science & Technology)
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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
66
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. Job Responsibilities Responses (numbers) No. SOFT INTERVENTIONS Awareness Confidence Level 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. To Prepare a Diagnostic Study. 14 5
Trust Building among Units and Strengthening of 14 7 Associational activities in the Cluster. To Increase Awareness about CDP and its Benefits. 16 8 Organizing Exposure Visit. 18 18 Conduct of Training Programmes /Seminars on Capacity 15 5 Building. Development of Information Bank and Common 8 2 Website for Cluster. Development of Product Brochures and Information CDs 5 1 for Cluster Products and Prices. Organizing Industrial Promotion Activities and 12 6 Participation in Industrial Fairs. Organizing Financial Assistance/Credit Facilities. 10 2 Awareness Creation and Introduction of New 10 5 Technology and Technology up gradation. Development of New Products, Market tie-ups and tie 5 1 ups with Technical Institutions and BDS providers. Creation of Raw Material Bank and Spares through 4 2 Collective Procurement. HARD INTERVENTIONS Awareness Confidence Level Formation of Special Purpose Vehicle/Consortia. Preparation of Detailed Project Report (for developing CFC) and following up on its timely approval by concerned authorities. Setting up of the CFC and its testing and Commissioning. 5 5 2 1
1. 2.
3.
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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
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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 Stage I (A): Diagnostic Study / Cluster Identification Stage I (B): Starting of Soft Interventions Stage I (C): Middle of Soft Interventions Stage II & III: Formation of SPV / Preparation and Approval of DPR Stage IV & V: Setting up of CFC/ testing and Commissioning of CFC Total
Number of CDEs 10 5 1 1 4 21
% Distribution 47.62 23.81 4.76 4.76 19.05 100.00
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
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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.
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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
Total CDEs Interviewed
Participation in Training * Yes No
Adequacy of Training Yes No N.R.
Inadequacy of Training Due to Deficiency in Content and Design 7 Due to Deficiency in Pedagogy
21
19
10
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.
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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.
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Table No.-3.5: RESPONSES ON THE ADEQUACY OF RESOURCES AND ADDITIONAL ASSISTANCE REQUIRED
Adequacy of Resources Adequate Not Adequate Additional Assistance Required Independent Field Office cum Residence, Office Infrastructure and Office Assistance Communication and Transport Facilities / Allowances Additional Field Allowances Additional Field Assistance, Mentor or Mentor Institution Access to Regular Training for improving / updating functional skills
Numbers of CDEs Responding 10 11 Numbers of CDEs Responding 9 11 10 11 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
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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 DEVELOPMENT CDES ON PRIME FACTORS ENABLING CLUSTER
Sl.
PRIME FACTORS
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13.
Clusters that are less dispersed High Skill based Clusters High Product range clusters Clusters with greater access to R&D institutions Labour intensive clusters High Density Clusters Highly Homogeneous Clusters Clusters facing threats from competitors Cluster with well established and active associations Clusters with common facilities (for testing, quality control, and standardization) Clusters with clarity of Vision and Mission Clusters with greater access to Information Clusters endowed with an abundance of locally available raw materials.
NUMBER OF CDES RESPONDING 13 4 7 12 5 8 14 9 16 10 15 11 11
RANKING OF PRIME FACTORS 4 12 10 5 11 9 3 8 1 7 2 6 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.
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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.
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Chapter No: 4 Soft Interventions in Sampled Clusters
CHAPTER
4
4.1 Introduc tion
SOFT INTERVENTIONS IN THE SAMPLED CLUSTERS
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.
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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.
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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.
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Table No.-4.2: ALLOCATION OF FUNDS FOR SOFT INTERVENTIONS
Sl
Cluster
Date
1.
Rice Milling Cluster Karnal
2.
Rice Flakes Cluster Ahmedabad
2004-05 April 2005 July 2007 Total April 2004 July 2005 July 2006 Total
3. 4. 5. 6.
Rice Milling Cluster Kalady Food Processing Cluster Muzffarpur Rubber Cluster Chenganacherry Bamboo Cluster Dimapur
Amount Total Amount Received Utilised (In (In Lakhs) Lakhs) 8.40 1.90 4.70 1.48 12.67 7.67 25.77 11.05 6.95 1.94 3.70 .70 2.99 .68 13.64 3.32 No funds allocated by MSME. Information not made available No funds allocated by MSME.
% Utilised
42.8
24.3
Dec 2004 Sept 2005 August 2006 July 2007 Total
7. 8.
Plywood Cluster Perambavoor Leather Goods Cluster Agra
4.30 13.82 17.00 9.88 45 No funds allocated
00 11.50 14.8 14.90 41.2 by MSME.
91.5
9.
Leather Goods Cluster Shantiniketan
July 2005 June 2006 Oct 2007 Total July 2005 June 2006 Oct 2007 Total
10. 11. 12.
Cotton Hosiery Cluster Kanpur Plastic Cluster Aluva White ware Cluster Khurza 2005-06 2006-07 Total April 2004 Jan 2005 July 2006 Total
5.55 9.69 7.76 23 16.45 14.85 21.54 52.84 Information not made available No funds allocated by MSME 45 22.5 67.5 8.90 9.75 12.30 30.95 45 12.0 57.0 5.70 4.33 3.09 13.12 84.4
13.
Brass Utensil Cluster Pareo
42.3
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Table No. 4.2- (Contd.)
Sl
Cluster
Date
14.
Bell metal Cluster Khurda
15.
Bell metal Cluster Hazo
11.2005 07.2006 11.2007 Total August 2004 June 2005 July 2006 Total
Amount Received (In Lakhs) 6.40 10.52 19.52 36.44 8.10 5.25 15.65
Total Amount Utilised (In Lakhs) 5.22 9.92 11.43 26.57 4.12 3.72 14.23
% Utilised
72.9
16. 17.
Foundry Cluster Ahmedabad Ball bearing Cluster Jaipur
29 22.07 Soft Interventions not undertaken 5.15 10.30 19.00 34.45 8.4 9.5 21.75 39.65 15.20 16.45 18.80 50.45 11.55 12.15 16.10 39.8 12.45 19.75 11.08 43.28 15.00 7.5 7.5 30.0 00 7.72 7.25 14.97 5.56 7.52 8.98 22.06 3.08 12.17 7.72 22.97 6.15 3.45 11.46 21.06 2.60 9.87 1.84 14.31
76.1
July 2005 July 2006 Oct 2007 Total 2004-05 2005-06 2006-07 Total April 2004 July 2005 July 2006 Total June 2004 July 2005 July 2006 Total May 2004 August 2005 July 2006 Total August 2003 Dec 2004 March 2006 Total
43.4
18.
Surgical Instruments Cluster Baruipur
55.6
19.
Sewing Machine Cluster Ludhiana
45.5
20.
Wet Grinder Cluster Coimbatore
52.9
21.
Fan Industry Cluster Hyderabad
33
22.
Diesel Engine Cluster Rajkot
80
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 Training Programme / Workshop / Seminar Participation in Exhibitions Tour to Model Cluster / Institution /Technology Demo Participation in Foreign Fairs Common Website Brochure /News letter for Cluster Export Meet Craft Show Food mela Loan scheme Others Base: All Respondents
Units Responding 246 161 101 41 60 44 32 10 6 2 16 323
% Distribution 85 56 35 14 19 14 11 3 2 1 5 100
4.2.3
Beneficiary Responses Interventions
on
Participation
in
Soft
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.
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Table No.-4.4: RESPONSES ON THE PARTICIPATION IN THE ACTIVITIES UNDER SOFT INTERVENTIONS
Activity/ Programme Training Programme / Workshop / Seminar Participation in Exhibitions Tour to Model Cluster/Institution/ Technology Demonstration Meeting on Exports Participation in Foreign Fairs Craft Show Food Mela/ Exhibition Dev of Newsletter for Cluster Common Website Common Purchase of Raw Materials Loan Scheme None Total No. of Units Sampled
Units Responding 202 106 69 27 17 7 6 3 3 2 1 32 323
% Distribution 78 41 27 9 7 3 2 1 1 1 0 12 100
4.2.4
Responses on Interventions
the
Benefits
Derived
from
Soft
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 Benefited substantially Benefited to a limited extent Did not benefit No opinion/ No response Total
Units Responding 86 113 37 87 323
Percentage Distribution 27 35 11 27 100
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
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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.
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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 1. 2. Diagnostic Study and Evaluation Group and Individual contact/interaction meetings (includes the travel and other allowances for Mentor, CDE, and LNA apart from other incidental expenses) 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) Lectures by Experts/ Seminars/Training Quarterly Monitoring and Evaluation of basic/enabling interventions Contingency Fund (to be used for designing and maintaining web site, printing of information brochures and other common advertising materials) Total Expenditure on basic/enabling interventions Amount(In Rs.) Rs 8,00,000 Rs 8,00,000
3.
Rs 14,00,000
4. 5. 6.
Rs 6,00,000 Rs 12,00,000 Rs 2,00,000
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
84
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).
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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.
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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
Cluster Activity Bamboo Cluster Dimappur Food Processing Cluster Muzffarpur Leather Goods Cluster Agra Leather Goods Cluster Shantiniketan Plywood Cluster Peramb avoor Stipula ted Condu cted Rice Milling Cluster Karnal Rice Flakes Cluster Ahmedabad Rice Milling Cluster Kalady Rubber Cluster Chengana cherry Cond ucted
Stipula Condu Stipula Condu Stipula ted cted ted cted ted 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
Condu cted
Stipula ted
Condu cted
Stipula Condu Stipula ted cted ted
Condu Stipula Conduc Stipula cted ted ted ted
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Table No.-4.1 (a) (Contd.) (II) Secondary Goods Based Clusters (I) Cluster Ball Bearing Bell Metal Activity Cluster Cluster Jaipur Khurda Stipul ated 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 Cond ucted Stipul ated
Bell metal Cluster Hazo
Brass Utensil Cluster Pareo
Cotton Hosiery Cluster Kanpur
Cond Stipul ucted ated
Cond ucted
Stipul ated
Cond ucted
Stipul ated
Cond ucted
Diesel Engine Cluster Rajkot Stipul Cond ated ucted
Fan Industry Cluster Hyderabad Stipul ated Conduc ted
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Table No.-4.1 (a) (Contd.) (II) Secondary Goods Based Clusters (II) Cluster Foundry Plastic Cluster Activity Cluster Aluva Ahmedabad Stipul Condu Stipul Condu ated cted ated cted 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 BDS Data bank
Sewing Machine Cluster Ludhiana Stipul ated Condu cted
Surgical Instruments Cluster Baruipur Stipul Condu ated cted
Wet Grinder Cluster Coimbatore Stipul Condu ated cted
White ware Cluster Khurza Stipul Condu ated cted
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Chapter No: 5 The Special Purpose Vehcile
CHAPTER
5
5.1
THE SPECIAL PURPOSE VEHICLE
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.
90
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.
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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
92
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
93
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 80 Organizati onal form of SPV Society Year of SPV Registration Stage of Operation Viability and Ranking MVS (12) VDS (16) VDS (15) MVS (9) MVS (13) MVS (8) VDS (18) MVS (1) MVS (7) MVS (6) MVS (4) Initial Member ship 10 Present Member ship 87 Involvement and Inclusivenes s H
1.
2.
Leather Goods Cluster Shantiniketan Plywood Cluster Perambavoor Rice Milling Cluster Kalady
2006
III
85
Pvt. Ltd. Company Pvt. Ltd. Company Pvt. Ltd. Company Society
2003
IV
24
3.
70
2004
IV
28
41
4. Rubber Cluster Chengnacherry 5. Bell Metal Cluster Hazo Brass Utensil Cluster Pareo Foundry Cluster Ahmadabad Plastic Cluster Aluva Surgical Instruments Cluster Baruipur Wet Grinder Cluster Coimbatore White Ware Cluster Khurza
315
2003
18
49
L**
200
2007
IV
346*
NA
6. 7. 8.
500 76 108
Society Society Pvt. Ltd. Company Society
2004 2006 2006
IV V IV
100 41 24
124 41 24
H L L
9.
600
2007
IV
180
180
1 0. 1 1.
700
Society
2005
IV
30
30
494
Society
2007
II
10
10
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
94
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
95
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
Sl
Cluster
Composition Dominance of One Caste/ Community/ Religion Mixed Castes/ Communities/ Religion
Participation Participatio n by large units only Participatio n by Units of all Sizes
1. Leather Goods Cluster Shantiniketan 2. Plywood Cluster Perambavoor 3. Rice Milling Cluster Kalady 4. Rubber Cluster Chengnacherry 5. Bell Metal Cluster Hazo 6. Brass Utensil Cluster Pareo 7. Foundry Cluster Ahmadabad 8. Plastic Cluster Aluva 9. Surgical Instruments Cluster Baruipur 10. Wet Grinder Cluster Coimbatore 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.
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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 Respons % Distribution Responses Participation es of of Responses of Cluster SPVs Actors
% Distribution of Responses
1. 2.
High Risk Aversion Financial Constraints
10 9
90.90 81.81
29 26
93.54 83.87
3. 4. 5.
Lack of Awareness regarding Benefits Lack of Contact Skepticism and Doubts regarding Viability Fear of the Monopoly and Dominance of a few Free Rider Syndrome (or benefitting by the effort of others) Common Facility Not Appropriate (not evolved on the basis of concerns)
7 5 11
63.63 45.45 100.00
23 15 28
74.19 48.38 90.32
6.
27.27
25
80.65
7.
72.72
14
45.16
8.
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
98
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 Sl .
No.-5.4:
RESPONSES ON INITIATIVES AND EFFECTIVELY MEETING CHALLANGES
MEASURES
REQUIRED
FOR
Required Initiatives/Measures
Affirmative Response
Responses on Measures Undertaken 4 3 2 5 4
(A) 1. 2. 3. 4. 5.
6. 7. 8. 9. 10. 11.
(B) 1.
2. 3. 4. 5. 6.
Trust Building Initiatives by SPV Frequent personal meetings with diffident cluster actors. Articulation of the concrete benefits and advantages of working together Articulation of the concrete benefits of the CFC and its viability Closely monitoring and supporting the work of the CDE Obtaining detailed clarifications on guidelines and procedures and effectively disseminating this among cluster actors to remove ambiguities and skepticism Keeping membership options open for late entrants Maintaining transparency through circulation of accounts and annual report Open access to MOAs and Rules framed at the time of registration Collectively removing elements that impede grater participation by cluster members Involving existing Associations in the cluster and leveraging on their influence. 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. Facilitative Initiatives by Government Support of State Governments in regulations, infrastructure and land acquisition and tax concessions/incentives, streamlining and simplifying procedures Support of MSME-DIs Support of Department of Science & Technology Support of MSME to dovetail the relevant programmes of other ministries Proper selection/Training and resources for CDEs Revision and Elaboration of Programme Guidelines and norms to remove ambiguities and lack of clarity.
7 10 10 8 10
9 9 8 9 8 9
7 8 6 2 5 7
11
8 9 11 11 11
7 1 1 2 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 Very Effective and Helpful but could do better with training Fairly Effective and helpful but could do better with training and necessary resources and facilities Not Effective due to lack of training and the burden of other tasks Extremely Indifferent and Ineffective
Numbers of Responses
6 4 1 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
Soft Interventions Effective

Group Meetings (to evolve a consensus on a business plan) Personal visits and interaction with Cluster Members Exposure visits to other Clusters or CFCs Common Website/ Information Portal Participation in Exhibitions/ Trade Fairs Training Programmes and Seminars Marketing Visit Medical Conferences 9 4 8 0 6 5 2 4
Responses Not Effective

2 3 2 0 4 5 5 2
No Response
0 4 1 11 1 1 4 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.
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Chapter No: 6 Hard Interventions in Sampled Clusters
CHAPTER
6
6.1 Introduction
HARD INTERVENTIONS IN THE SAMPLED CLUSTERS
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
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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--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.
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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
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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

Total Number of Clusters Covered (during Study) Clusters Implementing Soft Interventions (as on date) Number of Clusters where in SPVs have been formed and Registered Number of Clusters where in SPVs are formulating DPRs for Approval Number of Clusters where in Construction and Installation of CFC is in Progress Number of Clusters where in CFCs have been Commissioned & are Functional
Stage of Programme Implementation

NA I II
Number of Sampled Clusters

22 11 11
% Distribution
100.00 50.00 50.00
1. 2. 3.
4.
III
9.09
5.
IV
31.82
6.
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 MSECDP 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
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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 Type of DPR DPR Date of Registration SPV Submission Approval Receipt of Date Date funds from MSME 1. Rice Milling Cluster 27.11.2004 Pvt. Ltd. 09.08.2005 07.02.2007 21.03.2007 Kalady Company 2. Rubber Cluster 2001 Pvt. Ltd. 2003 2003 NA Chenganacherry Company 3. Plywood Cluster 14.10.2003 Pvt. Ltd. 04.08.2005 07.02.2007 15.03.2007 Perambavoor Company 4. Leather Goods Jan 2006 Society Feb .2008 Yet to be NA Cluster Approved Shantiniketan 5. Plastic Cluster 2.12.2006 Pvt. Ltd. NA 22.12.2006 20.03.2007 Aluva Company 6. White Ware 27.07.2007 Society Not Yet to be NA Cluster Khurza Submitted Approved 7. Brass Utensil 23.12.2004 Society NA NA NA Cluster Pareo 15.03.2008 8. Bell Metal Cluster 17.06.2007 Society 02.11.2007 15.02.2008 Hazo 26.04.2007 9. Foundry Cluster 02.01.2006 Society 15.05.2006 26.03.2007 Ahmadabad 10. Surgical Nov 2005 Society 02.02.2006 Nov 2007 NA Instruments Cluster Baruipur 11. Wet Grinder Cluster 19.08.2004 Society 28.01.2005 28.02.2005 15.03.2008 Coimbatore Note- NA- Information not made available as yet. to be confirmed Stage of CFC
Under Construction CFC Functional Under Construction DPR submitted Under Construction No progress Under Construction Under Construction CFC Functional Under Construction Under Construction
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
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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 2310 93008 145524 181458 180888 226341 239790 171358 221990 240544 264697 306579 2274487 Wages Acces sories Consu mables 181 27433 4555 2737 3116 2103 2695 2140 825 3990 377 3525 2123 4552 4887 5267 861 35626 2342 38083 24205 3740 1185 3150 4760 1040 5990 1040 3100 Lubrica nts 200 3700 2703 11426 3300 700 10450 300 1200 20522 11876 5946 72123 67659 157715 103937 109988 110447 136594 129298 105579 140367 140762 146058 1348404 AMC & Renew als Electricity Charges Rubber Oil for Pumps 591 23810 37254 46454 46307 57943 61386 43868 56829 61285 28358 32883 496968 Total Operating Surplus/ Deficit -3462 -71701 -95785 -14510 -26165 12676 -20440 -50126 3856 -34668 26710 61844 -211771
Feb 07 Mar 07 Apr 07 May 07 June 07 July 07 Aug 07 Sept 07 Oct 07 Nov 07 Dec 07 Jan 08 Total
4800 37552 37800 31035 41615 40695 42985 40310 44944 41784 50684 56645 470849
5772 164709 241309 195968 207053 213665 260230 221484 218134 275212 237987 244735 2486258
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 noncluster 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 (FOUNDRY CLUSTER AHMADABAD) (All figures in this table are in Rs. unless specified otherwise) Month User Labour Electricity Raw Other Total Charges expenses Materials Exp Expenses Oct-07 17150 32002 4416 34730 71148 Nov-07 27675 41295 3984 14100 59379 Dec-07 29850 41770 3325 34536 79631 Jan-08 Feb-08 Mar-08 Apr-08 Total 43800 81825 134688 31600 366588 41623 41723 52261 48360 299034 4232 3770 7282 2151 29160 28310 30812 137178 5669 285335 74165 76305 196721 56180 613529 OF CFC
Profit/ Loss -53998 -31704 -49781 -30365 5520 -62033 -24580 246941
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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.
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Chapter No: 7 Conclusions nd Recommendations
CHAPTER
CONCLUSIONS AND RECOMMENDATIONS
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
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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 crches 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
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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
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provided an opportunity to carry out these challenging tasks. programme can also be launched for the purpose.
A campus recruitment
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 Research Institutions through Dedicated Grants
and
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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Evaluation MSME Cluster

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Evaluation MSME Cluster

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TABLE OF CONTENTS

CHAPTER NUMBER DESCRIPTION PAGE NO.

1.6.5 1.6.6 1.6.7

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

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

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

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

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

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

Chapter No:1 - Introduction

Chapter No:1 - Introduction

Chapter No:1 - Introduction

Research Experience (in years) 28 10 18

Chapter No:1 - Introduction

CLUSTER DEVELOPMENT EXECUTIVES:

Chapter No:1 - Introduction

Cluster Development: Concepts & Issues

The SME Sector in India

Chapter No:1 - Introduction

Need for a Cluster Development Approach

Cluster Development in India

Chapter No:1 - Introduction

Approach to Cluster Development

Chapter No:1 - Introduction

Chapter No:1 - Introduction

Evaluation Study: Objectives and Methodology

Scope and Objectives of the Study

Chapter No:1 - Introduction

Chapter No:1 - Introduction

Selection of Sample Clusters

Chapter No:1 - Introduction

Table No. - 1.1 (contd.)

Sample Per Cluster 1 1 15

Total Sample 22 22 323

Chapter No:1 - Introduction

Chapterisation of this Report

Chapter No:1 - Introduction

ANNEXURE 1.1 Guidelines for Cluster Development Programme

Chapter No:1 - Introduction

Chapter No:1 - Introduction

Chapter No:1 - Introduction

Chapter No:1 - Introduction

Chapter No:1 - Introduction

Chapter No:2 The General Profile of Sampled Clusters

THE GENERAL PROFILE OF SAMPLED CLUSTERS

Chapter No:2 The General Profile of Sampled Clusters

2.2 Geographical Spread of Clusters

Chapter No:2 The General Profile of Sampled Clusters

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

Primary Goods Based Clusters

Secondary Goods Based Clusters Sl

Chapter No:2 The General Profile of Sampled Clusters

2.2.1 Number of Constituent Units in Sampled Clusters

Primary Goods Based Clusters

Chapter No:2 The General Profile of Sampled Clusters

Table No. -2.2 (Contd.)

Secondary Goods Based Clusters

2.2.2 Size and Scale of Activity as Reflected by Turnover

Chapter No:2 The General Profile of Sampled Clusters

Primary Goods Based Clusters

Secondary Goods Based Clusters

H - High Turnover M - Modest Turnover

Chapter No:2 The General Profile of Sampled Clusters

Chapter No:2 The General Profile of Sampled Clusters