Evaluation Study MSE Cluster Development - Ministry of Micro ...

EVALUATION STUDY OF MICRO & SMALLENTERPRISES CLUSTER DEVELOPMENTPROGRAMME(JANUARY 2009)SPONSORED BY :MINISTRY OF MICRO, SMALL AND MEDIUMENTERPRISESGOVERNMENT OF INDIAPROF. ANIL CHANDY ITTYERAHINDIAN INSTITUTE OF PUBLIC ADMINISTRATIONNEW DELHI

CHAPTERNUMBERTABLE OF CONTENTSDESCRIPTIONPAGENO.1. INTRODUCTION.................................................................................. 121.1 CLUSTER DEVELOPMENT: CONCEPTS & ISSUES.................................. 121.2 THE SME SECTOR IN INDIA ........................................................ 121.3 NEED FOR A CLUSTER DEVELOPMENT APPROACH ................................ 131.4 CLUSTER DEVELOPMENT IN INDIA.................................................. 131.5 APPROACH TO CLUSTER DEVELOPMENT............................................ 141.6 EVALUATION STUDY: OBJECTIVES AND METHODOLOGY......................... 161.6.1 Rationale For The Evaluation Study ................................ 161.6.2 Scope and Objectives of the Study ................................. 161.6.3 Study Methodology and Process ..................................... 171.6.4 Target Groups ............................................................. 17Cluster Development Executive .............................................. 17Functionary of SPV ............................................................... 17Other Cluster Actors ............................................................. 171.6.5 Selection of Sample Clusters ......................................... 181.6.6 Sample Size covered .................................................... 191.6.7 Field Instruments Used................................................. 191.7 CHAPTERISATION OF THIS REPORT................................................. 20ANNEXURE – 1.1 GUIDELINES FOR CLUSTER DEVELOPMENT PROGRAMME ....... 212. THE GENERAL PROFILE OF SAMPLED CLUSTERS.................................272.1 INTRODUCTION ........................................................................ 272.2 GEOGRAPHICAL SPREAD OF CLUSTERS ............................................ 282.2.1 Number of Constituent Units in Sampled Clusters ............. 302.2.2 Size and Scale of Activity as Reflected by Turnover........... 312.3 CLUSTER CONFIGURATION,VIABILITY,AND STAINABILITY ...................... 342.4 NATURE OF THE SAMPLED CLUSTERS .............................................. 362.5 INPUT PROFILE OF SAMPLED CLUSTERS ........................................... 372.6 AVAILABILITY OF MANPOWER ....................................................... 402.7 ACCESS TO MARKETS AND MARKET PROSPECTS ................................. 422.8 ACCESS TO FINANCE ................................................................. 452.9 ACCESS TO INFORMATION ........................................................... 472.10 ACCESS TO RESEARCH AND DEVELOPMENT INSTITUTIONS ..................... 482.11 ENVIRONMENTAL CONCERNS IN THE CLUSTERS .................................. 50

2.12 PROGRESS AND PRESENT STATUS OF THE CDP .................................. 53ANNEXURE: 2.1- DETAIL TABLES ON RESPONSES ON IMPEDIMENTS FACED BY UNITSOWNERS................................................................................ 563. THE CLUSTER DEVELOPMENT EXECUTIVE/AGENT ..............................623.1 INTRODUCTION ....................................................................... 623.2 THE ROLE AND FUNCTIONS OF THE CDE/CDA................................... 623.3 THE CORE COMPETENCIES OF THE CDE/CDA ................................... 643.4 THE PROFILE OF CDES IN SAMPLED CLUSTERS .................................. 653.5 AWARENESS OF CURRENT JOB RESPONSIBILITIES ............................... 673.6 TENURE AND STAGE OF DEPLOYMENT OF CDE ................................... 693.7 THE TRAINING OF CDES ............................................................ 713.8 FUNCTIONAL RESOURCE REQUIREMENT OF CDES ............................... 733.9 PERCEPTION OF CDES ON FACTORS ENABLING CLUSTER DEVELOPMENT ..... 744. SOFT INTERVENTIONS IN THE SAMPLED CLUSTERS...........................774.1 INTRODUCTION ....................................................................... 774.1.1 Awareness Creation ..................................................... 784.1.2 Confidence Building...................................................... 784.1.3 Capacity Building ......................................................... 784.2 SOFT INTERVENTIONS UNDER THE CDP ........................................... 784.2.1 Allocation and Utilization of Funds for Soft Interventions ... 794.2.2 Beneficiary Responses on Awareness of Soft interventions . 824.2.3 Beneficiary Responses on Participation in Soft Interventions……………………………………………………………………………………………….824.2.4 Responses on the Benefits Derived from Soft Interventions 834.2.5 Impact of Soft Interventions.......................................... 834.3 EARMARKING OF FUNDS FOR “SOFT” INTERVENTIONS .......................... 844.3.1 Detailed Features of the ‘Diagnostic Study’ ...................... 864.4 THE WAY AHEAD (ACTIONABLE ISSUES).......................................... 87ANNEXURE 4.1 – TABLE PERTAINING TO MAJOR SOFT INTERVENTIONS CARRIEDOUT IN VARIOUS CLUSTERS.......................................................... 885. THE SPECIAL PURPOSE VEHICLE ........................................................ 915.1 INTRODUCTION ....................................................................... 915.2 THE SCOPE AND FUNCTIONS OF THE SPECIAL PURPOSE VEHICLE ............. 925.3 THE MOST SUITABLE ORGANIZATIONAL AND LEGALLY RECOGNIZED FORM OFTHE SPECIAL PURPOSE VEHICLE .................................................... 935.4 THE GENERAL PROFILE OF SAMPLED SPVS ....................................... 945.5 THE SOCIAL AND ETHNIC COMPOSITION OF AND PARTICIPATION IN SPVS .. 975.6 PERCEPTIONS REGARDING REASONS FOR NON-PARTICIPATION IN SPVS .... 98

5.7 SUGGESTED METHODS OF REMOVING CONSTRAINTS FACED BY SPVS...... 1005.8 PERCEPTIONS REGARDING THE ROLE OF THE CDE AND EFFECTIVENESS OFSOFT INTERVENTIONS.............................................................. 1026. HARD INTERVENTIONS IN THE SAMPLED CLUSTERS........................1046.1 INTRODUCTION ...................................................................... 1046.2 THE JUSTIFICATION FOR HARD INTERVENTIONS ............................... 1056.3 THE RATIONALE AND OBJECTIVES OF HARD INTERVENTIONS ................ 1066.4 THE ROLE OF THE STATE IN SUPPORTING HARD INTERVENTIONS ........... 1086.5 HARD INTERVENTIONS IN SAMPLED CLUSTERS................................. 1086.6 STAGES OF INTERVENTION UNDER MSE-CDP.................................. 1096.7 IMPLEMENTATION PROFILE OF HARD INTERVENTIONS IN THE SAMPLEDCLUSTERS ........................................................................... 1106.8 THE FUNCTIONING AND IMPACT OF THE CFC ................................... 1117. CONCLUSIONS AND RECOMMENDATIONS ........................................ 1157.1 NEED FOR A SCIENTIFIC DEFINITION OF A “CLUSTER”......................... 1157.2 A CLEARER ARTICULATION OF THE OBJECTIVES AND SCOPE OF THE CDP.. 1167.3 FACILITATING AGENCIES AND FUNCTIONARIES: ............................... 1177.4 THE ROLE & FUNCTIONING OF CLUSTER DEVELOPMENT EXECUTIVES(CDE)1177.5 SOFT INTERVENTIONS, THEIR CONTENT, SCHEDULING, EVALUATION, ANDVALIDATION:........................................................................ 1187.6 SPECIAL PURPOSE VEHICLES (SPV):............................................ 1197.7 HARD INTERVENTIONS,HEIR CONTENTS, SCHEDULING, EVALUATION ANDVALIDATION ......................................................................... 1207.8 ENSURING THE INVOLVEMENT OF PROMINENT SCIENTIFIC AND RESEARCHINSTITUTIONS THROUGH DEDICATED GRANTS ................................. 1228. ANNEXUREPhotographs of few sample clusters

INDEX OF TABLESTable No.- 1.1: CLUSTER COVERED IN THE STUDY........................................ 7Table No.- 1.2: SAMPLE SIZE .................................................................... 8Table No.-2.1: GEOGRAPHICAL SPREAD OF THE SAMPLED CLUSTERS............ 18Table No.-2.2: NUMBER OF CONSTITUENT UNITS ...................................... 19Table No.-2.3: IMPACT ON TURNOVER OF INTERVENTION............................ 21Table No.-2.4: CLUSTER CONFIGURATION, VIABILITY AND SUSTAINABILITY .. 24Table No.-2.5: TYPES OF UNITS IN THE SAMPLED CLUSTERS ....................... 25Table No.-2.6: INPUT PROFILE OF SAMPLED CLUSTERS ............................... 27Table No.-2.7: LOCATION OF INPUT SOURCES FOR SAMPLED CLUSTERS ....... 28Table No.-2.8: AVAILABILITY OF MANPOWER ............................................. 29Table No.-2.9: ACCESS TO THE MARKETS .................................................. 31Table No.-2.10: MARKET PROSPECTS FOR THE GOODS MANUFACTURED INSAMPLED CLUSTERS .......................................................................... 32Table No.-2.11: ACCESS TO FINANCE IN SAMPLED CLUSTERS ...................... 34Table No.-2.12: ACCESS TO INFORMATION IN SAMPLED CLUSTERS .............. 37Table No.-2.13: ACCESS TO R&D INSTITUTIONS IN SAMPLED CLUSTERS....... 38Table No-2.14: ENVIRONMENTAL CONCERNS IN THE SAMPLED CLUSTERS ..... 39Table No.-2.15: TYPE OF ENVIRONMENTAL CONCERNS IN SAMPLED CLUSTERS....................................................................................................... 41Table No.-2.16: CDP IN SAMPLED CLUSTERS AND PRESENT STATUS ............. 43Table No.-2.17 (a): Responses on Production Related Impediments to FurtherGrowth (Agro-Based Clusters) ............................................................. 45Table No.-2.17 (b): Responses on Production Related Impediments to FurtherGrowth (Metal and Manufacturing based Clusters) .................................. 46Table No.-2.18(a): Responses on Market Related Impediments to Further Growth(Agro-Based Clusters) . ...................................................................... 47Table No.-2.18 (b): Responses on Market Related Impediments to FurtherGrowth (Metal and Manufacturing Based Clusters). ................................. 48Table No.-2.19 (a): Responses on Finance and Technology Related Impedimentsto Further Growth (Agro-Based Clusters). ............................................. 49Table No.-2.19 (b): Responses on Finance and Technology Related Impedimentsto Further Growth (Metal and Manufacturing Based Clusters). .................. 50Table No.-3.1: PROFILE OF CLUSTER DEVELOPMENT EXECUTIVE IN SAMPLEDCLUSTERS ........................................................................................ 55Table No.-3.2: AWARENESS AND CONFIDENCE LEVELS AMONG CDESREGARDING CURRENT JOB RESPONSIBILITIES...................................... 57Table No.-3.3: STAGES AT WHICH CDEs WERE DEPLOYED IN SAMPLEDCLUSTERS ........................................................................................ 59

I would also like to particularly thank the concerned CDEs, officers of theState Governments of U.P, Haryana, Punjab, Bihar, Orissa, West Bengal,Assam, Gujarat, Rajasthan, Tamil Nadu, and Kerala. These officers, alongwith a large number of concerned subordinate officers and staff, werevery supportive during the extensive site visits of our field teams. It mustbe mentioned here that they extended all the necessary guidance andlogistical arrangements to us during these visits, and also provided vitaldocuments and reports that were necessary for the proper conduct of thisevaluation. 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 ofPublic Administration and its staff for extending all the necessary facilities,and a conducive work environment for the conduct of this study. Theproject team is specially grateful to Shri Bhartendra Singh Baswan,Director IIPA, for his guidance, and encouragement which he mostwillingly extended, particularly during the more difficult and strenuousphases of our work. I would finally like to express my sincere thanks toShri Devender Singh and Ms. Rajni Choudhary for constantly assistingme, as well as sincerely sharing all the responsibilities involved in thetimely conduct and completion of this study. Last but not the least, Iwould like to thank Ms. Kavita Haldwal and Shri Prayag Joshi for theirunstinting and dedicating secretarial assistance.New Delhi, 30th January 2009(ANIL CHANDY ITTYERAH)8

COMMONLY USED ABBREVIATIONSBDSBusiness Development ServicesCC&S Cluster Configuration and StatusCDECluster Development ExecutiveCDPCluster Development ProgrammeCFCCommon Facility CentreDPRDetailed Project ReportEDIEntrepreneurship Development InstituteFYPFive Year PlanGOIGovernment of IndiaIIEIndian Institute of EntrepreneurshipKBIPKerala Bureau of Industrial PromotionLNALocal Network AgentLVSLeast Viable and SustainableMSE-CDP Micro and Small Enterprises Cluster DevelopmentProgrammeMSME Ministry of Micro Small & Medium EnterprisesMVSMost Viable and SustainablePGBC Primary Goods Based ClusterS&TScience and TechnologySGBC Secondary Goods Based ClusterSICDP Small Industries Cluster Development ProgrammeSPVSpecial Purpose VehicleSSISmall Scale IndustryUPTECH Technology Up-gradation and Management ProgrammeVDSViable but difficult to Sustain9

CLUSTER DEVELOPMENT EXECUTIVES:Sl Name Cluster1. Mr. M.K. Handique Bamboo Cluster Dimapur2. Mr. K.M. Bangar Food Processing Cluster Muzffarpur3. Mr. G.P Agarwal Leather Goods Cluster Agra4. Mr. D. Ghosh Leather Goods Cluster Shantiniketan5. Mr. Chandan T.S. Plywood Cluster Perambavoor6. Mr. B.N. Kapoor Rice Milling Cluster Karnal7. Mr. P.N. Solanki Rice Flakes Cluster Ahmedabad8. Mr. B. Sivaprasad Rice Milling Cluster Kalady9. Mr. Sathyaraj N. Rubber Cluster Kottayam10. Mr. Ajay Sharma Ball bearing Cluster Jaipur11. Mr. B.B. Panigrahi Bell metal Cluster Khurda12. Mr. S. Deka Bell metal Cluster Hazo13. Mr. D.K. Singh Brass Utensil Cluster Pareo14. Mr. B.C. Singh Bisht Cotton Hosiery Cluster Kanpur15. Mr. Mr. R.S. Nirwan Diesel Engine Cluster Rajkot16. Mr. Arvind Patwari Fan Industry Cluster Hyderabad17. Mr. Neelambaran K.V. Plastic Cluster Aluva18. Mr. S.S. Bedi Sewing Machine Cluster Ludhiana19. Mr. S.K. Roy Surgical Instruments Cluster Baruipur20. Mr. V. Ramakrishanan Wet Grinder Cluster Coimbtore21. Mr. K.C. Singh White ware Cluster KhurzaHEADS OF SPV:Sl Name Designation Cluster1. Mr. BudhadebPresident Leather Goods Cluster ShantiniketanSengupta2. Mr. C.K. Abdul Majid President Plywood Cluster Perambavoor3. Mr. N.P. Antony Managing Rice Milling Cluster KaladyDirector4. Mr. K.J. Louis Managing Rubber Cluster KottayamDirector5. Mr. AbhadurGeneral Bell metal Cluster HazoRahmanSecretary6. Mr. Tulsi Prasad Secretary Brass Utensil Cluster Pareo7. Mr. K.K. Ibrahim Managing Plastic Cluster AluvaDirector8. Mr. Kamal Das Secretary Surgical Instruments ClusterBaruipur9. Mr. N. Rajan Secretary Wet Grinder Cluster Coimbtore10. Mr. Rajiv Kalra Secretary White ware Cluster Khurza11. Mr. P.N. Bhagawati President Foundry Cluster AhmedabadNote: In addition to the above interactions were held with 30 cluster actors in each cluster thatwere covered in the study.11

31 million persons spread over 12.8 million enterprises and the labour intensity in theMSE sector is estimated to be almost 4 times higher than the large enterprises. Thereare about 388 documented SME clusters in India.1.3 Need for a Cluster Development ApproachSSE clusters constitute ideal targets for a SSE support agency (Mead & Liedholm 1998,OECD 1998). The concentration of largely homogenous enterprises within a relativelylimited geographical area facilitates the intervention because of their similarity of needsand support requirements, speeds up the dissemination of best practices because of thepervasiveness of demonstration effects, and allows for a distribution of the fixed costs ofinterventions among a large number of beneficiaries. This is true for under-achievingclusters as well as for the best performing ones.However, underachieving clusters are characterized by environments where informationdoes not flow easily and where the various actors are not accustomed to talking with oneanother. In stark contrast with their counterparts in the more successful well-performingclusters, especially in developed countries, entrepreneurs in under-performing clustersrarely if ever meet one another, do not usually have on-going relationships with BDSproviders and are not accustomed to presenting articulated calls for actions to the localpolicy makers. On the contrary, these clusters are more often than not characterized byextremely 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 ofjoint actions.1.4 Cluster Development in IndiaThe Ministry of Micro, Small & Medium Enterprises laid special emphasis for developmentof clusters and launched a scheme for technology up-gradation and management calledUPTECH in 1998. Although it was having a cluster based approach for development ofMSEs, it was mainly technology-focused comprising of a diagnostic study, setting-up of ademonstration plant and organising workshops, seminars, etc. for quicker diffusion oftechnology across the cluster of small enterprises.In August 2003, the scheme of the Ministry of Micro Small and Medium Enterprises wasrenamed as Small Industry Cluster Development Programme (SICDP) and made broadbased by adopting a holistic pattern of development of the cluster encompassingmarketing, exports, skill development, setting up of common facility centres, includingtechnology upgradation of the enterprises, etc. SICDP guidelines were comprehensivelyrevised in March, 2006 making the cluster programme more broad-based by facilitatingsubstantial economies of scale in terms of deployment of available resources in themedium to long term. The Government of India’s assistance under the scheme wasenhanced upto Rs.8 crore per selected cluster to support soft as well as hardintervention, including setting up of a common facility centre.As per the Promotional Package announced by the Government, SICDP was renamed asMicro & Small Enterprises - Cluster Development Programme (MSE-CDP) to make it moreattractive, though the basic features of this scheme have been retained as such. The13

proposals for setting up new clusters shall now be considered under MSE-CDP and thequantum of grant has been raised to 75% of the cost and the project cost has beenraised from Rs. 5 crore to Rs 10 crore. Raising the project cost to Rs. 10 crore and thecentral grant upto 7.5 crore is quite attractive and is expected to encourage the settingup of new clusters for micro and small enterprises. Please refer Annexure 1.1 for detailedguidelines 2006 issued by the MSME (appended at the end of this Chapter).1.5 Approach to Cluster DevelopmentThe UNIDO started a Cluster Development Programme in 1995 to strengthen thecompetitive advantage of under-achieving SSE clusters. The current approach for theCDP in India largely draws its concepts and methodology from the UNIDO model whichdraws lessons from the experience of successful clusters and implements them throughtechnical cooperation projects in various developing countries. The strategy adopted is toidentify the collective competitive advantage of particular clusters, and to build up localcapabilities to realise it by supporting the broadest spectrum of cluster actors, such asSSE owners, producers’ associations, BDS providers, local policy makers, etc.Cluster approach is different from the concept of development of Industrial Estates. Thelatter is largely based on infrastructure development and creation of new assets,whereas, cluster development aims at holistic development (covering diverse areas likemarketing, export promotion, skill up-gradation, infrastructure etc.) and may bedesigned to cover industrial estates as well as natural clusters, which may have evolvedon their own historically at any place.The methodology addresses both the vision and capacity building objectives. This sectionemphasises the three phases which each cluster project is expected to undergo over itslifetime, namely: Preparation of a diagnostic study and formulation of a cluster actionplan; Implementation of pilot and strategic projects; and the self-management phase.It must be stressed, however, that the boundaries between the various phases are notstrictly defined and that all phases contribute to vision and capacity building.A key tool for cluster development is the diagnostic study. This study gathers previouslydispersed and fragmented knowledge about the economic and social conditions of thecluster and its development potential, as well as the state of inter-firm relationships andthe existing institutional support mechanisms. The diagnostic study also provides avaluable opportunity to enforce awareness about the approach and to promote trustamong the cluster actors. Moreover, it helps to identify potential leaders from within thecluster and, more generally, the suitable counterparts to assist implementation. Thediagnostic phase ends with the preparation of a broad action plan for the cluster. Thisdocument is drafted by the Focal Point together with key cluster representatives andoffers a vision around which to gather the support and collaboration of the variouscluster actors. The preparation of such a plan is the essential first step in developinglong-term local capacities for responding to evolving economic and technicalcircumstances, rather than as a once-for-all prescription. The first draft of the clusteraction plan is thus a working document which must be revised as more information aboutthe cluster is disclosed and on the basis of the results of the initial interventions.14

Nevertheless, it is expected that the information gained as a result of the diagnosticstudy and the joint preparation of the action plan (especially concerning the competitiveposition of the cluster in the national and international market) will suffice to identify thepotentialities of the cluster as well as the key obstacles which prevent it from taking upthe opportunities provided by the globalisation of the Indian economy. As these obstaclesare identified, a key task is to help the partner institutions to prioritise them (both interms 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 existingBDS and the development of new ones.The elaboration of an action plan is meant as the initial step for the development of pilotprojects where groups of firms sharing similar constraints (networks) are formed andspecific initiatives are formulated and implemented. During this phase, co-operationstarts bearing concrete results to the participating enterprises. The initiatives aregenerally of a commercial and/or promotional kind (e.g. joint participation in fairs, jointpurchase of raw materials, design of a collective catalogue). The idea is to generatevisible results (although of a short-term nature) to engender optimism and trust. At thesame time, the pilot projects consolidate willingness of the networks and associations toundertake long-term strategic initiatives around an increasingly shared vision for thecluster as a whole. These projects generally entail an increase in the degree ofspecialization by process and/or by product of the firms involved (e.g. restructuring orcreation of common service facilities, new product lines, common brands). It is at thisstage that the involvements of both technical and financial institutions become essentialand that the initiatives are meant to contribute more directly to the creation of capacitiesat the cluster level. UNIDO therefore ensures that the networks/associations supportedby the projects can draw assistance from the available institutions. As will be emphasisedin subsequent Chapters, this task often implies upgrading the capacity of BDS providersor even initiating their establishment, especially in clusters characterised by a relativelyweak support framework.Finally the intervention gives way to a self-management phase, as the networks /associations gain greater autonomy from the sponsoring agency’s assistance and thecapacity to undertake further joint activities independently. It is during this phase that itbecomes possible to test whether the earlier investment on vision- and capacity buildinghas delivered the expected results and if the cluster approach has won the endorsementof the various cluster actors. Self-management is not always easily achieved. Often thenetworks/associations tend to lean on sponsoring agency’s assistance for a longer timethan initially envisaged. In order to avoid dependency the work plan established by thecluster actors and the Focal Point must have a specific time frame. The cluster actorsthus know from the beginning that they can count on assistance only for a limited periodof time. As the various networks/associations develop, sponsoring agency’s interventionshifts towards softer co-ordination and a progressive transfer of responsibilities to thecluster actors is ensured.15

Following are the main steps:• Selection of cluster(s)• Selection of Cluster Development Executive(s)• Trust building• Diagnostic study• Preparation of action plan• Approval of budget and leveraging of funds from various institutions• Implementation of the action plan• Monitoring and evaluation• Handing over and exit• Self-management phase1.6 Evaluation Study: Objectives and Methodology1.6.1 Rationale For The Evaluation StudyThe Ministry of Micro Small and Medium Enterprise has been running the ClusterDevelopment Programme since 1998 though the latest comprehensive guidelines havebeen issued only in 2006. The CDP is being implemented in 90 clusters across differentstates.Before making the budgetary allocation in the next plan, the GOI decided to conduct acomprehensive evaluation of the CDP to assess its performance and identify the areas ofcorrective action if any, and if required, to further strengthen it. Indian Institute ofPublic Administration (IIPA) was selected by the Ministry to undertake this evaluationstudy.1.6.2 Scope and Objectives of the StudyThe Ministry of MSME wants to assess the impact of the MSE-CDP programme andvarious 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 markets2. 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 SPVs3. To identify the specific areas of improvement in the existing schemes.16

4. Role of the schemes in bringing cohesiveness among the enterprises and increasingtheir ability to face external competition.5. To examine the systems and procedures for approval and receipt of funds.6. Development of benchmark indicators for periodic evaluation of the progress ofdifferent schemes in the future.7. To examine the role of the scheme in improving the economic status of specialpopulation groups.8. To assess the outreach and access of the scheme in general and particularly in thenortheast region.9. To develop strategies for increasing the outreach of the scheme.1.6.3 Study Methodology and ProcessPrior to the main study, an exploratory study was carried out. The research team visitedtwo Clusters in Kerala, the state having achieved maximum success in implementation ofCDP, and held detailed interactions with various stakeholders to get an insight intovarious important aspects of the programme.1.6.4 Target GroupsThe following target groups were covered in the study for data collection:Cluster Development ExecutiveThe Cluster Development Executive (CDE) is appointed by the Programme ImplementingAgency to conduct the Diagnostic study and carry out soft interventions. A detailedschedule was canvassed to the CDE. All facts and figures related to the Cluster werealso collected from the CDE using a Fact Sheet.Functionary of SPVAn SPV schedule was administered to the member or office bearer of the SPV tounderstand the impact of various soft interventions, challenges faced in mobilization ofcluster actors for the formation of SPV and issues related to the functioning of the SPVand the CFC.Other Cluster ActorsA Beneficiary schedule was administered to the unit owners in the study cluster toascertain 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 thethree 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 betweenmembers and non-members of SPV.17

1.6.5 Selection of Sample ClustersOne of the main objectives of the study was to assess the impact of soft and hardinterventions. Therefore, clusters having received both soft and hard interventions wereselected for the study.There were only two Clusters where the hard interventions in the form of CommonFacility Center (CFC) were fully functional (Foundry Cluster Ahmadabad and RubberCluster Kerala). Both Clusters were covered during the study.Nine other clusters, where setting up of CFC was in progress, were also covered duringthe study. Since there were no other clusters having received both soft and hardinterventions, 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, 4clusters did not conform to the CDP Guidelines of 2006 (Center for support of herbal andaromatic 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 functionariessuch as CDE, as well as a complete non-availability of adequate information anddocumentation forced the IIPA research team to exclude these clusters. In the case ofthe Centre for the Development of Stone, Jaipur the involvement of the MSME wasnegligible and the project was sponsored and managed by the Ministry of Mines in closecollaboration with the State Government.Therefore, the study was carried out in 26 clusters but the findings have been presentedfor 22 clusters.Table No. - 1.1 CLUSTERS COVERED IN THE STUDYNorth Zone1 Rice Milling Cluster Karnal, Haryana2 Sewing Machine Cluster Ludhiana, Punjab3 Leather Goods Cluster Agra, Uttar Pradesh4 Cotton Hosiery Cluster Kanpur, Uttar Pradesh5 White ware Cluster Khurza, Uttar Pradesh6 Food Processing Cluster Muzffarpur, Bihar7 Brass Utensil Cluster Pareo, BiharSouth Zone1 Plywood Cluster Perambavoor2 Rice Milling Cluster Kalady3 Leather Goods Cluster Shantiniketan4 Rubber Cluster Kottayam5 Plastic Cluster Aluva6 Wet Grinder Cluster Coimbatore7 Fan Industry Cluster Hyderabad18

Table No. - 1.1 (contd.)East/ North East Zone1 Surgical Instruments Cluster Baruipur, West Bengal2 Bell metal Cluster Khurda, Orissa3 Bell metal Cluster Hazo, Assam4 Bamboo Cluster Dimapur, NagalandWest Zone1 Ball bearing Cluster Jaipur, Rajasthan2 Foundry Cluster Ahmedabad, Gujarat3 Rice Flakes Cluster Ahmedabad, Gujarat4 Diesel Engine Cluster Rajkot, Gujarat1.6.6 Sample Size coveredThe size and composition of the sample drawn for the study is given in the table below:Table No. - 1.2 SAMPLE SIZESl. Target group Sample Per Cluster Total Sample1 Cluster Development Executive 1 222 Functionary of SPV 1 223 Other Cluster Actors 15 3231.6.7 Field Instruments UsedAs mentioned earlier apart from conducting detailed discussions with variousstakeholders of the SICDP in the clusters covered during the study, our teams alsocollected various project related documents provided by MSME-DIs, State Governments,SPVs and CDEs. Our field teams also used three comprehensively designed fieldschedules as well as a fact sheet for each cluster. We have also referred to variousreports, books and journals, as well as the Annual Reports of the relevant ministries, andorganisations.19

1.7 Chapterisation of this ReportThis report contains seven chapters in all (including chapter annexure). The chapterscheme 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/AgentChapter 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 Recommendations20

ANNEXURE – 1.1 Guidelines for Cluster Development ProgrammeThe current guidelines were issued in March 2006 having the following salient featuresIntroduction1. The Ministry of Small Scale Industries (SSI), Government of India (GoI) has adoptedthe cluster approach as a key strategy for enhancing the productivity andcompetitiveness as well as capacity building of small enterprises (including small scaleindustries and small scale service and business entities) and their collectives in thecountry. Among other things, this approach also facilitates substantial economies of scalein terms of deployment of available resources for effective implementation and moresustainable results in the medium to long term.2. In view of the large number and dispersed locations of the small enterprise clustersand varied status of collaborative self-help capabilities of these cluster-based enterprisesacross the country, the success of this Programme depends not only the initiatives of thecluster-based enterprises but also on the active involvement of the State Governmentsand other institutions engaged in the promotion of small enterprises. The followingguidelines are, therefore, issued, in super session of the existing guidelines, to assist allthe stakeholders in formulating proposals for financial support from the Ministry of SmallScale Industries for implementation of cluster development initiatives under the SmallIndustries Cluster Development Programme (SICDP).Implementing Agencies3.1 A clear legal entity with evidence of prior experience of positive collaboration amongits members, whether formally or otherwise, as the applicant of the proposed clusterdevelopment initiative assures sound management. Ideally, therefore, all proposals forcluster development seeking assistance under the SICDP must emanate from specialpurpose vehicles (SPV), consisting of the actual/likely cluster beneficiaries/enterprisesorganised 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 collaborativeinitiatives among small (and tiny or micro) enterprises in the country, it would bepermissible for a lead Government institution to be the prime mover of a proposal forcluster development in the initial stages of its conceptualisation, design, determination oftechnical parameters, project preparation and documentation, etc., in consultation withthe cluster beneficiaries. It will, however, be necessary to constitute the SPV at theearliest possible, with clear indication of the time frame for completion of this essentialrequirement while submitting the proposal for Government assistance.3.2.2 In short, in addition to the SPVs of cluster beneficiaries, institutions/ agencies ofthe following categories will, therefore, be eligible to propose and implement clusterdevelopment projects under the SICDP, with financial support of the Ministry of SSI21

Field organisations/offices and autonomous/public sector institutions/enterprises of theMinistry of SSI, Ministry of Agro and Rural Industries (ARI) and other Ministries of theGovernment of India.State Governments and their autonomous/public sector organisations.National and international institutions engaged in promotion and development of thesmall enterprises, including SSI, sector.Any other institution/agency approved by the Ministry for this purpose, keeping in viewthe 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 areessential prerequisites for selection of a cluster of the right type. The criteria may vary tosome extent depending on the type of clusters and the goals sought to be achievedthrough the cluster development initiatives. However, broadly, the following illustrativeaspects 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 upgradation, availability of raw material, marketing support, etc. National andinternational institutions engaged in promotion and development of the smallenterprises, including SSI, sector.• Viability of the cluster.• Vibrancy of local industry association and/or interest evinced by other institutionsengaged 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 unitsmanufacturing products, which fall under the administrative purview of other Ministriesof the Government of India, may also be considered for financial assistance under thisProgramme, with the consent of the Ministry concerned.6. In case the implementing agency is not the Government of the State in which thecluster is located or an organisation of that State Government, the agency will also needto necessarily consult the State Government concerned and take its views into accountwhile selecting the cluster and drawing up the strategy and/or action plan for itsdevelopment.Illustrative Steps in Cluster Development Programme7. The main steps are:• Selection of cluster(s)• Selection of Cluster Development Executive(s)• Trust building• Diagnostic study• Preparation of action plan22

• Approval of budget and leveraging of funds from various institutions• Implementation of the action plan• Monitoring and evaluation• Handing over and exit• Self-management phaseCluster Development Executive (CDE)8. An officer/executive of the cluster-based SPV or the implementing agency (other thanthe 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 Planbased on the former and get the Plan implemented with full participation of the ClusterActors, so as to build up the collective capacity of the units in the Cluster to sustain andcarry on the promotional as well as commercial activities in the long run even after theproject 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 SSIfor 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 beconsidered depending on necessity.10. The National Resources Centre (NRC) for SSI Cluster Development created at theNational Institute of Small Industry Extension and Training (NISIET), Hyderabad-500 045and the International Centre for Cluster Competitiveness and Growth (IC3G) at theEntrepreneurship Development Institute of India, P.O. Bhat-382428, District -Gandhinagar, Gujarat have been established for providing training and related servicesfor cluster development. They conduct courses spread over 3 to 4 weeks for training ofCDEs on the tools and methodology of conducting diagnostic studies and implementingcluster development initiatives. Implementing agencies may approach the NRC or IC3Gfor organising training of the CDEs after the Ministry of SSI approves their projectproposalsCost of Project and Government of India Contribution.11. The project cost may vary from cluster to cluster and will depend on parameters likethe duration of the project (usually 3 years), size of the cluster, nature and scope of theproposed 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 theenclosures to these guidelines (Annex I to IV). These need to be adhered to strictly.13.1.a. Wherever required, assistance under this Programme may also be considered forsetting up Common Facility Centre (CFC) in the cluster. The Detailed Project Report23

(DPR) for the CFC together with appraisal report prepared by a bank (if bank financing isinvolved) or an independent Technical Consultancy Organisation/reputed Consultant willhave to be submitted in such cases.13.1.b. With the grant-in-aid sought from the Government, the proposed CFC must befinancially and operationally as viable as any commercial project. As a result, all CFCproposals should comply with the financial norms of appraisal that a commercial bankwould seek, e.g., internal rate of return, break-even point analysis, debt-servicecoverage ratio, sensitivity analysis, etc., using basic templates such as projected profit &loss account and projected balance sheet for the proposed CFC. The proposed CFC mustalso justify its need in terms of its likely impact at the level of an individualrepresentative 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.babove, CFC projects would be classified and the Central Government (viability gapfunding) assistance therefore would be based on the following broad norms:Developmental CFC projects: Central Government support of 70 per cent of the projectcost and the remaining to be provided by the State Government concerned and theproject beneficiaries.Quasi-Developmental CFC projects: Central Government support of 50 per cent of theproject cost and the remaining to be provided by the State Government concerned andthe project beneficiaries.Quasi-Commercial CFC projects: Central Government support of not more than 30 percent of the project cost and the remaining to be provided by the State Governmentconcerned and the project beneficiaries.However, in case of clusters of micro and / or village enterprises, i.e., enterprises withinvestment in plant and machinery (excluding land and building) in each case notexceeding 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 ofthe CFC on a turn-key basis. The CFC thus established will have to be run by the SpecialPurpose Vehicle (SPV) on commercial lines, with enough current revenue surplus to meetall its current expenses as well as cost of replacement/expansion of assets as and whennecessary. Ministry of SSI shall not accept any financial liability arising out of operationof any CFC.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 throughcarefully.24

14. Contribution of the Ministry of SSI to the total cost of the project will be decidedkeeping in view the availability and willingness of other stakeholders and partners likeState governments, industry associations, firms in the cluster etc. For further details offunding scales, reference is invited to Part I and Part II of the enclosures to theseguidelines. Implementing agencies (including State Governments, cluster beneficiariesand/or their SPVs) are expected to mobilise resources to fund the remaining cost, asdetailed 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 enterprisesand establishing linkages between them and small enterprise clusters constitute apriority area of the cluster development strategy. Therefore, the proposed clusterdevelopment activities should include establishment of linkages between the cluster unitsand the BDS providers in the public and private sectors capable of catering to the needsof small enterprises.Dovetailing with Other Schemes of the Ministry of SSI/ARI and Schemes of OtherMinistries of the Government of India16. Implementing agencies will be encouraged to dovetail the cluster developmentinitiatives with other Schemes of the Ministry of SSI/ARI. Similar schemes of otherMinistries of the Government of India should also be tapped.17. Implementing agencies may, wherever necessary, seek assistance from technicalagencies like the Product and Process Development Centres and Central Tool Rooms ofthe Ministry of SSI as well as the Central Glass and Ceramics Research Institute, CentralLeather Research Institute, Technology Information Forecasting and Assessment Counciland other similar institutions of other Ministries and Departments of the Government ofIndia engaged in technology up gradation of client enterprises, including SSIs.Formats and Approval of Project Proposals18.1. The proposals for seeking financial assistance from the Ministry of SSI should bemade 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 necessaryadditions/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 theSmall Industry Cluster Development Programme under the chairmanship of Secretary,Ministry of SSI for projects costing Rs. 1 crore and above and of the DevelopmentCommissioner (SSI) for projects costing less than Rs. 1 crore. However, projects costingRs. 5 crore and above will be scrutinised on file by the office of DC(SSI) in consultationwith FA, before putting up to the Steering Committee for approval.Disbursement of Funds25

19.1 Funds will be released by the office of the DC (SSI) directly to the SPV/IA, underintimation to the State Government. The disbursement schedule of the GoI grant wouldgenerally be in accordance with the annual installments requested in the proposal of theproject, with justification for the said schedule to be considered and approved by theSteering Committee. However, in general, upfront contribution by the SPV or the.beneficiaries’ share would be a prerequisite before release of the first installment of GoIassistance. Where bank finance is involved, written commitment of the bank concernedto 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 prescribedutilisation certificate(s) and verification of release of contribution by the bank and theState Government. DC (SSI) may also require physical verification of the progress ofworks before release of the second and subsequent installments of GoI grants.Monitoring and Evaluation20.1 In case of projects implemented by the State Governments, their autonomousbodies and SPVs with the State Government as one of the stakeholders, monitoring ofthe projects to ensure satisfactory and time-bound implementation of the activities willbe the responsibility of the State Governments concerned. Each of the StateGovernments will also be required to constitute a Project Steering Committee consistingof representatives of all the stakeholders for this purpose. State Governments will sendQuarterly Progress Reports (QPR) on physical and financial parameters progress as wellas utilisation certificates prescribed under the General Financial Rules of the CentralGovernment to the Office of the Development Commissioner (Small Scale Industries).20.2 In case of cluster development projects not covered by the provisions in thepreceding paragraphs, the Ministry of SSI will directly monitor the progress throughmonitoring committees constituted at the level of the Ministry or through its State leveloffices.26

Chapter No:2 – The General Profile of Sampled ClustersCHAPTER2THE GENERAL PROFILE OFSAMPLED CLUSTERS2.1 IntroductionThe 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), mostlyinvolve the processing and value addition to primary goods produced in the agricultureand animal husbandry sector. These clusters are seen to add value to primary productssuch 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 thatsupplement meager agricultural incomes and are based on easily available inputs, andlocal skills, catering to the needs of local markets and peri-urban demand. They areusually based on labour intensive production methods and are dependent on surpluslabour. Their working capital requirements are confined to simple tools and traditionaltechnologies. Since members of the household normally take them up, these activitiesare 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 PGBCswhich use fairly advanced processing technologies and industrial inputs, though theirmajor raw material is drawn from the primary sector. The Plywood and Rubber GoodsManufacturing Clusters in this group stand out as exceptions since they involve relativelyhigher levels of processing, technology and the use of skilled industrial labour. RiceMilling has also to a very large extent evolved from being a traditional household basedactivity to a large scale, highly mechanized industrial process using modern machineryand power. Their scale of operation is quite large and similar to any normalmanufacturing activity.Over time these activities tend to get concentrated and localized among the betterequipped and skilled artisan groups who are able to cater to the demand for goods thatare standardized and of higher quality. This gradual process leads to the formation ofidentifiable clusters. In spite of being relatively dispersed over a large geographicalarea, they provide opportunity to harness the collective energies and externalities ofcooperation.The Secondary Goods Based Clusters (SGBC) unlike the first group are more localizedand relatively less dispersed as they are often located in traditionally well definedindustrial areas and estates where essential infrastructure likepower and water supply is available and accessible. They are dependent on both skilledand unskilled labour, utilizing tools plant and machinery that embody a fairlysophisticated level of technology and technical inputs.Unlike their agro-based counterparts, they require relatively higher investments andneed larger doses of working capital.27

Chapter No:2 – The General Profile of Sampled ClustersThe range of products that they produce is more diversified and they often serve asancillaries of larger firms both at home and abroad. Not only do the units in theseclusters require maintaining a cost advantage, they require constant modernization andinnovation to face the stiff competition that they face from the larger firms at thenational and international level.Based on this broad classification the subsequent sections would attempt to highlight thespatial dispersions of the clusters, the number of constituent units, the economic size ofthe 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 ClustersThe nature of activities as well as the sources of various inputs determines thegeographical spread or dispersion of the clusters. While some clusters are compact withtheir individual units located over a smaller and more manageable area, there are otherswhere 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 wehave adopted a classification that categorizes the sampled clusters into two groupsnamely Compact, and Dispersed clusters. It is important to mention here that themobilization of individual units for collective action, the effective use of commonfacilities, and the overall management of the CDP is better facilitated in case of acompact 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 as6 are highly dispersed being spread over an area exceeding 250 square kilometers. Theremaining 3 clusters are compact and are spread over an area of less than 250 squarekilometers. Among the compact clusters we have the Bamboo Cluster, Dimapur, theLeather Goods Cluster, Shantiniketan and the Rubber Goods Cluster in Chengancherry.28

Chapter No:2 – The General Profile of Sampled ClustersTable No.-2.1: GEOGRAPHICAL SPREAD OF THE SAMPLED CLUSTERSPrimary Goods Based ClustersSl Cluster Compact(C)Dispersed(D)Area(in SqKms)1 Bamboo Cluster Dimapur √ 1002 Food Processing Cluster Muzffarpur √ 8003 Leather Goods Cluster Agra √ 6254 Leather Goods Cluster Shantiniketan √ 905 Plywood Cluster Perambavoor √ 9626 Rice Milling Cluster Karnal √ 30007 Rice Flakes Cluster Ahmedabad √ 30008 Rice Milling Cluster Kalady √ 3149 Rubber Cluster Chenganacherry √ 30Secondary Goods Based ClustersSl Cluster Compact(C)Dispersed(D)Area(in SqKms)10 Ball bearing Cluster Jaipur √ 22511 Bell metal Cluster Khurda √ 2512 Bell metal Cluster Hazo √ 213 Brass Utensil Cluster Pareo √ 114 Cotton Hosiery Cluster Kanpur √ 40015 Diesel Engine Cluster Rajkot √ 10016 Fan Industry Cluster Hyderabad √ 2817 Foundry Cluster Ahmedabad √ 250018 Plastic Cluster Aluva √ 4519 Sewing Machine Cluster Ludhiana √ 2520 Surgical Instruments Cluster Baruipur √ 22521 Wet Grinder Cluster Coimbatore √ 15022 White ware Cluster Khurza √ 224Note: C- Compact Cluster- Spread over an area less than 250 Sq KmsD- Dispersed Cluster- Spread over an area more than 250 Sq Kms250 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 asmany as 11 of these sampled clusters are compact. This means that they are spreadover a compact area of less than 250 square kilometers. There are however 2 sampledclusters 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 lesshighly dispersed.29

Chapter No:2 – The General Profile of Sampled Clusters2.2.1 Number of Constituent Units in Sampled ClustersThe 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 importantoperational parameter in any Cluster Development Programme. A large enough numberof units in a cluster ensures a ‘critical mass’ not only for effective intervention but alsoindicates 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 andlarge 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 clusterswith 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 offnumber, which is 360 units, represents the median in our range of cluster sizes and isnot an arbitrary figure. Turning to the clusters in the second group it is seen in Table 2.2that of the 13 clusters in the group as many as 6 are small clusters while there are 7clusters that are large.Small clusters may be easier to manage particularly if they are ‘homogeneous’. In thecase of large clusters there is always scope for identifying more than one cluster whereinthe CDP can be initiated simultaneously. These multiple clusters are likely to reinforceeach other by learning from each other and constantly sharing vital information. In suchcases a single diagnostic study would serve the purpose of identifying more than onecluster for intervention thus saving a great deal of resources and effort. One additionalbenefit that can be visualized is that soft interventions can be carried out jointly therebysaving precious time and resources.Table No.-2.2: NUMBER OF CONSTITUENT UNITSPrimary Goods Based ClustersSl Cluster Small Cluster Large Cluster NCU(S)(L)1 Bamboo Cluster Dimapur √ 1202 Food Processing Cluster Muzffarpur √ NA3 Leather Goods Cluster Agra √ 23004 Leather Goods Cluster Shantiniketan √ 805 Plywood Cluster Perambavoor √ 856 Rice Milling Cluster Karnal √ 2217 Rice Flakes Cluster Ahmedabad √ 708 Rice Milling Cluster Kalady √ 709 Rubber Cluster Chenganacherry √ 31510 Ball bearing Cluster Jaipur √ 10111 Bell metal Cluster Khurda √ 11012 Bell metal Cluster Hazo √ 20013 Brass Utensil Cluster Pareo √ 50014 Cotton Hosiery Cluster Kanpur √ 46715 Diesel Engine Cluster Rajkot √ 418030

Chapter No:2 – The General Profile of Sampled ClustersTable No. -2.2 (Contd.)Secondary Goods Based ClustersSl Cluster Small Cluster Large Cluster NCU(S)(L)16 Fan Industry Cluster Hyderabad √ 30017 Foundry Cluster Ahmedabad √ 7618 Plastic Cluster Aluva √ 10819 Sewing Machine Cluster Ludhiana √ 80020 Surgical Instruments Cluster√ 600Baruipur21 Wet Grinder Cluster Coimbatore √ 70022 White ware Cluster Khurza √ 494Note: 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 itcould be concluded that the cluster density in the second group tends to be generallyhigher than that observed for the first group.2.2.2 Size and Scale of Activity as Reflected by TurnoverThe magnitude of the average turnover is a fairly realistic reflection of the ‘scale ofoperations’ of the individual units in a cluster. However one must hasten to add thatthese averages conceal the degree of heterogeneity that may exist in each cluster andare likely to underestimate the turnover of the larger units, and like wise overestimatethose of the very small constituents. However as a first pass, these averages do give usa fair picture of the scale of operations. These figures also reflect the level of technologyand capital intensity that exists in the individual units of the cluster. As the scale ofoperations in a unit increases it is normally expected that the capital intensity would alsoincrease, and the technological processes involved would also tend to become morecomplex and sophisticated. It is also important to note that all the individual units in acluster may not be in a position to uniformly scale up their activities, and the relatedcapital intensity, resulting in some lagging behind. This uneven development of thecluster leads to increasing the heterogeneity within the cluster. It is now well recognizedthat heterogeneity as against homogeneity has important implications for clusterdevelopment through collective action. Democratic participation and collective actionthrough cooperation is the essence of the cluster development programme. It istherefore extremely important to carefully assess the turnover of each unit in the clusterwhich along with cluster density enables policy designers to determine the clusterconfiguration. It is only on the basis of a cluster configuration that clusters can beidentified and carefully selected and prioritized to initiate the most appropriate set ofinterventions that are likely to deliver tangible results in the shortest possible time.These tangible results are highly demonstrative, and are the most effective catalyst ofcluster development.The aggregated turnover of each cluster in our sample both before and after selectionand intervention are presented in Table 2.3. This table also indicates the number ofconstituent units, as well as the average annual turnover of each unit. The figures on31

Chapter No:2 – The General Profile of Sampled Clustersthe turnover have been canvassed through the fact sheet for each cluster and have beenprovided by the CDE for each of the clusters. In the absence of the CDE other clusterfunctionaries have reported the figures. It is however important to stress that thesefigures are at times not compiled too carefully and may also be considered guesswork insome cases. Since these figures are not as accurate as they need to be and have notbeen estimated using the appropriate method and procedure, they should be treatedwith 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 inthe case of some clusters among the sampled PGBCs.Table No.-2.3: IMPACT ON TURNOVER OF INTERVENTIONPrimary Goods Based ClustersSl Cluster ATBI ATAI AAT TurnoverStatus1 Bamboo Cluster Dimapur 11.30 L 139.10 L 1.16 L M2 Food Processing ClusterNA NA NA MMuzaffarpur3 Leather Goods Cluster Agra 200 Cr 265 Cr 11.52 L M4 Leather Goods Cluster2.50 Cr 5.50 Cr 6.88 L MShantiniketan5 Plywood Cluster Perambavoor 305 Cr 680 Cr 800.00 L H6 Rice Milling Cluster Karnal 1200 Cr 1300 Cr 588.24 L H7 Rice Flakes Cluster Ahmedabad 80 Cr 110 Cr 157.14 L M8 Rice Milling Cluster Kalady 2000 Cr 2890 Cr 4128.57 L H9 Rubber Cluster Chenganacherry 300 Cr 500 Cr 158.73 L MSecondary Goods Based ClustersSl Cluster ATBI ATAI AAT TurnoverStatus10 Ball bearing Cluster Jaipur 108 Cr 200 Cr 198.02 L H11 Bell metal Cluster Khurda 20 Cr 24 Cr 21.82 L M12 Bell metal Cluster Hazo 2 Cr 5 Cr 2.50 L M13 Brass Utensil Cluster Pareo 30 Cr 36 Cr 7.20 L M14 Cotton Hosiery Cluster Kanpur .52 Cr 10 Cr 2.14 L M15 Diesel Engine Cluster Rajkot 4980 Cr 5000 Cr 119.62 L M16 Fan Industry Cluster Hyderabad 200 Cr 300 Cr 100.00 L M17 Foundry Cluster Ahmedabad 400 Cr 425 Cr 559.21 L H18 Plastic Cluster Aluva 70 Cr 350 Cr 324.07 L H19 Sewing Machine Cluster Ludhiana 365 Cr 425 Cr 53.13 L M20 Surgical Instruments Cluster 5.2 Cr 100 Cr 16.67 L MBaruipur21 Wet Grinder Cluster Coimbatore 225 Cr 350 Cr 50.00 L M22 White ware Cluster Khurza 123 Cr 283 Cr 57.29 L MNote: ATBI- Aggregate Annual Turnover Before Intervention H - High TurnoverATAI- Aggregate Annual Turnover After Intervention M - Modest TurnoverAAT- Average Annual TurnoverAs seen in Table 2.3 there has been a more than ten fold increase in the turnover of theBamboo Cluster in Dimapur. A near doubling of the turnover in the case of the LeatherGoods Cluster, Shantiniketan, the Plywood Cluster in Perimbavoor, and the RubberCluster in Chenganacherry.32

Chapter No:2 – The General Profile of Sampled ClustersIn the SGBCs also there are as many as six clusters that report significant increases, themost notable in this regard being the Plastic Cluster in Aluva, and the SurgicalInstruments Cluster, Baruipur. However it is important to note that these significantincreases in the turnover are likely to be exaggerated, and may not have occurredentirely as a result of identification and intervention under the CDP. However theserecent 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 thegroups. This variation can be observed to be much larger in the case of the PGBCs ascompared to the SGBCs. This wide variation reflects the considerable differences in thescale of activities among different clusters. The differences among individual units withina cluster or the heterogeneity in the cluster is however likely to be much lower in thecase of those clusters where the annual average turnover is low. This inter-unitheterogeneity is most likely to increase as the average annual turnover of the clusterincreases. It is important to mention here that the differences in heterogeneity wouldalso require different types of organizational structures or institutions to effectivelyenhance collective initiatives and democratic participation.33

Chapter No:2 – The General Profile of Sampled Clusters2.3 Cluster Configuration,Viability and SustainabilityOn the one hand we have the geographical spread or dispersion along with the numberof individual units giving us the ‘cluster density’ and on the other we have the turnoverthat gives us an idea of the scale of activity. If we now combine these twocharacteristics we obtain the cluster configuration. The cluster configuration provides usa useful theoretical basis for identifying and selecting clusters for intervention. On oneend of the cluster configuration we have clusters that are compact and having a largenumber of units making them dense along with a high turnover. These clusters are bothviable 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 widelydispersed and having a small number of individual units making them low in densityalong with a low turnover. These clusters are generally less viable and sustainable asthey often are difficult to manage. These do not provide the critical mass for effectiveintervention. Between these two extremes both density and turnover may combine indifferent ways to determine the degree of viability and sustainability. In these cases theadditional factor such as the degree of heterogeneity/homogeneity also determines howeasy it would be to mobilize individual units for collective action and sustainedcooperation. Clusters in this range of cluster configuration which are highlyheterogeneous, with individual units varying widely in size and scale of activity, are likelyto appear viable but would be difficult to manage and sustain in the long run. In theseheterogeneous clusters the larger units may come forward to form SPVs and to set upcommon facilities, however the use of these facilities are likely to be monopolized withthe smaller units being discriminated against. Such conflict situations have often beennoticed 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 annualturnover. These were separately discussed earlier in this chapter. Considering thecluster configuration worked out on the bases of these characteristics we have broadlyand roughly indicated the present status of these sampled clusters. This three foldclassification 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 ahigh 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 asmany as 14 of the 22 clusters (64 percent) are most viable and sustainable. However itmust be noted that the viability and sustainability in the case of these 14 clusters variesaccording to their respective ranks. It is also seen in Table 2.4, that there are 4 specificclusters that appear to be viable but would be difficult to sustain. This is mainly onaccount of both their respective cluster configuration as well as the fact that they areobserved to be more heterogeneous with the inter-unit differences in these clustersbeing substantial. We also have a group of 4 specific sampled clusters that we considerto be the least viable and sustainable, and as a result of our analysis we would considerthe development of these clusters to prove problematic in the future.34

Chapter No:2 – The General Profile of Sampled ClustersTable No.-2.4: CLUSTER CONFIGURATION, VIABILITY AND SUSTAINABILITYAll Sampled ClustersSl ClusterDispersion Size Turnover Cluster RankConfigurationC D L S H M& Status18. Plastic Cluster Aluva √ √ √ MVS 110. Ball bearing Cluster Jaipur √ √ √ MVS 215. Diesel Engine Cluster Rajkot √ √ √ MVS 322. White ware Cluster Khurza √ √ √ MVS 419. Sewing Machine Cluster √ √ √ MVS 5Ludhiana21. Wet Grinder Cluster√ √ √ MVS 6Coimbatore20. Surgical Instruments√ √ √ MVS 7Cluster Baruipur13. Brass Utensil Cluster Pareo √ √ √ MVS 89. Rubber Cluster√ √ √ MVS 9Chenganacherry16. Fan Industry Cluster√ √ √ MVS 10Hyderabad11. Bell metal Cluster Khurda √ √ √ MVS 114. Leather Goods Cluster√ √ √ MVS 12Shantiniketan12. Bell metal Cluster Hazo √ √ √ MVS 131. Bamboo Cluster Dimapur √ √ √ MVS 148. Rice Milling Cluster Kalady √ √ √ VDS 155. Plywood Cluster√ √ √ VDS 16Perambavoor6. Rice Milling Cluster Karnal √ √ √ VDS 1717. Foundry Cluster Ahmedabad √ √ √ VDS 183. Leather Goods Cluster Agra √ √ √ LVS 192. Food Processing Cluster√ √ √ LVS 20Muzffarpur14. Cotton Hosiery Cluster√ √ √ LVS 21Kanpur7. Rice Flakes Cluster√ √ √ LVS 22AhmedabadNote: C - Compact; D - Dispersed; L - Large; S - Small; H - High Turnover; M–Modest TurnoverMVS-Most Viable and Sustainable; VDS-Viable but Difficult to Sustain (due to Heterogeneity)LVS- Least Viable and Sustainable35

Chapter No:2 – The General Profile of Sampled Clusters2.4 Nature of the Sampled ClustersThe units in each cluster we have sampled are likely to be independent units cateringentirely to the internal local or national market. They could also be purely ancillary unitswho supply their output to other firms who use these as essential intermediate inputs intheir production process. The units could also be primarily export-oriented units onlycatering to international demand. Moreover the units in a cluster could be a mix of allthree types.In Table 2.5 we see that of the 9 sampled clusters in the PGBC as many as 8 consist ofpredominantly independent units catering to the internal market, however there are 5clusters in this group wherein they produce for the export market as well. It is also seenthat they are mostly involved in the production of final products and do not act asancillaries for larger firms.Table No.-2.5: TYPES OF UNITS IN THE SAMPLED CLUSTERSPredominant Type ofUnits in the SampledClusterPrimary GoodsBased ClustersSecondaryGoods BasedClustersTotalSampledClustersIndependent Units 8 12 20Ancillary Units - 2 2Export Oriented Units 5 2 7It is also seen that of the 13 sampled clusters in the SGBC there is a predominance ofindependent units in 12 clusters. Only two of the sampled clusters in this group containancillary and export units. It is interesting to note that contrary to common belief, theunits in most clusters are independent units producing finished products for the market.The degree of ancillarisation is low and this reflects that they have maintainedthemselves as independent entities enjoying a level of autonomy not common amongsmall enterprises the world over. The low level of export orientation that the units inmost clusters display is mainly on account of two reasons. The first reason is theprotected and insulated existence of Indian Industry in general and SMIs in particularduring the post independence and pre liberalization period (from 1951 to 1991). Thesecond reason is the existence of a large and growing internal market which is rapidlyopening 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 orientationamong the units in the sampled clusters are likely to increase rapidly as Indian Industriescompete in the world markets as a result of economic reforms, liberalization andglobalization. These trends are likely to have a wide-ranging set of implications for theCluster Development Programme and special efforts would be required to facilitate theenhancement of the export capabilities of these cluster units and equip them toeffectively compete and survive in the globalised world market.36

Chapter No:2 – The General Profile of Sampled Clusters2.5 Input Profile of Sampled ClustersThe availability of and the access to raw materials and other intermediate inputs is animportant concern in sustaining the activities of individual units in a cluster. It istherefore not only important to examine the current input profile of the sampled clustersbut also to anticipate the likely constraints that may be faced by the units in the mediumand long term. A clear temporal perspective regarding the availability of the requiredraw materials and other inputs particularly helps in planning for alternate inputs andtechnologies, as well as timely diversification. The development of such a long-termstrategy, which comprehensively takes into account future constraints, is most essentialfor the very survival and sustainability of the cluster and its constituents.Table 2.6 highlights the responses of cluster leaders and key cluster functionariesregarding their perception of raw material availability in the sampled clusters coveredunder this study. The table incorporates the cluster specific responses on currentavailability 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 clustersnamely the Bamboo Cluster in Dimapur as well as the Rice Milling Cluster in Karnal thatcurrently, there is an abundant availability of raw materials. The remaining sevenclusters in this group report an adequate current availability of raw material. For themedium term also, the profile of availability remains unchanged across the sampledclusters. However in the long term a shortage of raw materials is anticipated in the caseof two specific clusters in the group namely the Leather Goods Cluster in Agra, and theRice Milling Cluster in Kallady, (Kerala).Turning to the Secondary Goods Based Clusters in our sample, the majority of theclusters report that access and availability of required inputs is not only adequate in thecurrent context but is likely to remain so in both the medium and long term. However inthe case of three specific clusters in this group it is reported that while there areshortages of inputs in the current period they anticipate the shortages to continue in themedium and long term as well.37

Chapter No:2 – The General Profile of Sampled ClustersTable No.-2.6: INPUT PROFILE OF SAMPLED CLUSTERSPrimary Goods Based ClustersCurrent Medium term Long termSl Cluster AbundantAdequateShortageAbundantAdequateShortageAbundantAdequateShortage1 Bamboo Cluster√ √ √Dimapur2 Food Processing√ √ √Cluster Muzaffarpur3 Leather Goods Cluster√ √ √Agra4 Leather Goods Cluster√ √ √Shantiniketan5 Plywood Cluster√ √ √Perambavoor6 Rice Milling Cluster √ √ √Karnal7 Rice Flakes Cluster√ √ √Ahmedabad8 Rice Milling Cluster√ √ √Kalady9 Rubber Cluster√ √ √ChenganacherrySecondary Goods Based ClustersCurrent Medium term Long termSl Cluster AbundantAdequateShortageAbundantAdequateShortageAbundantAdequateShortage10 Ball bearing Cluster√ √ √Jaipur11 Bell metal Cluster√ √ √Khurda12 Bell metal Cluster Hazo √ √ √13 Brass Utensil Cluster√ √ √Pareo14 Cotton Hosiery Cluster√ √ √Kanpur15 Diesel Engine Cluster√ √ √Rajkot16 Fan Industry Cluster √ √ √Hyderabad17 Foundry Cluster√ √ √Ahmedabad18 Plastic Cluster Aluva √ √ √19 Sewing Machine√ √ √Cluster Ludhiana20 Surgical Instruments√ √ √Cluster Baruipur21 Wet Grinder Cluster√ √ √Coimbatore22 White ware ClusterKhurza√ √ √38

Chapter No:2 – The General Profile of Sampled ClustersEach of these three clusters have reported specific reasons for the present andanticipated shortages in the required inputs, and even anticipate that these seriousconstraints are likely to increase in the future and if the issue is not addressedappropriately and in time it is bound to affect the very survival of these clusters. In thecase of the Ball Bearing Cluster in Jaipur the units have been facing a severe shortage ofsteel as well as a steep rise in prices. In the case of the Plastic Cluster in Aluva, Keralawhere plastic granules are produced from plastic waste there has been a fall in thesupply of waste as the garbage containing waste plastic is not being properly segregatedand is increasingly being used for land filling.In case of the Rice Milling Cluster in Kallady the input constraints have taken a veryserious turn. This is because local paddy production and procurement in Kerala has beensteadily declining as farmers turn to cultivating more lucrative commercial crops or toeven stop cultivation altogether, diverting land to alternate uses. What has madematters worse is that the adjacent states like Karnataka and Tamil Nadu have nowrestricted or even banned the export of paddy to other states and Kerala’s large cerealrequirement 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 inputsfrom local sources in close proximity of the cluster, there are two specific clusters whichprocure their inputs from sources in a larger region.Table No. - 2.7: LOCATION OF INPUT SOURCES FOR SAMPLED CLUSTERSPrimary Goods Based ClustersInputs are available inSl Cluster CloseProximityRegionalProximity1. Bamboo Cluster Dimapur √2. Food Processing Cluster Muzaffarpur √3. Leather Goods Cluster Agra √4. Leather Goods Cluster Shantiniketan √5. Plywood Cluster Perambavoor √6. Rice Milling Cluster Karnal √7. Rice Flakes Cluster Ahmedabad √8. Rice Milling Cluster Kalady √9. Rubber Cluster Chenganacherry √Secondary Goods Based ClustersNationalProximityInputs are available inSl Cluster CloseProximityRegionalProximityNationalProximity10. Ball bearing Cluster Jaipur √11. Bell metal Cluster Khurda √12. Bell metal Cluster Hazo √13. Brass Utensil Cluster Pareo √39

Chapter No:2 – The General Profile of Sampled ClustersTable No.-2.7 (contd.)Secondary Goods Based ClustersInputs are available inSl Cluster CloseProximityRegionalProximityNationalProximity14. Cotton Hosiery Cluster Kanpur √15. Diesel Engine Cluster Rajkot √16. Fan Industry Cluster Hyderabad √17. Foundry Cluster Ahmedabad √18. Plastic Cluster Aluva √19. Sewing Machine Cluster Ludhiana √20. Surgical Instruments Cluster Baruipur √21. Wet Grinder Cluster Coimbatore √22. White ware Cluster Khurza √A more detailed presentation of production related impediments and constraints faced byindividual cluster units in each of the sampled clusters belonging to both the PGBCs andSGBCs groups is presented in Tables 2.17(a) and 2.17(b) which is seen in Annexure 2.1to this Chapter. These tables provide a more comprehensive perception of theconstraints faced by individual units in the cluster unlike the more general tablediscussed above which is primarily based on the perceptions of Cluster DevelopmentFunctionaries such as the CDE and others.2.6 Availability of ManpowerThe growth and development of Clusters requires the availability of both skilled andunskilled manpower. As seen in Table 2.8 the availability of unskilled manpower isreported to be either abundant or adequate in most sampled clusters and understandablythis is more so in the PGBCs as compared to the SGBCs. However in the case of theRubber Cluster in Chenganacherry, Kerala it is reported that the units face shortageseven in the case of unskilled labour. The Foundry Cluster in Ahmedabad also reports ashortage of unskilled manpower.Table No. -2.8: AVAILABILITY OF MANPOWERPrimary Goods Based ClustersUnskilled ManpowerSkilled ManpowerSl Cluster Abundant Adequate Shortage Abundant Adequate Shortage1. Bamboo Cluster Dimapur √ √2. Food Processing Cluster √√Muzaffarpur3. Leather Goods Cluster√√Agra4. Leather Goods Cluster√√Shantiniketan5. Plywood Cluster√√Perambavoor6. Rice Milling Cluster√√Karnal7. Rice Flakes ClusterAhmedabad√√40

Chapter No:2 – The General Profile of Sampled ClustersTable No.-2.8 (contd.)Primary Goods Based ClustersUnskilled ManpowerSkilled ManpowerSl Cluster Abundant Adequate Shortage Abundant Adequate Shortage8. Rice Milling Cluster√√Kalady9. Rubber Cluster√√ChenganacherrySecondary Goods Based ClustersUnskilled ManpowerSkilled ManpowerSl Cluster Abundant Adequate Shortage Abundant Adequate Shortage10. Ball bearing Cluster√√Jaipur11. Bell metal Cluster√√Khurda12. Bell metal Cluster Hazo √ √13. Brass Utensil Cluster√√Pareo14. Cotton Hosiery Cluster√√Kanpur15. Diesel Engine Cluster√√Rajkot16. Fan Industry Cluster√√Hyderabad17. Foundry Cluster√√Ahmadabad18. Plastic Cluster Aluva √ √19. Sewing Machine Cluster√√Ludhiana20. Surgical Instruments√√Cluster Baruipur21. Wet Grinder Cluster√√Coimbatore22. White ware ClusterKhurza√√Turning to the availability of skilled manpower it is seen that the shortages are morepronounced. The shortage of skilled manpower is reported by 4 of the 9 sampledclusters in the first group of PGBCs. Three of the four clusters are located in Kerala whileone is located in Karnal, Haryana. Two of these clusters are involved in the production ofRubber goods and plywood, while the other two are engaged in Rice Milling. It is seenthat these clusters are fairly capital intensive and utilize advanced processes andtechnology that require maintaining and operating by skilled labour.There are four other clusters in the SGBCs, which report severe shortages of skilledlabour. These are Ball Bearing Cluster in Jaipur, the Bell Metal Cluster in Khurda, theFoundry Cluster in Ahmedabad and the Plastic Cluster in Aluva. Here it may bementioned that clusters located in and around already well established industrial areasmay find it possible to attract skilled labour however a lot depends on the level of wagesprevailing in these places and smaller units in the cluster may not be able to afford thesewages. The only viable solution to this pressing problem is to create common facilitiesfor upgrading the skills of the abundantly available unskilled labour. This has to be acollective effort as individual units may not be capable of taking up this task. This issuemust be adequately addressed, as increasing capital intensity invoked by the use of41

Chapter No:2 – The General Profile of Sampled Clustersadvanced processes and technologies is likely to occur in most clusters in the nearfuture. The large numbers of MSME-DIs have an important role to play in this regardand would require significant up gradation to be able to effectively contribute in tacklingthis issue.A more detailed presentation of manpower related impediments and constraints faced byindividual cluster units in each of the sampled clusters belonging to both the PGBCs andSGBCs groups is presented in Tables 2.17(a) and 2.17(b) which are Annexure 2.1 to thisChapter. These tables provide a more comprehensive perception of the constraints facedby individual units in the cluster unlike the more general table discussed above which isprimarily based on the perceptions of Cluster Development Functionaries such as theCDE and others.2.7 Access to Markets and Market ProspectsThe sustained and healthy growth of clusters is critically dependent on their access tomarkets. It is encouraging to note that a fairly large number of sampled clusters reportthat they have sufficient access to markets. However there are an equally large numberwho report that market access is a problem and is limited.Among the PGBCs there are three specific clusters that report limited access to marketsthese are the Food Processing Cluster in Muzzafarpur, Bihar, the Leather Goods Clusterin Shantiniketan, West Bengal, and the Rubber Cluster in Chenganacherry, Kerala. In allthese cases it is the standardization, quality, packaging and design of the products thatlimit market access.Limited access to markets seem to be more prevalent among the SGBCs. As seen inTable 2.9 there are as many as Seven Clusters that report limited access to markets.Table No.-2.9: ACCESS TO THE MARKETSPrimary Goods Based ClustersSl Cluster SufficientAccess1. Bamboo Cluster Dimapur √2. Food Processing ClusterMuzaffarpur3. Leather Goods Cluster Agra √4. Leather Goods ClusterShantiniketanLimitedAccess5. Plywood Cluster Perambavoor √6. Rice Milling Cluster Karnal √7. Rice Flakes Cluster Ahmedabad √8. Rice Milling Cluster Kalady √9. Rubber Cluster Chenganacherry √√√NoAccess42

Chapter No:2 – The General Profile of Sampled ClustersTable No.-2.9 (Contd.)Secondary Goods Based ClustersSl Cluster SufficientAccessLimitedAccess10. Ball bearing Cluster Jaipur √11. Bell metal Cluster Khurda √12. Bell metal Cluster Hazo √13. Brass Utensil Cluster Pareo √14. Cotton Hosiery Cluster Kanpur √15. Diesel Engine Cluster Rajkot √16. Fan Industry Cluster Hyderabad √17. Foundry Cluster Ahmadabad √18. Plastic Cluster Aluva √19. Sewing Machine Cluster Ludhiana √20. Surgical Instruments Cluster Baruipur √21. Wet Grinder Cluster Coimbatore √22. White ware Cluster Khurza √No AccessHere we see that apart from the need for standardization, quality control, packaging anddesign, there are also constant threats from substitutes and cheap high quality and lowpriced imports. In the long run these clusters would need to diversify into new productsand cater to the changing needs and requirements of the consumer.It is also essential to highlight the perception of the sampled cluster regarding themarket 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 SAMPLEDCLUSTERSPrimary Goods Based ClustersCurrent Medium term Long termSl Cluster Good Adequate Low Good Adequate Low Good Adequate Low1 Bamboo Cluster √ √ √Dimapur2 Food Processing √ √ √ClusterMuzaffarpur3 Leather Goods √ √ √Cluster Agra4 Leather Goods √ √ √ClusterShantiniketan5 Plywood Cluster √ √ √Perambavoor6 Rice Milling √ √ √Cluster Karnal7 Rice Flakes √ √ √ClusterAhmedabad8 Rice Milling √ √ √Cluster Kalady9 Rubber ClusterChenganacherry√ √ √43

Chapter No:2 – The General Profile of Sampled ClustersTable No.-2.10 (Contd.)Secondary Goods Based ClustersCurrent Medium term Long termSl Cluster Good Adequate Low Good Adequate Low Good Adequate Low10 Ball bearingCluster Jaipur11 Bell metalCluster Khurda12 Bell metalCluster Hazo13 Brass UtensilCluster Pareo14 Cotton HosieryCluster Kanpur15 Diesel EngineCluster Rajkot16 Fan IndustryClusterHyderabad17 FoundryClusterAhmedabad18 Plastic ClusterAluva19 SewingMachineClusterLudhiana20 SurgicalInstrumentsClusterBaruipur21 Wet GrinderClusterCoimbatore22 White wareCluster Khurza√ √ √√ √ √√ √ √√ √ √√ √ √√ √ √√ √ √√ √ √√ √ √√ √ √√ √ √√ √ √√ √ √For the clusters in the first group it is seen that most of them perceive the prospects tobe good accept in the case of the Rubber Cluster, Chenganacherry, Kerala, wherein thecurrent and medium term prospects are reported to be adequate, however in the longterm the market prospects are anticipated to be low.In the case of SGBCs too the current and future market prospects are perceived to beeither 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 tochanging tastes and the increasing availability of substitutes and cheap imports.However with adequate diversification and increase in the product range theseperceptions could change over time.A more detailed presentation of market related impediments and constraints faced byindividual cluster units in each of the sampled clusters belonging to both the PGBCs and44

Chapter No:2 – The General Profile of Sampled ClustersSGBCs groups is presented in Tables 2.18(a) and 2.18(b) which are Annexure 2.1 to thisChapter. These tables provide a more comprehensive perception of the constraints facedby individual units in the cluster unlike the more general table discussed above which isprimarily based on the perceptions of Cluster Development Functionaries such as theCDE and others.2.8 Access to FinanceThe availability and adequate access to finance is of critical importance to each of thefunctional units in the cluster. While financially stronger clusters having good marketdemand and prospects are likely to have adequate access to finance from banks andother financial institutions, others are likely to face problems. In Table 2.11 it is seenthat in the case of 8 of the 22 sampled clusters, the cluster functionaries report thatthere 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 islimited. From the perception of the financial institution these clusters and the unitstherein may be into activities that are relatively more risky.Table No. - 2.11: ACCESS TO FINANCE IN SAMPLED CLUSTERSPrimary Goods Based ClustersSl Cluster SufficientAccessLimitedAccess1. Bamboo Cluster Dimapur √2. Food Processing Cluster√Muzaffarpur3. Leather Goods Cluster Agra √4. Leather Goods Cluster√Shantiniketan5. Plywood Cluster Perambavoor √6. Rice Milling Cluster Karnal √7. Rice Flakes Cluster Ahmedabad √8. Rice Milling Cluster Kalady √9. Rubber Cluster Chenganacherry √NoAccess45

Chapter No:2 – The General Profile of Sampled ClustersTable No .-2.11 (Contd .)Secondary Goods Based ClustersSl Cluster SufficientAccessLimitedAccessNoAccess10. Ball bearing Cluster Jaipur √11. Bell metal Cluster Khurda √12. Bell metal Cluster Hazo √13. Brass Utensil Cluster Pareo √14. Cotton Hosiery Cluster Kanpur √15. Diesel Engine Cluster Rajkot √16. Fan Industry Cluster Hyderabad √17. Foundry Cluster Ahmadabad √18. Plastic Cluster Aluva √19. Sewing Machine Cluster Ludhiana √20. Surgical Instruments Cluster √Baruipur21. Wet Grinder Cluster Coimbatore √22. White ware Cluster Khurza √Moreover there are as many as 5 specific clusters that are severely constrained in termsof finances and report that they have no access to institutional finance a large number ofunits in these clusters are extremely small, often highly dispersed, with very limitedturnover. A fairly large number of individual units borrow money at very high interestrates from loan sharks and local moneylenders and are drained off investable surplusesresulting in retarded growth. These units may need to be assisted to access financethrough special measures as regular banks and other institutions are likely to shy awayfrom providing finances to them.Overall it can be concluded that access to adequate finances are a major constraint facedby a fairly large number of clusters with as many as 14 of the 22 sampled clustersreporting limited or no access to finance. There is thus a need to strengthen the CDPthrough special measures and facilities to improve access to finance for the participatingclusters.A more detailed presentation of finance related impediments and constraints faced byindividual cluster units in each of the sampled clusters belonging to both the PGBCs andSGBCs groups is presented in Tables 2.19(a) and 2.19(b) which are Annexure 2.1 to thisChapter. These tables provide a more comprehensive perception of the constraints facedby individual units in the cluster unlike the more general table discussed above which isprimarily based on the perceptions of Cluster Development Functionaries such as theCDE and others.46

Chapter No:2 – The General Profile of Sampled Clusters2.9 Access to InformationUnits in each cluster constantly require a whole range of information. Informationrelated to market trends and new products are necessary to adapt quickly and effectivelyto market demand and changing tastes. Information related to market trends also helpsunits to diversify and attempt changes in the product range to stay and survive in highlycompetitive markets. Units also need to keep abreast with price trends and price relatedinformation concerning both inputs as well as finished products.Units also constantly require information related to new processes and technologies thatcan improve the quality of products, technologies and processes that can reduce costsand conserve energy, technologies and processes that are less polluting and therebymore sustainable in the long run. Participating units also need information related toregulatory measures, standards, taxes and various schemes and incentives provided bythe State and Central Government and various other developmental agencies.Access to information is thus the key to success and survival specially in the highlycompetitive world of today. With significant progress in information technology andcommunication access to information has been brought within easy and affordable reachof even the smallest of individual enterprises. However individual small entrepreneurswould still find it difficult to spare the time to access this wealth of information that theycan utilize. Common facilities or a common information centre catering to theseindividual units can considerably enhance timely access to information.We also observe that there is no dearth of information and very often there is too muchof it leading to an information overload, this can in fact do more harm than good to thesmall entrepreneur and leave him confused and disoriented. It is therefore veryessential to know what information is most required in a cluster and make the necessaryarrangement to collectively gather the information and disseminate it to the individualunits. The importance of this collective access to information and its regular andeffective dissemination should be very high on the agenda of the CDEs when they arecarrying out soft interventions. The efforts at creating a high level of awarenessregarding the benefits of regular access to information should not end with the softinterventions, but must be implemented through hard interventions in the concernedcluster.As seen in Table 2.12 only 4 out of the 22 sampled clusters reported access to sufficientinformation. In the case of 10 clusters it was reported that access to the requiredinformation was limited. It is also important to note that there were as many as 8sampled clusters that reported that they had no access to information.47

Chapter No:2 – The General Profile of Sampled ClustersTable No.-2.12: ACCESS TO INFORMATION IN SAMPLED CLUSTERSPrimary Goods Based ClustersSl Cluster SufficientAccessLimitedAccess1. Bamboo Cluster Dimapur √2. Food Processing ClusterMuzaffarpurNoAccess3. Leather Goods Cluster Agra √4. Leather Goods Cluster√Shantiniketan5. Plywood Cluster Perambavoor √6. Rice Milling Cluster Karnal √7. Rice Flakes Cluster Ahmedabad √8. Rice Milling Cluster Kalady √9. Rubber Cluster Chenganacherry √Secondary Goods Based ClustersSl Cluster SufficientAccessLimitedAccessNoAccess10. Ball bearing Cluster Jaipur √11. Bell metal Cluster Khurda √12. Bell metal Cluster Hazo √13. Brass Utensil Cluster Pareo √14. Cotton Hosiery Cluster Kanpur √15. Diesel Engine Cluster Rajkot √16. Fan Industry Cluster Hyderabad √17. Foundry Cluster Ahmedabad √18. Plastic Cluster Aluva √19. Sewing Machine Cluster Ludhiana √20. Surgical Instruments Cluster√Baruipur21. Wet Grinder Cluster Coimbatore √22. White ware Cluster Khurza √On the whole it is very clear that most clusters do not have adequate access to therequired information. This is a major handicap and requires immediate attention throughthe strengthening of soft and hard interventions under the CDP.√2.10 Access to Research and Development InstitutionsIndividual units in a cluster constantly require technical and scientific advice andassistance. They particularly need the assistance of expert institutions regarding thechoice of appropriate technology, the input mix and various processes that help in theimprovement of quality and conservation of energy. They also need expert guidance ineffectively treating problems related to the proper disposal of effluents other toxic andwaste as well as for effectively tackling pollution. It must also be emphasized that theability to succeed in the face of stiff competition can only come with constant innovationfor which scientific and technological inputs are most essential.48

Chapter No:2 – The General Profile of Sampled ClustersThough there are many scientific institutions in the country particularly those thatspecialize in areas that are of direct relevance to the sampled clusters in our study thereseems 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 sufficientaccess to R&D institutions. There are however 13 clusters which claim that they haveonly limited access to R&D institutions. Most of the assistance or advice that thesereceive on scientific and technology matters are normally confined to informal or casualcontacts and since such scientific or technical inputs often come at a price, individualsmall units are not always in a position to afford such services. It is also quitedisheartening to see that as many as 8 clusters report that they have no access what soever to scientific and technological information that they desperately require.Active linkages with the relevant R&D institutions seems to be one of the criticaldeficiencies of the Cluster Development Programme and unless such linkages are activelyencouraged and nurtured, the long term competitive abilities of these clusters are mostlikely to suffer.Table No.-2.13: ACCESS TO R&D INSTITUTIONS IN SAMPLED CLUSTERSPrimary Goods Based ClustersSl Cluster Sufficient Limited No AccessAccess Access1. Bamboo Cluster Dimapur √2. Food Processing Cluster√Muzaffarpur3. Leather Goods Cluster Agra √4. Leather Goods Cluster√Shantiniketan5. Plywood Cluster Perambavoor √6. Rice Milling Cluster Karnal √7. Rice Flakes Cluster Ahmedabad √8. Rice Milling Cluster Kalady √9. Rubber Cluster Chenganacherry √Secondary Goods Based ClustersSl Cluster Sufficient Limited No AccessAccess Access10. Ball bearing Cluster Jaipur √11. Bell metal Cluster Khurda √12. Bell metal Cluster Hazo √13. Brass Utensil Cluster Pareo √14. Cotton Hosiery Cluster Kanpur √15. Diesel Engine Cluster Rajkot √16. Fan Industry Cluster Hyderabad √17. Foundry Cluster Ahmedabad √18. Plastic Cluster Aluva √49

Chapter No:2 – The General Profile of Sampled ClustersTable No -2.13 (Contd.)Secondary Goods Based ClustersSl Cluster SufficientAccessLimitedAccess19. Sewing Machine Cluster Ludhiana √20. Surgical Instruments ClusterBaruipur21. Wet Grinder Cluster Coimbatore √22. White ware Cluster Khurza √NoAccess√A more detailed presentation of technology related impediments and constraints facedby individual cluster units in each of the sampled clusters belonging to both the PGBCsand SGBCs groups is presented in Tables 2.19(a) and 2.19(b) which form Annexure 2.1to this Chapter. These tables provide a more comprehensive perception of theconstraints faced by individual units in the cluster unlike the more general tablediscussed above which is primarily based on the perceptions of Cluster DevelopmentFunctionaries such as the CDE and others.2.11 Environmental Concerns in the ClustersEnvironmental concerns are fairly high on the agenda of policy makers these days, andregulatory measures draw a great deal of attention. Regulators have specificallytargeted 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 safedisposal of toxic wastes. Our sampled clusters are involved in a fairly wide range ofindustrial activity and it is important to identify whether they generate environmentalconcerns.Table No-2.14: ENVIRONMENTAL CONCERNS IN THE SAMPLED CLUSTERSPrimary Goods Based ClustersSl Cluster GeneratesEnvironmentalConcernDoes notGenerate1. Bamboo Cluster Dimapur √2. Food Processing Cluster Muzaffarpur √3. Leather Goods Cluster Agra √4. Leather Goods Cluster√Shantiniketan5. Plywood Cluster Perambavoor √6. Rice Milling Cluster Karnal √7. Rice Flakes Cluster Ahmedabad √8. Rice Milling Cluster Kalady √9. Rubber Cluster Chenganacherry √50

Chapter No:2 – The General Profile of Sampled ClustersTable No -2.14 (Contd.)Secondary Goods Based ClustersSl Cluster GeneratesEnvironmentalDoes notGenerateConcern10. Ball bearing Cluster Jaipur √11. Bell metal Cluster Khurda √12. Bell metal Cluster Hazo √13. Brass Utensil Cluster Pareo √14. Cotton Hosiery Cluster Kanpur √15. Diesel Engine Cluster Rajkot √16. Fan Industry Cluster Hyderabad √17. Foundry Cluster Ahmedabad √18. Plastic Cluster Aluva √19. Sewing Machine Cluster Ludhiana √20. Surgical Instruments Cluster Baruipur √21. Wet Grinder Cluster Coimbatore √22. White ware Cluster Khurza √It is seen in Table 2.14 that there are 12 sampled clusters which generate environmentalconcerns. Among these, there are 4 clusters which belong to the PGBC group and asmany as 8 clusters from the SGBC group. It is also reported that the remaining 10sampled clusters do not generate environmental concerns though there are doubtsregarding this issue especially in the case of the plywood cluster in Perimbavoor, the RiceFlakes cluster in Ahmedabad and the Rice Milling cluster in Karnal. If one takes this intoconsideration then the number of polluting clusters increases to 15 out of the 22 sampledclusters. With strict environmental regulation these clusters are likely to face problemsin their day to day functioning, some of them are already facing problems with theconcerned authorities who even go to the extent of closing down units which are not in aposition 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 maybe other forms of pollution also such as noise pollution, which affects not only theworkers but also neighbouring habitations.As seen in Table 2.15 air pollution seems to be the most widespread among our sampledclusters with as many as 12 clusters in our sample causing air pollution. There are 5sampled clusters that are reported to be causing water pollution and is drawing theincreasing attention of regulators. Moreover there are 2 clusters that generate pollutionthrough non-degradable toxic solid wastes.51

Chapter No:2 – The General Profile of Sampled ClustersTable No.-2.15: TYPE OF ENVIRONMENTAL CONCERNS IN SAMPLED CLUSTERSPrimary Goods Based ClustersType of PollutionSl Cluster AirPollutionWaterPollution1. Bamboo Cluster Dimapur2. Food Processing Cluster Muzaffarpur √ √3. Leather Goods Cluster Agra4. Leather Goods Cluster Shantiniketan5. Plywood Cluster Perambavoor6. Rice Milling Cluster Karnal √ √7. Rice Flakes Cluster Ahmedabad √8. Rice Milling Cluster Kalady √ √9. Rubber Cluster Chenganacherry √Secondary Goods Based ClustersType of PollutionSl Cluster AirPollutionWaterPollutionNon-degradableToxic SolidWasteNon-degradableToxic SolidWaste10. Ball bearing Cluster Jaipur11. Bell metal Cluster Khurda √ √12. Bell metal Cluster Hazo13. Brass Utensil Cluster Pareo √14. Cotton Hosiery Cluster Kanpur √15. Diesel Engine Cluster Rajkot √16. Fan Industry Cluster Hyderabad17. Foundry Cluster Ahmadabad √18. Plastic Cluster Aluva √ √19. Sewing Machine Cluster Ludhiana √20. Surgical Instruments ClusterBaruipur21. Wet Grinder Cluster Coimbatore22. White ware Cluster Khurza √ √It is also important to note that there are as many as 6 sampled clusters that generatemore than one type of pollutant. Three of these clusters belong to the PGBC groupnamely the Food Processing Cluster, Muzzaffarpur, and the two Rice Milling Clusters inKarnal and Kalady. There are another three clusters in the SGBC group that generatemore than one type of pollutant. These are the Bell Metal Cluster, Khurda, the PlasticCluster in Aluva, and the White ware Cluster in Khurza. While the Bell Metal and PlasticClusters generate non degradable toxic solid wastes apart from polluting the air, theWhite ware Cluster in Khurza pollutes both air and water. With increasing concern andregulation regarding environmental problems, most of these clusters would increasinglybecome the focus of control and would be required to effectively respond to regulation ifthey are to grow and develop.A high level of awareness regarding environmental regulation and standards would berequired through soft interventions. It may also be necessary to earmark a portion ofthe funds released for hard interventions to be used for collective management of52

Chapter No:2 – The General Profile of Sampled Clustersenvironmental problems especially on the safe collective disposal or treatment ofeffluents as well as the proper disposal of solid toxic wastes. At present it is noticed thatboth soft as well as hard interventions do not address environmental issues adequatelyand though there are some large individual units, which have the resources to undertakeanti pollution measures the larger majority of individual units lack the means ofaddressing this problem effectively.2.12 Progress and Present Status of the CDPIt would be most appropriate to conclude this chapter on the Profile of Sampled Clustersby assessing the progress and present status of the Cluster Development Programme inthe sampled clusters covered by this study.Each cluster identified for interventions under the CDP passes through five distinctstages. The programme only stands competed when all these five important stages aresuccessfully competed. It is only then that a complete assessment of the impact can beundertaken.The first Stage or Stage I stands completed when the CDE undertakes a diagnostic studyand based on this the cluster is identified and soft interventions initiated. The secondStage or Stage II is completed with the successful formation of the SPV and the formalregistration of the SPV.The third distinct Stage or Stage III stands completed after the DPR for the CFC isformulated along with detailed estimates of the cost, and then approved by theconcerned 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 andtesting. The final fifth Stage or Stage V is reached when the CFC is fully commissionedand becomes functional and starts being used by individual cluster units. Each of thesestages are likely to take varying lengths of time for completion. It may be mentionedthat since no specific timeline is prescribed for each stage, there is a tendency for theentire process to drag on.Each of these stages involves different activities and are marked by specific problemsand constraints. For instance Stage I can be considerably prolonged if the CDE is notappointed and adequately trained and equipped to carry out the diagnostic study andeffectively initiate soft interventions. Stage I may also be prolonged due to the delayedrelease 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 clusteridentified is heterogeneous. In such situations it is always more difficult and timeconsuming to get individual units to come together and form an SPV and register it in themost suitable institutional form. The successful completion of Stage II is also conditionalto how carefully the cluster has been identified on the basis of a diagnostic study andalso how effectively the soft interventions are carried out. It may also be mentioned thatin a compact, dense, homogenous, cluster, already represented by an active associationor union, it is much easier and faster to form an SPV and complete its registration53

Chapter No:2 – The General Profile of Sampled Clustersformalities. Stage III involves the careful selection of the CFC and the formulation of aDetailed Project Report (DPR), and the acceptance and approval of the proposal by thesponsors. Arriving at a consensus on the choice of the most appropriate CFC is itself adifficult and time consuming process. The formulation of a DPR often involves prolongedconsultations with experts, and equipment manufacturers. Access to affordableexpertise either from individuals or institution is not easy and often comes at a fairly highcost. The process of approval may also prove to be very cumbersome and timeconsuming and clusters are likely to get ‘stuck’ in this stage. Stage IV involves thesetting up of the CFC, the pace of construction depends on the timely supply ofequipment and machinery, and this is conditional to the regular and timely disbursementof payments. The timely release of approved funds by the MSME as well as theconcerned State Government is critical for the timely completion of this stage. Delays inthe Stage IV can lead to cost escalation which are not acceptable to sponsors and wouldhave to be born by the concerned SPV, as a consequence the DPR and related estimatesmay 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 utilizationof the capacity created.The proper testing of installed machinery the conduct of trial runs, the removal ofteething problems which often takes time as equipment suppliers do not attend to theneed for prompt after sales services. The purchase agreements are also not properlyframed to incorporate the timely provision of such services.The proper training of workers who are required to operate these machines may alsocreate problems in the initial phase of operations. The pricing of services provided bythe CFC is also an important issue as both under pricing or over pricing brings with it ahost of other problems affecting the equitable utilization of the facility by individual unitsin the cluster.We now turn to Table 2.16 to highlight the present status of cluster development in thesampled clusters at the time this study was conducted. As seen in the Table 2.16 thereare as many as 11 clusters which are still in Stage I. While 4 of these clusters belong tothe PGBC group the remaining 7 clusters belongs to the SGBC group. It is ratherdisappointing to find as many as 50 percent of the sampled clusters in Stage I. Severalfactors as mentioned above have been responsible for the slow pace of implementationof the CDP with such a large number of clusters still stuck at the very first stage of theprogramme.Table No.-2.16: CDP IN SAMPLED CLUSTERS AND PRESENT STATUSPrimary Goods Based ClustersSl Cluster Stage1. Rice Milling Cluster Karnal I2. Rice Flakes Cluster Ahmedabad I3. Rice Milling Cluster Kalady IV4. Food Processing Cluster Muzffarpur II5. Rubber Cluster Chengnacherry V6. Bamboo Cluster Dimapur I54

Chapter No:2 – The General Profile of Sampled ClustersTable No -2.16 (Contd.)Primary Goods Based ClustersSl Cluster Stage7. Plywood Cluster Perambavoor IV8. Leather Goods Cluster Agra I9. Leather Goods Cluster Shantiniketan IIISecondary Goods Based ClustersSl Cluster Stage1. Cotton Hosiery Cluster Kanpur I2. Plastic Cluster Aluva IV3. White ware Cluster Khurza II4. Brass Utensil Cluster Pareo IV5. Bell metal Cluster Khurda I6. Bell metal Cluster Hazo IV7. Foundry Cluster Ahmedabad V8. Ball bearing Cluster Jaipur I9. Hand tool Cluster Jallandhar I10. Surgical Instruments Cluster Baruipur IV11. Sewing Machine Cluster Ludhiana I12. Wet Grinder Cluster Coimbatore IV13. Fan Industry Cluster Hyderabad I14. Diesel Engine Cluster Rajkot IAll Sampled ClustersSl Stage Numbers1. I 112. II 23. III 14. IV 75. V 2Note: The five different stages indicated in the tables above are defined as follows:Stage I- CDE appointed, Diagnostic Study completed and Soft interventions carried outStage II- SPV formed and registered.Stage III- DPR submitted and approvedStage IV- Setting up of CFC in progressStage V- CFC commissioned and functionalIt is also not very encouraging to note that only in the case of 2 clusters has Stage IIbeen accomplished. One cluster is still in Stage III of development, while 7 sampledclusters 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 thestudy it is premature to assess the full impact of the CDP. The figures also clearlyindicate that the pace of implementation has been very slow and appropriate measuresare required to avoid this stagnation.55

Chapter No:2 – The General Profile of Sampled ClustersAnnexure: 2.1- Detailed tables on responses on impediments faced by units ownersTable No.-2.17 (a): RESPONSES ON PRODUCTION RELATED IMPEDIMENTS TO FURTHER GROWTH (AGRO-BASED CLUSTERS)BambooClusterDimapurFoodProcessingIndustryClusterMuzpurLeatherFootwearIndustryCluster,AgraLeather goodsindustryCluster,ShantiniketanPlywoodClusterKeralaRiceIndustryClusterKarnalRice FlakeMillAhmedabadRice MillClusterKeralaNos 2 8 4 3 2Raw Material Availability % (13) (53) (27) (20) (13)Labour AvailabilityPower SupplyNos 1 1% (7) (7)Nos 1 1 6% (7) (7) (40)Shortage of SkilledNos 2 1 1Manpower % (13) (7) (7)High Salaries & WagesNos 1 1% (7) (7)High TransportationNos 6Cost % (40)Land is ExpensiveNos 1 3 3RubberClusterKerala% (7) (20) (20)No 3Poor Quality of Inputs % (20)High Cost of InputsNos 2 1% (13) (7)Fluctuation in Prices ofNos 1Inputs % (7)Restrictions on PollutionNos 2 2 1% (14) (14) (7)56

Chapter No:2 – The General Profile of Sampled ClustersTable No.-2.17 (b): RESPONSES ON PRODUCTION RELATED IMPEDIMENTS TO FURTHER GROWTH (METAL AND MANUFACTURING BASEDCLUSTERS)BallbearingClusterJaipurBrassand BellmetalIndustryClusterKhurdaBellmetalClusterHazoBrassUntensilClusterPareoHosieryClusterKanpurDieselEngineCluster,RajkotFanCluster,HyderabadFoundryIndustryClusterAhmedabadAluvaPlasticClusterSewingmachineLudhianaSurgicalInstruments ClusterBaruipurWetGrinderClusterWhitewareIndustryClusterKhurjaAvailability of RawMaterialsAvailability of LabourPower ShortageShortage of SkilledManpowerHigh Salaries &WagesTransportation Costis HighLand is ExpensiveQuality InputsHigh Cost of InputsNos 9 8 1 1 15 3 1 9 1% (60) (53) (7) (7) (100) (20) (7) (60) (7)Nos 3 4 1% (20) (27) (7)Nos 13 9 13 1 2 11 1% (87) (60) (87) (7) (13) (73) (7)Nos 1 2 5 5% (7) (13) (33) (33)Nos 1 3 1% (7) (20) (6)Nos 2 1% (13) (7)Nos 1 1 2 1% (7) (7) (13) (7)Nos 1 2 1% (7) (13) (7)Nos 1 0 3 1 2 3 4 8 4% (7) (0) (20) (7) (14) (19) (27) (50) (41)Fluctuation in Pricesof InputsNos%Restrictions onPollutionNos%57

Chapter No:2 – The General Profile of Sampled ClustersTable No.-2.18(a): RESPONSES ON MARKET RELATED IMPEDIMENTS TO FURTHER GROWTH (AGRO-BASED CLUSTERS)BambooClusterDimapurFoodProcessingIndustryClusterMuzpurLeatherFootwearIndustryCluster,AgraLeather goodsindustry Cluster,ShantiniketanPlywoodClusterKeralaRiceIndustryClusterKarnalRice FlakeMillAhmedabadRiceMillClusterKeralaRubberClusterKeralaMarketing/Access toMarketsCredit SalesNos 1 13 6 2 1 1 2% (7) (87) (40) (14) (7) (7) (13)Nos 2 1% (13) (7)Highly CompetitiveMarketMarket AssistanceNos 1 1% (7) (7)Nos 2 1% (13) (7)Lack of Support forExportsBan on ExportsAvailability ofSubstitutesNos 3 1% (20) (7)Nos 3 3% (20) (20)Nos 2% (13)58

Chapter No:2 – The General Profile of Sampled ClustersTable No.-2.18 (b): RESPONSES ON MARKET RELATED IMPEDIMENTS TO FURTHER GROWTH (METAL & MANUFACTURING BASEDCLUSTERS)BallbearingClusterJaipurBrass andBell metalIndustryClusterKhurdaBellMetalClusterHazoBrassUtensilClusterPareoHosieryClusterKanpurDieselEngineCluster,RajkotFan Cluster,HyderabadFoundryIndustryClusterAhmedabadAluvaPlasticClusterSewingmachineLudhianaSurgicalInstrumentsClusterBaruipurWetGrinderClusterWhitewareIndustryClusterKhurjaMarketing/ Accessto MarketsCredit SaleHighly CompetitiveMarketMarket AssistanceLack of Support forExportsBan on ExportsAvailability ofSubstitutesNos 2 6 2 1 1 7 6 5% (14) (40) (13) (7) (7) (47) (39) (34)Nos 2 1% (13) (7)Nos%Nos%Nos%Nos%Nos%59

Chapter No:2 – The General Profile of Sampled ClustersTable No.-2.19 (a): RESPONSES ON FINANCE & TECHNOLOGY RELATED IMPEDIMENTS TO FURTHER GROWTH (AGRO-BASED CLUSTERS)Working CapitalBambooClusterDimapurFoodProcessingIndustryClusterMuzpurLeatherFootwearIndustryClusterAgraLeathergoodsindustryClusterShantiniketanPlywoodClusterKeralaRiceIndustryClusterKarnalRice FlakeMillAhmedabadRice MillClusterKeralaNos 6 4 9 7 2 3 5 4RubberClusterKerala% (40) (27) (60) (46) (13) (50) (33) (27)Non Availability of SoftNos 1 3 1Loan % (7) (20) (7)High Interest RateNon Availability of NewTechnologyNon Availability of CFCOthers ImpedimentsGovernment LicenseState Government PolicyNothing/ Can't SayNos 2% (13)Nos 12 8 1 2% (80) (54) (7) (13)Nos 3% (20)Nos 4% (27)Nos 2 7% (13) (47)Nos 1 5 3% (7) (33) (20)60

Chapter No:2 – The General Profile of Sampled ClustersTable No.-2.19 (b): RESPONSES ON FINANCE AND TECHNOLOGY RELATED IMPEDIMENTS TO FURTHER GROWTH (METAL ANDMANUFACTURING BASED CLUSTERS)BallbearingClusterJaipurBrassand BellmetalIndustryClusterKhurdaBellmetalClusterHazoBrassUtensilClusterPareoHosieryClusterKanpurDieselEngineCluster,RajkotFan Cluster,HyderabadFoundryIndustryClusterAhmedabadAluvaPlasticClusterSewingmachineLudhianaSurgicalInstrumentsClusterBaruipurWetGrinderClusterWhitewareIndustryClusterKhurjaWorking CapitalFinanceNon Availability ofSoft LoanNon Availability ofNew TechnologyISI CertificationNo R&D FacilitiesNothing/ Can't SayState GovernmentPolicyNos 3 4 2 5 2 9% (20) (27) (13) (31) (13) (56)Nos 4 5 1 7 2 3 6% (27) (33) (7) (47) (13) (20) (40)Nos 6 4 1% (40) (27) (7)Nos 7 7 9 1 4 1 1 4 4 2 6% (47) (47) (60) (7) (27) (7) (6) (27) (27) (13) (40)Nos 1% (7)Nos 1% (7)Others ImpedimentsNos 3 2 2 1 1% (20) (13) (13) (7) (7)Nos 5 5 2 7% (33) (33) (13) (44)61

Chapter No: 3 – The Cluster Development Executive/AgentCHAPTER3THE CLUSTER DEVELOPMENTEXECUTIVE/AGENT3.1 IntroductionMany ongoing cluster interventions are being pursued through a catalyst - a ClusterDevelopment Executive (CDE) or a Cluster Development Agent (CDA). He or She is animportant pivotal functionary who stays with the cluster through all its stages ofevolution and maturity. This important agent of change has a very challenging mandateand his role as a guide and facilitator is second to none in the CDP, and accounts for itssuccess or failure to a very large extent. Though the CDE plays an extremely critical roleunder the CDP, his effectiveness needs to be reinforced by a mentor institution, asupportive regional office of the MSME, the required technical consultants and R & Dinstitutions an experienced battery of BDS providers, and last but not the least an ablelocal Network Agent who is thoroughly familiar with the cluster.3.2 The Role and Functions of the CDE/CDAThe initial task of the CDE/CDA is the proper identification of the cluster highlighting itsviability and sustainability. This is mainly done through the conduct of a detaileddiagnostic study that carefully puts together the important general characteristics of thecluster such as its dispersion, size and the resulting density, the scale of operationsamong the constituent units, the nature of the cluster, the markets it caters to, and thevarious inputs that it requires. This diagnostic study comprehensively assesses theexisting externalities, the market prospects over the medium and long term as well asthe constraints and bottlenecks both contemporary and anticipated. Not only is thecluster comprehensively studied and identified through this diagnostic study but also astrategic plan for cluster development evolves on its basis. The selection of appropriateinterventions as well as the prioritization of these interventions is carried out on the basisof this initial study.This initial task is usually followed by the implementation of what are known as “softinterventions” that mainly involve the creation of awareness among individuals clusterunits regarding the benefits of cooperation and the systematic exploitation of the existingexternalities for the collective good. Soft interventions are particularly targeted atactivities that mobilize individual cluster units for collective action by encouragingdialogue and discussion among units, and are an attempt to evolve a shared vision andstrategy for enhancing competitiveness and productivity for the cluster as a whole.Mobilization of individual cluster actors for collective action is not an easy task andconcerted efforts are needed particularly on the part of the CDE/CDA to convince andmotivate many a dissident cluster actor to join the fold. All the efforts are primarilydirected towards ‘synergizing’ individual cluster actors into a vibrant collective andunleashing the power of cooperation to survive and sustain in a highly predatory andcompetitive industry normally dominated by large entities such as the large organizednational and international firms.62

Chapter No: 3 – The Cluster Development Executive/AgentThe next important task for the CDE/CDA is to catalyze the formation of a consortia or aspecial 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 oran SPV, it is often difficult to get them to evolve a strong consensus on the kind ofcommon facilities that are most required by the cluster. The formation of the SPV andthe institutional form it should take in order to ensure democratic participation and theequitable sharing of both the managerial responsibilities as well as the benefits, alsodepend on how strong a consensus emerges, largely based on the competence andefforts of the CDA. The CDE therefore has an extremely responsible role to play andshould be adequately equipped to play his or her part most effectively. It is alsonecessary for the CDE/CDA to build a high level of trust among individual cluster actorsand also to generate a strong sense of confidence and trust in his own actions, throughbeing transparent, unbiased and respectful in his dealing with all cluster membersirrespective of their social or economic status. The formal registration of the consortia orSPV requires various formalities to be completed this includes a clear articulation of itsmission and objectives, the articles of association and rules, and also the mobilization ofshare capital from each of the units forming the SPV. All these formalities need theactive guidance and close attention of the CDE/CDA.Once the SPV is formally registered, the formulation of a Detailed Project Report isinitiated for the CFC. The proper formulation of the DPR and related estimates oftenrequires the involvement of technical consultants and also competent BDS providers.The identification and short-listing of equipment manufacturers is also required. TheCDE/CDA has to actively liaison and closely interact with these experts often assisted bythe Information Manager of the SPV who is equipped adequately with the informationtechnology and systems to enable the proper collation and analysis of a rangetechnological options, that aid the selection and final choice of the process technology tobe adopted.The CDE/CDA is also actively involved in the close monitoring of the administrativeprocedures and acts as an effectively bridge between the SPV and the Concerned CentralMinistry as well as the State Government. The process of setting up a CFC often involvesvarious clearances by various regulators and it is the CDE/CDA who has to follow up onthese procedures and enable the CFC to be set up within the proposed time framespecified in the DPR. Once the CFC is set up properly tested and commissioned theCDE/CDA should be relieved to take up a fresh assignment preferably in a similar clusterwhere 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 tostrengthen all associational initiatives for a strong collective identity and to evolve asustainable action plan.To assist in formulating and catalyzing various interventions for achieving higherproductivity and competitiveness in accordance with a validated action plan.63

Chapter No: 3 – The Cluster Development Executive/AgentTo be working in a cluster specific local context through a field office that enables closeand constant contact with the cluster.It is also important to emphasize that a CDE/CDA may be drawn from a Non-Governmental Organization, an industry support organization, or an industry association.He could also be selected from among independent industry professionals or competentpersons from the concerned scientific or research institutions or BDS providers.Moreover the cluster actors as being unbiased and devoid of any vested interest shouldperceive a CDE/CDA.3.3 The Core Competencies of the CDE/CDAConsidering the varied role and functions of the CDE/CDA which is briefly described inthe 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 ofthe CDE / CDA. The first set of essential skills are the Behavioural and Organizationalskills namely interpersonal communication, delegation of powers and responsibilities,leadership, negotiation and conflict resolution skills, planning and strategizing skills, andcollective 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 appropriatelinkages with scientific and R and D institutions (specific to the cluster activity) as well asBDS 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 takeinto consideration the past working experience of a prospective CDE / CDA. Personhaving worked on assignments involving SME development either in technical NGOs,scientific institutions, or corporate concerns, could be preferred and would have an addedadvantage. It is also essential to emphasize that apart from the core competencies andexperience required of a CDE/CDA, it is most essential to ensure that the person selectedattends a comprehensive foundation training programme that sensitizes him for hisassignment as a CDE / CDA. This programme should be very carefully designed to caterto the specific training needs of these key functionaries and should be made an essentialpre condition before the person is assigned the task of a CDE / CDA. It is equallyimportant to emphasize that one cannot expect to find a CDE/CDA who has all thedesirable traits required to handle this pivotal function. It is therefore essential toensure 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 appropriatesector specific scientific and technological institution, and the relevant BDS providers. ALocal Network Agent who belongs to the specific cluster and is familiar with the area andthe local language should also assist the CDE/CDA in all cases. This assistance frombelow is most essential for the CDE/CDA to carry out his or her day-to-day functions,and to remain in constant touch with the individual units that form the cluster.64

Chapter No: 3 – The Cluster Development Executive/AgentIt may finally be stressed that it is absolutely essential for the CDE to operate from afield office cum residence, which is located in the cluster area. His office should beadequately equipped and he should be provided the means to be able to travelfrequently both inside and outside the cluster area.3.4 The Profile of CDEs in Sampled ClustersIn this section we look at the general profile of the CDEs in the sampled clusters coveredduring our study. The information was canvassed through a schedule specially designedto obtain the responses of the CDEs currently posted in the clusters covered by us. Itmay be mentioned that only in the case of one cluster was the concerned CDE notavailable as it was reported that the CDE had not been appointed in the cluster, andfurthermore that no soft interventions were carried out. Hard interventions werehowever undertaken after the formation of the SPV and the CFC for this cluster has beencommissioned and has started to function. This appears to be an exceptional case wherein 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 sampledclusters have a wide and diverse range of educational qualifications. As many as 7 ofthese 21 CDEs have a general under-graduate or graduate degree or diploma. There are12 CDEs that hold technical degrees or diplomas, while there are only 2 CDEs that havequalifications related to management. It may be also seen that while two of the CDEshold graduate diplomas in Footwear Technology there are two others who hold diplomasin Metallurgy.65

Chapter No: 3 – The Cluster Development Executive/AgentTable No.-3.1: PROFILE OF CLUSTER DEVELOPMENT EXECUTIVE IN SAMPLED CLUSTERSSl Cluster Name CDE Name ParentDepartmentAge ofCDEEducationalQualificationYears ofServiceYearsofServiceas CDE1 Bamboo Cluster M.K. Handique IIE 47 M. Com 21 3Dimapur2 Food ProcessingCluster MuzffarpurK.M. Bangar MSME 56 M.Sc. 29 8Months3 Leather Goods ClusterAgra4 Leather Goods ClusterShantiniketan5 Plywood ClusterPerambavoor6 Rice Milling ClusterKarnal7 Rice Flakes ClusterAhmedabad8 Rice Milling ClusterKalady9 Rubber ClusterChengnacherryG.P. Agarwal MSME 48 Diploma inFootwearTechnology27 4Debashish Ghosh MSME 48 B.Sc. (Tech) 27 3Chandan T.S.KeralaIndustriesDepartment43 M.A.(Economics)18 6MonthsB.N. Kapoor MSME 49 M.A., Master ofMarketingManagement27 4P.N. Solanki MSME 42 Diploma in 23 1.4MetallurgyB. Sivaprasad Kerala51 M.A. 19 1IndustriesDepartmentSathyaraj N Kerala48 B. Tech. 18 5IndustriesDepartmentAjay Sharma MSME 44 B.E. 12 2.510 Ball bearing ClusterJaipur11 Bell metal Cluster B.B. Panigrahi MSME 41 M.A. 17 2Khurda12 Bell metal Cluster Hazo S. Deka MSME 44 B. Tech. 23 313 Brass Utensil Cluster D.K Singh MSME 55 M. Tech. 30 1.5Pareo14 Cotton Hosiery Cluster B.C. Singh Bisht MSME 54 Diploma in 27 3KanpurFootwearTechnologyR.S. Nirwan IIE 31 B.Com. 6 315 Diesel Engine ClusterRajkot16 Fan Industry ClusterHyderabad17 Foundry Cluster NO CDE wasAhmedabadappointed18 Plastic Cluster Aluva Neelambaran K.V. KeralaIndustriesDepartment19 Sewing MachineCluster Ludhiana20 Surgical InstrumentsCluster Baruipur21 Wet Grinder ClusterCoimbatore22 White ware ClusterKhurzaArvind Patwari MSME 50 M. Tech. 17 347 B.A., Diplomain Cooperation24 1S.S. Bedi MSME 52 B.A. (3 yr.Diploma)30 6S.K. Roy MSME 59 Diploma in 37 4MetallurgyV. Ramakrishanan SIDO 40 B.E., MBA 20 5K.C. SinghGovt of India(Ministry ofScience &Technology)47 B. Tech. 25 366

Chapter No: 3 – The Cluster Development Executive/AgentSuch a wide variation in the educational background of the CDEs indicates that they arenot 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 largenumber of CDEs with technical qualifications is also not always useful as the specific jobof the CDE requires organizational and managerial skills rather than technical skills. Therequired day-to-day functional technical or scientific inputs are normally available amongexperienced cluster actors and the specialized inputs required can be accessed from theappropriate technology and science institutions or advisors outside the cluster. It maybe concluded that the profile of qualifications for our CDEs in the sampled clusters doesnot 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 fieldassignment. These CDEs have also put in several years of service, however theirexperience as CDEs in most cases is quite limited. It is also seen that a fairly largenumber of CDEs have been drawn from the MSME-DIs, and there are 12 out of the 21CDEs covered who belong to these regional establishments of the MSME. There are also4 CDEs that have been drawn from the state industries departments/organization whilethe remaining three belong to other institutions. This also leads to a high degree ofinbreeding which is not always desirable. There is thus a need to break out of theconfines of a narrow set of institutions and draw the required talent and expertise from awider arena consisting of technical NGOs and the corporate private sector. There shouldalso be an attempt to recruit younger persons, who may have the requisite educationalbackground or experience more suited to the tasks at hand.Apart from revamping the recruitment system for CDEs, adequate efforts are needed forthe proper identification and incorporation or ‘Mentors’ and Mentor Institutions in theprogramme. These Mentors and Mentor Institutions are required to guide and advise theCDEs in their tasks. The CDEs too are required to be assisted in his day-to-day work, bya Local Network Agent. It is also necessary to ensure that the CDE is allowed to carryout his well-defined tasks and is not burdened with responsibilities that are not directlyrelated to the Cluster Development Programme. It is often noticed that the agenciesthat control the CDEs assign additional responsibilities that distract the CDE from hisfocused task.Another factor seriously affecting the work of the CDEs is frequent transfers. The CDEshould thus be appointed for a cluster specific tenure, which should normally be longenough for him to see the cluster through its various stages of development. This is allthe more important as the CDE develops his competencies considerably while beingposted in a specific cluster. This on the job cluster specific expertise is likely to turn outto be exceedingly useful in the subsequent development of other similar clusters.3.5 Awareness of Current Job ResponsibilitiesHaving highlighted the current profile of the CDEs we now proceed to evaluate the levelof awareness that the CDEs have regarding specific job responsibilities. We have alsotabulated the responses of the CDEs regarding their confidence levels in carrying out theassigned tasks. This helps us to identify the specific tasks where awareness and67

Chapter No: 3 – The Cluster Development Executive/Agentconfidence levels are low. The effective functioning of the CDE to catalyze clusterdevelopment depends on the extent to which he understands his job responsibilities andhas 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 toshoulder. These are normally functions and responsibilities that arise in the context ofsoft Interventions under the Cluster Development Programme of the MSME. These softinterventions once successfully carried out, prepares the cluster to collectively attemptthe ‘Hard Interventions’. There are 3 specific job responsibilities related to the hardinterventions where in the CDE has an important role to play. The CDE along withcluster members who agree to form an SPV have to work hard in the formulation of thearticles of association and rules of the SPV and assist the members forming the SPV toformally register the body. The CDE along with experts, also has to assist in the properformulation of the DPR and related estimates, and take all the necessary follow up actionto get the DPR approved by the concerned authorities. Once the DPR is formallyapproved 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 andcan take up a fresh assignment.Table No.-3.2: AWARENESS AND CONFIDENCE LEVELS AMONG CDES REGARDINGCURRENT JOB RESPONSIBILITIESSl.Job ResponsibilitiesResponses (numbers)No.SOFT INTERVENTIONSAwareness Confidence Level1. To Prepare a Diagnostic Study. 14 52. Trust Building among Units and Strengthening of 14 7Associational activities in the Cluster.3. To Increase Awareness about CDP and its Benefits. 16 84. Organizing Exposure Visit. 18 185. Conduct of Training Programmes /Seminars on Capacity 15 5Building.6. Development of Information Bank and Common 8 2Website for Cluster.7. Development of Product Brochures and Information CDs 5 1for Cluster Products and Prices.8. Organizing Industrial Promotion Activities and 12 6Participation in Industrial Fairs.9. Organizing Financial Assistance/Credit Facilities. 10 210. Awareness Creation and Introduction of New 10 5Technology and Technology up gradation.11. Development of New Products, Market tie-ups and tie 5 1ups with Technical Institutions and BDS providers.12. Creation of Raw Material Bank and Spares through 4 2Collective Procurement.HARD INTERVENTIONSAwareness Confidence Level1. Formation of Special Purpose Vehicle/Consortia. 5 22. Preparation of Detailed Project Report (for developing 5 1CFC) and following up on its timely approval byconcerned authorities.3. Setting up of the CFC and its testing and 5 2Commissioning.68

Chapter No: 3 – The Cluster Development Executive/AgentIt is seen that awareness regarding the job responsibilities are quite high in the case of 8of the 12 specific functions related to soft interventions while it is fairly low in the case of4 of the 12 specific functions. Awareness regarding the role and responsibilities relatedto the development of an information bank and portal, the development of new productbrochures and information CDs, the development of new products and market andinstitutional tie-ups, and the creation of raw material banks and spares through collectiveprocurement are areas where the CDEs have a very low awareness as reflected in theirresponses. Moreover the confidence levels for shouldering these responsibilitieseffectively are found to be uniformly low among the CDEs. This reflects the deficienciesin the proper grounding and training required to effectively carry out these functions.Most soft interventions require the CDEs to have the required expertise in thebehavioural, organizational and managerial skills and it is not surprising to observe suchlow levels of confidence considering the educational and experiential background of theCDEs as seen in our earlier section.The functions and responsibilities pertaining to hard interventions also require additionalhard skills such as project formulation and monitoring. Here even the awarenessregarding functional responsibilities are very low leave alone the level of confidence toeffectively carry out the tasks involved.3.6 Tenure and Stage of Deployment of CDEAs seen in the earlier chapter the Cluster Development Programme passes through 5distinct stages, the first stage involves the conduct of a diagnostic study and theidentification and selection of the cluster for subsequent interventions, the last stage inthe setting up of the Common Facilities Centre and the commissioning of the CFC. TheCDEs should be assigned or deployed in a cluster from the very first stage, and shouldcontinue to catalyze and assist in the completion of all the stages over the time cycle ofthe programme in each selected cluster.Ideally speaking, the CDE should be assigned to or deployed in a cluster from the veryfirst stage and must continue to carry out his functions till the last stage is successfullycompleted. This enables him to thoroughly familiarize himself with his cluster, gain theconfidence of individual cluster actors, develop the necessary network with other clusterpartners and stakeholders such as BDS providers, technical consultants, and regulatingand monitoring agencies. It is therefore essential that his tenure as the CDE in a specificcluster conform to the expected programme cycle for that cluster. This continuous anduninterrupted deployment makes him accountable to the stakeholders and programmemanagers.It is also observed that CDEs are constantly and frequently transferred from one clusterto another not allowing them the time to gain the confidence of cluster actors andstakeholders, and not giving him the required stability of tenure to thoroughly familiarizehimself with any specific cluster. He would, like the proverbial ‘rolling stone’ gather nomoss. However this does not mean that the CDE should be permanently deployed in acluster and not assessed for his performance of successfully completing the stages withindefined segments of the programme cycle. We have seen in the last chapter that thereare many sampled clusters that have lingered on in the 1st stage for many years and69

Chapter No: 3 – The Cluster Development Executive/Agent“soft interventions” seem to continue in perpetuity. Such a situation can lead to aserious 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 realizethe potential for improving their lot through collective action. They often loose theirlivelihoods falling prey to predatory competitors, and becoming increasingly dependentand exploited.It is therefore essential to assess the performance of CDEs regularly, adequatelyrewarding them for good performance while also penalizing them for failures. Suchsafeguards can only be ensured through a complete review of the terms of appointmentand tenure of the CDEs. Failure to perform according to the standards set, should in thecase of CDEs who are on deputation from parent organization, lead to a reversion to theparent cadre. In the case of CDEs directly recruited, failure to perform as per standardsof assessment should lead to a termination of the contract. In other words nopermanent appointments should be made in the case of CDEs.On the basis of information canvassed through the CDE schedule we have compiledTable 3.3 wherein the stage at which the CDEs were assigned to or deployed in thesampled clusters is highlighted. It is encouraging to note that as many as 10 CDEs outof a total of 21 CDEs, (47.62 percent) joined the specific cluster at the first stage andcontinue to work in these assigned clusters. They have thus enjoyed a fairly stabletenure 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 completedby their predecessors and after the cluster had been identified. They were assigned theirclusters at the time when the soft interventions were initiated. These 5 CDEs have alsocontinued to work in their respective clusters undisturbed by transfers and have alsoenjoyed an uninterrupted tenure. It must be emphasized that these figures do notnecessarily mean that these clusters have progressively graduated to the higher stagesof intervention, on the contrary, a fairly large number of clusters continue to linger in the1st stage itself as was seen in the earlier chapter.Table No.-3.3: STAGES AT WHICH CDEs WERE DEPLOYED IN SAMPLED CLUSTERSStage at which CDEs Deployed Number of CDEs % DistributionStage I (A): Diagnostic Study / Cluster10 47.62IdentificationStage I (B): Starting of Soft Interventions 5 23.81Stage I (C): Middle of Soft Interventions 1 4.76Stage II & III: Formation of SPV /1 4.76Preparation and Approval of DPRStage IV & V: Setting up of CFC/ testing andCommissioning of CFC4 19.05Total 21 100.00It is also seen that 1 of the 21 CDEs (4.76 percent) was deployed in the middle of softinterventions. Another CDE was assigned the cluster during Stage II while as many as 4of the 21 CDEs were assigned their clusters during Stage IV. These figures indicate thatas many as 6 out of the 21 CDEs (28.57 percent) have joined the cluster during the later70

Chapter No: 3 – The Cluster Development Executive/Agentstages, and have not had stable tenures. Most of them do not have much credibilityamong cluster actors and do not command much respect, their near redundancy andlimited usefulness is obvious among SPV members and this has seriously affected theirself esteem, self confidence, morale and motivation. There is also a tendency on thepart of the parent organization to assign them tasks, which are strictly not related to theCDP.3.7 The Training of CDEsTraining and the sustained development of skills is a continuous and ongoing processand should form a recognized and integral part of any long term strategy and policydesign for cluster based industrial development. The key field functionary of thisprogramme, namely the CDE, learns a great deal from his actual work situation andexperience. However like any other professional, he has to keep abreast with functionalskills through well designed training programmes that particularly focus on the functionalcompetencies that are required to achieve the objectives of the CDP. The CDP thusneeds to evolve a training strategy based on the specific objectives of the CDP whereinunlike general management training certain management and administrative disciplinesneed to be focused on.At present training is not being accorded the priority that it deserves. Though adequatephysical infrastructure exists within the MSME-DIs these facilities need to be properlymaintained and optimally utilized. Very limited training opportunities are currentlyavailable for key functionaries of the CDP. Apart form a general training programme forCDEs, a few refresher course are also being offered. However the design, content, andpedagogy of these training programmes appear to be grossly deficient and have hardlyhad the desired impact.Detailed discussion with CDEs currently posted in the sample clusters lead us to believethat a major constraint in the area of training arises from the fact that once a CDE isdeployed in a specific cluster, work pressures and time lines prevent them fromattending training programmes particularly those that are of a long duration. At presentthe absence of a ‘Mentor’ or a local Network Agent provides no effective substitute tomanage the important day-to-day functions of the CDE even for short periods while he isaway on a training assignment.It is therefore suggested that the training needs of the CDP should be effectivelyaddressed 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 programmeshould be the Foundation/Orientation Training Programme for CDEs. This programmemust be strictly targeted at the fresh CDEs that are newly recruited. This programmemust be carefully designed on the basis of a training needs analysis and an experttraining institution should be required to design and conduct the programme in one ofthe Regional MSME-DIs. The second type of training programme should be a short termrefresher programme. Under this programme four specific thematic modules should bedesigned. Each module should be of a 10-day duration and comprehensively cover thefour thematic areas, which are as follows:• Behavioural and Organizational Skills for CDEs.• Presentation and Articulation Skills for CDEs.71

Chapter No: 3 – The Cluster Development Executive/Agent• 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 expertinstitutions, which specialize in each of the thematic areas. Though it is necessary toconduct these programmes at the Regional MSME-DIs in order to ensure that thefacilities available are properly maintained and utilized. It is also necessary to earmarkadequate funds for training. Additional resources will be required for the design andregular conduct of these programmes in the 11th Plan Period.It is important to emphasize that these refresher programmes should be sequenced toconform to the project cycle of about 3 years with modules (a) and (b) being offered tothose CDEs who are involved in soft interventions. The (c) and (d) modules should betargeted at those CDEs who are involved with hard interventions. It may also be notedthat these refresher programmes cater to the needs of all the existing as well as thenewly recruited CDEs. Attending these programmes should be made statutory and allfurther increments and promotions should be subject he regular attendance andsuccessful 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 claimsto have attended the training programme for CDEs. It is to be further noted that most ofthem have attended only one such programme after being appointed as CDEs. Moreoverthere are 2 CDEs that have not attended any training programme related to ClusterDevelopment. It may also be mentioned that only one CDE has attended a refresherprogramme in addition to the general programme for CDEs.Table No.-3.4: STATUS OF TRAINING AMONG CDEsTotal CDEsInterviewedParticipation inTraining *Adequacy ofTrainingYes No Yes No N.R. Due toDeficiency inContent andDesignInadequacy of TrainingDue toDeficiency inPedagogy21 19 2 10 9 2 7 9Note: * Most CDEs who report to have participated in training have attended only oneprogramme during their present tenure, while one CDE has attended an additionalrefresher course.N.R: No ResponseTable 3.4 also highlights the responses of CDEs regarding the inadequacy of the trainingthey have attended. It is seen that of the 19 CDEs who participated in training as manyas 9 reports that the training provided was inadequate while 7 out of the 9 respondentsreport that the deficiencies in training were on account of content, and design, all the 9respondents report that the pedagogy adopted was also deficient. Discussions haverevealed a distinct preference for focused training in the relevant functional areas, theuse of the case study method, and field visits and interaction with projects that haveadopted a set of best practices, and also projects that have failed to deliver.72

Chapter No: 3 – The Cluster Development Executive/Agent3.8 Functional Resource Requirement of CDEsHaving discussed the role and functions of the CDEs, the functional competencies andtraining needs of the CDEs, and also the tennurial conditions of CDEs, we must nowdiscuss the resources and facilities that are required by the CDE especially in the contextof the varied functions and responsibilities that are expected of him.The functions and responsibilities of the CDE are extremely challenging and requires himto be in close and constant touch with all the individual cluster units at all times. Thisoften requires him to functions from an independent field office located at a closeproximity to, if not in, the cluster area itself. To ensure his availability he must alsoreside close to the cluster. In this regard the ideal arrangement would be that he isprovided with a residence cum field office facility along with adequate officeinfrastructure 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 andthe like. His job thus requires frequent travel and communication both within andoutside the cluster area. He thus needs to be provided Communication and Transportfacilities/allowances. The frequent work related travel outside the cluster area and longhours of work, entails daily allowances and other special field allowances. These areoften provided as “perks” and through “generous” reimbursements in the corporate world(which includes public sector firms) for executives with far lesser functions andresponsibilities as compared to the CDE.The CDE also requires the support of a Mentor/Mentor Institution which can guide andassist him in carrying out his functions effectively. The effectiveness of the CDE isconsiderably enhanced if a Local Network Agent who resides within the cluster area andis well versed in the local language and culture assists him. The Mentor/MentorInstitution, the CDE, and the Network Agent form a core team that can function far moreeffectively as compared to a lone CDE. The provision of this additional field assistanceseems necessary considering the varied functions and responsibilities expected of a CDE.Finally the CDE also requires regular training for updating and keeping abreast with thefunctional skills essential for effectively carrying out his tasks.In Table 3.5 we have recorded the responses of the CDEs regarding the adequacy ofresources as well as the additional assistance required. It is seen that 10 of the 21 CDEscontacted during this study report that the resources provided to effectively carry outtheir functions and responsibilities are adequate. However there are 11 CDEs thatconsider the resources inadequate. As for the specific type of additional facilities andassistance required the number of responses is uniformly large in the case of all 5categories of assistance. This issue needs to be looked into and all attempts made toallocate additional resources for the purpose during the 11th plan period.73

Chapter No: 3 – The Cluster Development Executive/AgentTable No.-3.5: RESPONSES ON THE ADEQUACY OF RESOURCES AND ADDITIONALASSISTANCE REQUIREDNumbers of CDEs RespondingAdequacy of ResourcesAdequate 10Not Adequate 11Additional Assistance RequiredIndependent Field Office cum Residence, OfficeInfrastructure and Office AssistanceCommunication and Transport Facilities /AllowancesNumbers of CDEs RespondingAdditional Field Allowances 10Additional Field Assistance, Mentor or MentorInstitutionAccess to Regular Training for improving /updating functional skills9111193.9 Perception of CDEs on Factors Enabling Cluster DevelopmentThe close association and experience of CDEs in Cluster Development enable them toclearly perceive the prime factors that enable such development. Their involvement incatalyzing a strong consensus among individual cluster actors and effectively removingthe constraints that hinder collective initiatives in their respective clusters also enablesthem to rank the importance of these prime factors. Systematically canvassing theseperceptions of key functionaries helps in strengthening and prioritizing the policy framefor effective interventions. This information is particularly useful in developing properguidelines for the conduct of the diagnostic study, which helps in the identification ofclusters while also highlighting the probability of success of the programme in theidentified cluster.We have observed that a very large number of clusters have been identified, most oftenwithout a proper diagnostic study and also due to various political pressures. We feelthat 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 clusterdevelopment and the relative importance of these factors will help in evolving a morescientific method of identification of clusters and help in selecting only those clusters thathave a high probability of success in terms of achieving the basic objectives of theCluster Development Programme. It must be emphasized that these factors should betaken into consideration in order to ensure both a proper selection of clusters, and theirviability, as well as sustainability. On the basis of our study and the related discussionswe have had with key functionaries it is felt that the programme has been over extendedtoo quickly thereby seriously diluting its impact.We now turn to Table 3.6, which incorporates the perceptions of CDEs in our sampledclusters regarding the prime factors as well as their relative importance for enabling74

Chapter No: 3 – The Cluster Development Executive/Agentcluster development. It should be noted that the number of CDEs responding on theseissue is fairly low. To some extent this reflects a lack of awareness regarding the CDPitself. The identification and ranking of factors enabling cluster development depends onhow comprehensively the CDE understands and perceives the various issues involved.Table No.-3.6: RESPONSES OF CDES ON PRIME FACTORS ENABLING CLUSTERDEVELOPMENTSl. PRIME FACTORS NUMBER OFCDESRESPONDINGRANKINGOF PRIMEFACTORS1. Clusters that are less dispersed 13 42. High Skill based Clusters 4 123. High Product range clusters 7 104. Clusters with greater access to R&D institutions 12 55. Labour intensive clusters 5 116. High Density Clusters 8 97. Highly Homogeneous Clusters 14 38. Clusters facing threats from competitors 9 89. Cluster with well established and active16 1associations10. Clusters with common facilities (for testing,10 7quality control, and standardization)11. Clusters with clarity of Vision and Mission 15 212. Clusters with greater access to Information 11 613. Clusters endowed with an abundance of locallyavailable raw materials.11 6It is seen that the largest number of responses pertains to seven of the 13 prime factorslisted 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 areperceived to be relatively less important and ranked accordingly. However this does notmean that they should not be considered, in the identification of potentially viable andsustainable clusters.It also needs to be mentioned that the seven prime factors are fairly quantifiable and ifcorrectly measured or assessed at the diagnostic or even pre-diagnostic stage preferablyby 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 shouldenable the choice and prioritization of intervention.75

Chapter No: 3 – The Cluster Development Executive/AgentAll the 13 prime factors enabling cluster development are important and need to be verycarefully studied before a cluster is finally selected for intervention.In addition there are some more issues that need to be considered which have a widernational policy connotation. It is noticed that clusters are being identified across a verywide range of sectors and many of the cluster based initiatives/industrial activities arebeing actively taken up by leading banks, and other ministries. The MSME should avoidduplication and unhealthy competition by staying away from clusters that are beingsupported by other ministries and State Industrial Agencies.76

Chapter No: 4 – Soft Interventions in Sampled ClustersCHAPTER4SOFT INTERVENTIONS IN THESAMPLED CLUSTERS4.1 Introduction“Soft Interventions”, as they are most inappropriately termed are not ‘soft’ at all as theterm may imply. They are vital trust building measures undertaken to promotecooperation among individual cluster units. These measures are intended to bringcluster units together on a common platform by making them realise their collectivestrengths as compared to their strengths as individuals units.These measures are aimed at providing a spark or a critical inducement, to catalyzecollective action and to unravel the enormous latent power of cooperation that can leadto concrete individual benefits. The measures cement the bonds between individual unitsand 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 preparatorysteps which are most essential to create the conditions for the successful implementationof the Cluster Development Programme. These measures are aimed at building a strongconsensus around a feasible and well-designed action plan to strengthen the cluster, withthe 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 bealready evolved and active while in other cases they may be less evolved, passive, andinert. The size and scale of activities and the degree of development are importantdifferentiators and as such the problems that they confront may be substantially differentin each case. Moreover, first generation small entrepreneurs in new businesses who arelikely to be more educated and progressive in their outlook, would require to bemobilised and motivated for collective action. A different approach would have to befollowed, and a different support system would have to be provided to them, ascompared 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 sectorspecific requirements. The soft interventions have to take into account all theseparameters while designing the action plan for such interventions.The Cluster Development Executive acts as a guiding force in the planning andimplementation of soft interventions. The roadmap for soft interventions is laid duringthe preparation of the diagnostic study itself. The diagnostic study must also identifythe needs of the cluster actors, as well as their common aspirations. Thecomprehensiveness of the diagnostic exercise helps in correctly identifying the commonneeds, that when articulated through an action plan, assists in building trust andcohesiveness.77

Chapter No: 4 – Soft Interventions in Sampled ClustersThe CDE catalyses frequent interaction among the cluster members and also with otherimportant stakeholders in the CDP. Awareness programmes, training sessions and visitsto existing clusters within the country, and outside are, arranged to aid the process ofincreasing awareness of the power of collective interventions that strengthen the clusteras a dynamic entity with immense inert potential for development through cooperation.Soft interventions can be divided into three specific categories that need to besequenced in the following order:4.1.1 Awareness CreationThe first task is to create a high-level awareness and interest of the cluster actors aboutthe various benefits of the Cluster Development Programme. The actors should beexposed to the objectives, the guidelines and norms designed to strengthen collectivebenefits and the effective exploitation of the economies of scale.At this stage, the CDE organises meetings with the actors through their associations andat the individual level. This effectively increases self-confidence and self esteem andremoves various apprehensions and doubts regarding the viability and sustainability ofthe action plan by exposing them to the experiences of other successful cluster initiativesat home.4.1.2 Confidence BuildingHaving created awareness, the Cluster actors need to be exposed to the externalsituation and technological advancements to make them understand the benefits of theadoption of these for the development of their own cluster. The actors need to be told ofthe benefits of coming together through the formation of an SPV. Exposure visits to otherclusters within the country training programmes to enhance the horizon of the actors aresome of the programmes that are undertaken at the second stage. Experts from theseinstitutions also facilitate linkages with the financial, technology and marketinginstitutions, through these visits and through presentations.4.1.3 Capacity BuildingHaving understood the concept of cluster development and need for collectivefunctioning, 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 alsodemocratically choosing the most suitable form of a legally recognised organisation toinitiate common facilities most needed by the cluster. Achieving the highest level ofconsensus about these facilities is most important to harness all the latent collectiveenergy of the cluster.4.2 Soft Interventions under the CDPAll the clusters have carried out activities and programmes related to the creation ofawareness about the Cluster Development Programme. Most of the clusters haveundertaken exposure visits also. The Programmes related to energy efficiency, which hasan important role in improving the productivity of units, particularly so in the secondarygoods based clusters, have been undertaken only in two primary goods based clusters.78

Chapter No: 4 – Soft Interventions in Sampled ClustersDeveloping financial linkages is important for strengthening the artisan-based clusters. Ithas 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 ofDiagnostic Study, and those actually carried out in the sample clusters. As the table isvery detailed and incorporates a wide range of interventions it has been appended at theend of this chapter.4.2.1 Allocation and Utilization of Funds for Soft InterventionsThe fund allocation for soft interventions varies widely across different sampled clusters.The absence of any uniformity across different clusters indicates the discriminatorynature of these allocations. They are devoid of any rationality and reflect ad-hocdecisions on the part of authorities. As seen in Table 4.2, the Rice Flakes ClusterAhmedabad, has the lowest fund allocation of Rs. 13.64 Lakhs for three years whileWhite ware Cluster Khurza had the highest allocation of Rs 67 Lakhs. All clusters, exceptDiesel Engine Cluster, Rajkot could not make 100% utilisation of the allocated funds. Therange of utilisation of funds varies between 24% in case of the Rice Flakes ClusterAhmedabad to 91% in the case of Bamboo Cluster Dimapur.The two clusters having the highest rate of utilisation of the allocated funds are DieselEngine Cluster Rajkot and Bamboo Cluster Dimapur. Both these clusters have CDEs fromEDI and IIE respectively. The clusters directly handled by the field offices of MSME havea low utilisation of funds allocated for the soft interventions.79

Chapter No: 4 – Soft Interventions in Sampled ClustersTable No.-4.2: ALLOCATION OF FUNDS FOR SOFT INTERVENTIONSSl Cluster Date AmountReceived(InLakhs)Total AmountUtilised(In Lakhs)1. Rice Milling Cluster 2004-05 8.40 1.90KarnalApril 2005 4.70 1.482. Rice Flakes ClusterAhmedabad3. Rice Milling ClusterKalady4. Food ProcessingCluster Muzffarpur5. Rubber ClusterChenganacherry6. Bamboo ClusterDimapur%UtilisedJuly 2007 12.67 7.67Total 25.77 11.05 42.8April 2004 6.95 1.94July 2005 3.70 .70July 2006 2.99 .68Total 13.64 3.32 24.3No funds allocated by MSME.Information not made availableNo funds allocated by MSME.Dec 2004 4.30 00Sept 2005 13.82 11.50August 2006 17.00 14.8July 2007 9.88 14.90Total 45 41.2 91.5No funds allocated by MSME.7. Plywood ClusterPerambavoor8. Leather Goods July 2005 5.55Cluster AgraJune 2006 9.69Oct 2007 7.76Total 239. Leather Goods July 2005 16.45Cluster Shantiniketan June 2006 14.85Oct 2007 21.54Total 52.8410. Cotton HosieryInformation not made availableCluster Kanpur11. Plastic Cluster Aluva No funds allocated by MSME12. White ware Cluster 2005-06 45 45Khurza 2006-07 22.5 12.0Total 67.5 57.0 84.413. Brass Utensil ClusterPareoApril 2004 8.90 5.70Jan 2005 9.75 4.33July 2006 12.30 3.09Total 30.95 13.12 42.380

Chapter No: 4 – Soft Interventions in Sampled ClustersTable No. 4.2- (Contd.)Sl Cluster Date AmountReceived(InLakhs)14. Bell metal ClusterKhurda15. Bell metal ClusterHazo16. Foundry ClusterAhmedabad17. Ball bearing ClusterJaipur18. Surgical InstrumentsCluster Baruipur19. Sewing MachineCluster Ludhiana20. Wet Grinder ClusterCoimbatore21. Fan Industry ClusterHyderabad22. Diesel Engine ClusterRajkotTotalAmountUtilised(In Lakhs)% Utilised11.2005 6.40 5.2207.2006 10.52 9.9211.2007 19.52 11.43Total 36.44 26.57 72.9August 2004 8.10 4.12June 2005 5.25 3.72July 2006 15.65 14.23Total 29 22.07 76.1Soft Interventions not undertakenJuly 2005 5.15 00July 2006 10.30 7.72Oct 2007 19.00 7.25Total 34.45 14.97 43.42004-05 8.4 5.562005-06 9.5 7.522006-07 21.75 8.98Total 39.65 22.06 55.6April 2004 15.20 3.08July 2005 16.45 12.17July 2006 18.80 7.72Total 50.45 22.97 45.5June 2004 11.55 6.15July 2005 12.15 3.45July 2006 16.10 11.46Total 39.8 21.06 52.9May 2004 12.45 2.60August 2005 19.75 9.87July 2006 11.08 1.84Total 43.28 14.31 33August 2003 15.00Dec 2004 7.5March 2006 7.5Total 30.081

Chapter No: 4 – Soft Interventions in Sampled Clusters4.2.2 Beneficiary Responses on Awareness of Soft interventionsAs seen in Table 4.3, the programmes/seminars to enhance awareness have the highestlevel of responses among the cluster actors. This is followed by the response related toparticipation in the exhibitions and tours to model clusters/institutions and technologydemonstrations. Awareness regarding participation in international fairs was relativelylow indicating that these activities were either confined to limited participation or notundertaken at all. The responses related to other soft initiatives such as commonwebsite, development of common marketing brochure/news letters, export meet, craftshows, food melas, loan schemes and other interventions have a very low responseregarding awareness indicating that these activities were either not carried out orconfined to a very few cluster actors.Table No.-4.3: RESPONSES ON THE AWARENESS OF ACTIVITIES UNDERTAKEN UNDERSOFT INTERVENTIONSActivity/ Programme Units Responding % DistributionTraining Programme / Workshop / Seminar 246 85Participation in Exhibitions 161 56Tour to Model Cluster / Institution/Technology Demo 101 35Participation in Foreign Fairs 41 14Common Website 60 19Brochure /News letter for Cluster 44 14Export Meet 32 11Craft Show 10 3Food mela 6 2Loan scheme 2 1Others 16 5Base: All Respondents 323 1004.2.3 Beneficiary Responses on Participation in SoftInterventionsAs seen in Table 4.4, the participation of beneficiaries in soft interventions has beensubstantial in only three activities namely training programmes/workshops /seminars,exhibitions/fairs, and exposure visits. The participation in other activities has been verylow indicating the choice of soft interventions among cluster actors.82

Chapter No: 4 – Soft Interventions in Sampled ClustersTable No.-4.4: RESPONSES ON THE PARTICIPATION IN THE ACTIVITIES UNDER SOFTINTERVENTIONSActivity/ ProgrammeUnitsRespondingTraining Programme / Workshop / Seminar 202 78%DistributionParticipation in Exhibitions 106 41Tour to Model Cluster/Institution/ Technology69 27DemonstrationMeeting on Exports 27 9Participation in Foreign Fairs 17 7Craft Show 7 3Food Mela/ Exhibition 6 2Dev of Newsletter for Cluster 3 1Common Website 3 1Common Purchase of Raw Materials 2 1Loan Scheme 1 0None 32 12Total No. of Units Sampled 323 1004.2.4 Responses on the Benefits Derived from SoftInterventionsThe sampled beneficiaries were asked to indicate the extent of benefits that they hadderived form soft interventions carried out in their cluster. As seen in Table 4.5, only27% of the sampled beneficiaries indicated that they had substantially benefited fromsoft interventions, while 35% indicated that they had benefited to a limited extent. Thecluster actors indicating that they had not benefited were 11% while the respondents notoffering any opinion was as high as 27%. The responses obtained on this issue reflectthat 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 FROMSOFT INTERVENTION ACTIVITIESResponses Units Responding Percentage DistributionBenefited substantially 86 27Benefited to a limited extent 113 35Did not benefit 37 11No opinion/ No response 87 27Total 323 1004.2.5 Impact of Soft InterventionsThe impact of soft interventions on the sampled cluster actors was assessed on the basisof responses related to several important indicators such as feeling of togetherness,better competitiveness, higher awareness regarding new technologies, trends inmarketing, awareness regarding reduction of waste/increase in productivity/quality,improved skills, improved techniques, modern trends and demands, and bettermanufacturing practices.Having discussed these responses we may state that soft interventions are extremelyimportant initial steps that lay the basic foundation for the Cluster Development83

Chapter No: 4 – Soft Interventions in Sampled ClustersProgramme, and if carefully planned, selected, and sequentially implemented accordingto 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 interventionshave not been implemented scientifically and rigorously and that both the content andefforts related to these interventions have been rather ineffective and diffused. As suchsoft interventions have not had the desired impact. The present level of ineffectivenessof 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 CDEsis 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 earlierchapters.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 couldlead to a loss of interest among cluster actors who are always keen of quick and concreteresults.The third major reason seems to be the use of the term “soft” which is likely to give theimpression that these interventions need not be taken too seriously. This does not meanthat soft interventions are ineffective and thus unnecessary. These interventions areextremely important and need to be effectively implemented through the adoption of amore focused and professional approach.4.3 Earmarking of Funds for “Soft” InterventionsThere are four major components that constitute enabling interventions. These are asfollows:The conduct of a comprehensive diagnostic study and its proper evaluation. It isdesirable that the diagnostic study, be undertaken by a competent institution in detailedconsultation with the CDE and the Local Network Agent (LNA), and this important tasknot be carried out by the CDE alone as is the practice at present. Moreover there is aneed to further evaluate this diagnostic study before it is finally accepted. This finalevaluation should also be undertaken by a competent agency having adequate expertiseon the subject.Group and individual contact and interaction meetings between the Mentor /CDE andLNA and the individual cluster actors. These meetings provide the opportunity tofamiliarize the cluster actors with the objectives and related advantages of the ClusterDevelopment Programme. These meetings also lead to building trust and confidenceamong cluster actors and induce the necessary attitudinal changes for joint and mutuallybeneficial initiatives. This activity involves frequent travel by the key functionaries withinthe cluster and also the dissemination of the collective plan of action and other relatedinformation.Demonstration visits to successful Clusters, Scientific and Research Institutions,Industrial Fairs and Exhibitions enabling cluster actors to observe, interact and explorethe possibilities and potential of cluster development.84

Chapter No: 4 – Soft Interventions in Sampled ClustersLectures by Expert/ Seminars/Training enabling individual cluster actors to improveperceptions and develop the confidence required for collective action.The above mention activities should be carried out over a period of 6 quarters or 18months, but not earlier than 4 quarters or 12 months providing a shorter and morefocused time frame in order to maintain the tempo of such interventions. The presentpractice of extending these activities over a period of 3 years tends to dilute and defusethe impact of these basic interventions.It is also felt that the present funding for basic/enabling interventions is grosslyinadequate and needs to be considerably enhanced. Moreover there should be clearearmarking of funds for each activity that constitutes basic/enabling interventions. It isalso important to ensure that these activities are regularly monitored on a quarterlybasis and funds are released in instalments only on the basis of satisfactory progress andproper utilization of funds for each activity.We are tabulating below the amount of funds likely to be required for effectively carryingout the various activities as a part of basic /enabling interventions.SNo. Expenditure HeadsAmount(In Rs.)1. Diagnostic Study and Evaluation Rs 8,00,0002. Group and Individual contact/interaction meetings Rs 8,00,000(includes the travel and other allowances for Mentor, CDE,and LNA apart from other incidental expenses)3. Demonstration Visits to other Cluster, Scientific and Rs 14,00,000Research Institutions, Industrial Fairs and Exhibitions (atleast 30 individual cluster actors should undertake eachvisit and there should be at least 8 such visits during theintervention period)4. Lectures by Experts/ Seminars/Training Rs 6,00,0005. Quarterly Monitoring and Evaluation of basic/enabling Rs 12,00,000interventions6. Contingency Fund (to be used for designing and Rs 2,00,000maintaining web site, printing of information brochuresand other common advertising materials)Total Expenditure on basic/enabling interventions Rs. 50,00,000It may further be noted that the funds required for each activity has been worked out onthe 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 tomaintain the proper accounts for all items of expenditure incurred so that these may beinspected 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 andsystematically initiating various important interventions for the sustainable development85

Chapter No: 4 – Soft Interventions in Sampled Clustersof clusters. This diagnostic study should thus be undertaken by an extremely competentprofessional agency/institution and adequate funding needs to be earmarked for thepurpose. 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 ofthe cluster).• Environmental agencies and regulatory bodies.• Financial institutions (that can potentially cater to the cluster).• Cluster Development Projects• Other similar cluster development projects (in the vicinity).• How this potential cluster can usefully tap these other cluster development projects.• Business Development Service Providers• Business Development Service needs of the cluster and their clear articulation.• BDS providers that can assist the cluster.• The type of services that can be utilized.• Producer or Merchant Associations• Details relating to the association (full address and telephone number).• Services that they provide at present to the cluster actors.• Their future plans of the development of the cluster (in brief).• Obstacles perceived as hindrances to these plans.• SWOT Analysis for the Cluster• List of the perceived strength of the cluster.• List of the perceived weaknesses of the cluster.• List of the perceived opportunities of the cluster.• List of the perceived threats to the cluster.• Cluster Mapping• Cluster Mapping of the present linkages (pre-interventions).• Cluster Mapping of expected linkages (post-intervention).86

Chapter No: 4 – Soft Interventions in Sampled ClustersThe essential features of the Diagnostic Study listed above not only reflects the contentsof the study to be undertaken but also reflects some essential features that arenecessary 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 impactof such interventions are as follows:Planning and selecting soft interventions according to the characteristics and needs ofthe cluster identified and studied during the diagnostic study. These interventions alsoneed to be properly sequenced.The period of implementation of these soft interventions, which currently extends over aperiod of three years causes the diffusion and slackness of effort and thus needs to beshortened to a period of 12-18 months.The funds allocated for these interventions are at present inadequate and needs to beenhanced and a portion of these funds earmarked for the concurrent monitoring andassessment of these interventions, specially during the 11th Five Year Plan whichspecifically aims at ‘inclusiveness’. The funds allocated should be released in a timelymanner and in accordance with the monitoring reports. They should be released forspecific well-sequenced interventions in instalments.The training and focused skill development of the cluster development executive and thenecessary facilities for his or her effective functioning is a prime ingredient for thesuccessful implementation of soft interventions.The term “soft” interventions should be avoided and replaced by a more appropriateterm such as ‘Basic’, or ‘Preparatory’ or ‘Primary’ or ‘Enabling’ or ‘Catalytic’ interventions.87

Chapter No: 4 – Soft Interventions in Sampled ClustersANNEXURE 4.1 – Table pertaining to major soft interventions carried out in various clustersTable No.-4.1 (a): MAJOR SOFT INTERVENTIONS CARRIED OUT IN THE SAMPLED CLUSTERS(I) Primary Goods Based ClustersClusterActivityBambooClusterDimappurFoodProcessingClusterMuzffarpurLeatherGoods ClusterAgraLeather GoodsClusterShantiniketanPlywoodClusterPerambavoorRice MillingClusterKarnalRice FlakesClusterAhmedabadRiceMillingClusterKaladyRubberClusterChenganacherryStipulatedConductedStipulatedConductedStipulatedConductedStipulatedConductedStipulatedConductedStipulatedConductedStipulatedConductedStipulatedConduc Stipulated tedConductedDiagnostic StudyAwarenesscreation andInteractions withCluster ActorsExposure visitsSkill DevelopmentProgrammeTechnologyUp gradationProgramme forenergy efficiencyMarketDevelopmentParticipation intrade fairs/ExhibitionsCreation ofMarketingBrochure/ WebsiteDevelopment ofFinancial LinkagesDevelopment ofBDS Data bank√ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √√ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √√ √ √ √ √ √ √ √ √ √ √ √ √ √√ √ √ √ √ √ √ √ √ √ √ √ √√ √ √ √ √ √ √√ √ √ √√ √ √ √ √ √ √ √ √ √ √√ √ √ √ √ √ √ √√ √ √ √ √ √ √ √ √√ √ √ √√ √ √88

Chapter No: 4 – Soft Interventions in Sampled ClustersTable No.-4.1 (a) (Contd.)(II) Secondary Goods Based Clusters (I)ClusterActivityBall BearingClusterJaipurBell MetalClusterKhurdaDiagnostic StudyAwareness creationand Interactionswith Cluster ActorsExposure visitsStipulatedConductedStipulatedConductedBell metalCluster HazoStipulatedConductedBrass UtensilCluster PareoStipulatedConductedCotton HosieryCluster KanpurStipulatedConductedDieselEngineClusterRajkotStipulatedConductedFan IndustryClusterHyderabadStipulated√ √ √ √ √ √ √ √ √ √ √ √ √ √√ √ √ √ √ √ √ √ √ √ √ √ √ √√ √ √ √ √ √ √ √ √ √ √Skill DevelopmentProgramme √ √ √ √ √ √ √ √ √ √ √ √TechnologyUp gradation √ √ √ √Programme forenergy efficiencyMarketDevelopment √ √ √ √ √ √ √ √ √ √Participation intrade fairs/√ √ √ √ExhibitionsCreation ofMarketing• • • • √ √ • • • • • √ √Brochure/ WebsiteDevelopment ofFinancial Linkages • • • • • • • • •Development ofBDS • • • • √ √ • • • • • √Conducted89

Chapter No: 4 – Soft Interventions in Sampled ClustersTable No.-4.1 (a) (Contd.)(II) Secondary Goods Based Clusters (II)ClusterActivityFoundryClusterAhmedabadPlastic ClusterAluvaDiagnosticStudyStipulatedConductedStipulatedConductedSewing MachineCluster LudhianaStipulatedConductedSurgicalInstrumentsCluster BaruipurStipulatedConductedWet GrinderClusterCoimbatoreStipulatedConductedWhite wareClusterKhurzaStipulated√ √ √ √ √ √ √ √ √ √ √ √Awarenesscreation and√ √ √ √ √ √ √ √ √ √ √ √Interactionswith ClusterActorsExposure visits √ √ √ √ √ √ √ √ √ √ √ConductedSkillDevelopmentProgrammeTechnologyUp gradationProgramme forenergyefficiencyMarketDevelopmentParticipation intrade fairs/ExhibitionsCreation ofMarketingBrochure/WebsiteDevelopment ofBDS Data bank√ √ √ √ √ √ √ √√ √√ √√ √ √√ √ √ √ √√ √ √ √ √ √ √√90

Chapter No: 5– The Special Purpose VehcileCHAPTER5THE SPECIAL PURPOSE VEHICLE5.1 IntroductionThe Industrial Cluster occupies the role of a ‘prime mover’ in the overall policyframework of the Ministry of Micro, Small and Medium Enterprises (MSME). Thedevelopment and strengthening of clusters thus forms the central and most importantpart of the strategy for supporting micro and small enterprises in India. The SmallIndustry Cluster Development Programme (SICDP) which is the flag ship programme ofthe MSME launched in August 2003 is a broad based holistic programme incorporatingimportant features that enable the promotion of marketing, exports, skill development,and technology up-gradation. Since its inception this programme had beenpredominantly assisting clusters through “soft” interventions such as diagnostic studies,trust building, counselling, training and capacity building, exposure visits, creditfacilitation, market research/development, and information systems. With the advent ofeconomic reforms and the opening up of the economy it became very essential tostrengthen the support systems particularly for small enterprises and enable them toface the increasing competition from the larger entities both at home and abroad. It wasfelt that soft interventions alone were not enough to protect a very large and politicallysensitive sector involving many million lives and livelihoods in India.Considering the fast changing industrial scenario and some of its adverse consequencesparticularly for the developing countries, it was felt necessary to introduce hardinterventions in the SICDP. These hard interventions directed towards assistingtechnology improvements, quality control and standardization and testing involvingadditional financial support for the creation of Common Facility Centers, was initiated.The programme guidelines and norms were also revised in March 2006. These commonfacilities normally unaffordable by individual small units, were considered necessary fortechnology up-gradation, and maintaining quality standards. These facilities wereexpected to ensure the collective exploitation of externalities and harnessing benefits ofthe economies of scale. These hard interventions were planned to be implementedthorough the Special Purpose Vehicle (SPV) in each of the identified clusters. In thischapter we analyze various important aspects of the Special Purpose Vehicle such as theneed and rationale for the SPV, its organizational and legally recognized institutionalform, the general profile of SPVs in the sampled clusters, the present composition andparticipation in SPVs, the reasons for participation or the lack of participation amongindividual cluster units, the major challenges faced in SPV formation and other importantaspects. Our analyses is based on the information, both primary and secondarygathered by our field team during the study. Most of this information was collectedthrough a specially designed field schedule or questionnaire, and also on the basis ofstructured interviews and discussions with important programme functionaries of theSICDP, the sampled SPVs, and the individual cluster units.91

Chapter No: 5– The Special Purpose Vehcile5.2 The Scope and Functions of the Special Purpose VehicleThe revised guidelines of the SICDP framed in March 2006, emphases the need forcreating a collective institution called the Special Purpose Vehicle, its very name ornomenclature reflects that it is a body specially setup for effectively undertaking certainspecial collective tasks on behalf of the individual cluster units. The guidelines state inPara 3.2 (please see Annexure 1 to Chapter I of this report) that there is a need forcreating an implementation agency which is “A clear legal entity with evidence of priorexperience of positive collaboration among its members, whether formally or other wise,as the applicant of the proposed cluster development initiative assures soundmanagement ideally, therefore, all proposals for cluster development seeking assistanceunder the SICDP must emanate from special purpose vehicles (SPV), consisting of theactual/likely cluster beneficiaries/enterprises organized in any legally recognized formlike a cooperative society, registered society, trust, company, etc.”The revised guidelines in Para 3.2.1 goes on to emphasize that “It will, however benecessary to constitute the SPV at the earliest possible, with clear indication of the timeframe for completion of this essential requirement while submitting the proposal forGovernment assistance.”It may be emphasized that the official definition of the SPV provided in the guidelinescan be interpreted and utilized in a manner that may dilute the sound intentions of themove as well as the very objectives of the SICDP. Nevertheless the intentions beingclear the definition of the SPV can be considerably improved to effectively optimize theintent.The formation of the SPV as stipulated in the present guidelines is justified as it enablesthe 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 appropriateregulatory and controlling agencies of the state, allowing it to function within thebounds/limits legally prescribed and stipulated.The SPV thus formed and registered enables the selection of projects that serve thecommon needs and requirements of the cluster as a whole, formulate the detailedproject 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 allits constituent units.92

Chapter No: 5– The Special Purpose Vehcile5.3 The Most Suitable Organizational and Legally RecognizedForm of the Special Purpose VehicleAs mentioned in the revised guidelines the SPV can be organized in several legallyrecognized forms such as a Cooperative Society, a Registered Society, a Trust, or aCompany. It is therefore essential to evolve a strong consensus among the clusteractors as to the organizational form most suitable for the specific cluster in conformitywith the nature and characteristics of the cluster. There is a fairly wide variation in thenature and characteristics of clusters. The varying nature of the clusters in terms ofproducts, scale of operations, technology and processes, as well as markets determinethe needs and priorities of commonly shared facilities. It is therefore extremelyimportant to arrive at a common consensus on the organizational form that should beadopted to serve these needs most effectively. The nature of the common facilitiesrequired may also vary from cluster to cluster. Some may require a developmentalfacility, or quasi-developmental common facility, while others may need a commonprocessing, or testing facility that can best be developed and sustained on purelycommercial lines to ensure viability and profitability.Cooperatives and Registered Societies appear to be more suitable for clusters, whichhave a large number of small and micro enterprises with a limited scale of operations, alimited product range and limited financial capacities. These units are likely to be morelabour intensive predominantly employing family labour and requiring common facilitiesthat ensure quality and standardization, marketing support, and the collectiveprocurement of raw materials and other inputs.On the other hand there are clusters where both the scale of operations and the productrange is large and diverse. The units may be relatively larger with higher financialcapacities. These units are also likely to be more capital intensive requiring commontesting and processing facilities. These common facilities may have to be run on purelycommercial lines and run like any other normal enterprise involving sharing of profits andreinvestment in expanding these facilities. The SPV in the case of such clusters may bebest organized as private limited companies though in these cases the number of shareholders/enterprises would be statutorily limited. However it may be emphasized that inthe case of an SPV being registered as a private limited company the extent of benefitsand collective participation by cluster actors in general is likely to be limited and thetendency of monopolizing the facility for the benefit of a few dominant cluster membersis most likely. However even in this case wider participation and sharing of benefits ispossible if shares are held by a group of individual cluster members/enterprises, in theform of a ‘holding company’.In principle as the objectives of Cluster Development aims to promote inclusiveness ofall cluster actors and the effective sharing of the benefits by the largest possible numberof cluster actors it is desirable to ensure that the organizational form adopted isconducive to the maximum participation. The size and capacity of the common facility isnormally proposed on the basis of the number of cluster members who are ‘likely’ toutilize the facility, however if the organizational form adopted restricts the participationin the SPV and furthermore discriminates against the utilization of the common facility bythe non SPV members of the cluster, then the facility created for the cluster may be93

Chapter No: 5– The Special Purpose Vehcileutilized by larger firms who are not a part of the cluster. At present there seem to be noeffective checks and balances to control such tendencies. The guidelines of theprogramme must seriously take this into consideration such checks and balances,especially when a substantial proportion of the funding for such CFCs comes through theprovision of “public” funding. It must be realized that requiring an SPV to be a “clearlegal entity” is not enough and may legitimize the use of public funds for private gain.5.4 The General Profile of Sampled SPVsIt is encouraging to note that there are 11 clusters among our 22 sampled clusterswhere a special purpose vehicle has been successfully formed and registered. Thisimplies that they have completed the earlier stage of the programme cycle involving softinterventions 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 andregistration.Yet another SPV has achieved Stage III of the programme cycle, having prepared theDPR for its common facility and obtained its approval. As many as 7 of the 11 SPVsformed have successfully taken their clusters to Stage IV, and are in the process ofconstruction or setting up of their common facilities. There are 2 SPVs namely the SPVfor 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 settingup and commissioning their common facilities.The SVPs formed and registered in 5 of the 11 cases belong to relatively smaller clusterswith a lower number of constituent individual units. The SPVs formed and registered inthe remaining 6 cases belong to relatively larger clusters. In the case of smallerclusters, two SPVs have been registered as societies while the remaining three havebeen registered as Private Limited Companies.Likewise in the SPVs formed and registered in the remaining 6 large clusters, as many as5 have been registered as societies and only one as a Private Limited Company. It isseen that in the case of large clusters the preference in organizational form of the SPVseems to be of a Registered Society, though there is one exception that of the RubberCluster, 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 SPVsis seen to be the Private Limited Company here too there are two exceptions namely theSPV of the Foundry Cluster, Ahmedabad, and the Leather Cluster, Shantiniketan, whichhave been registered as societies. It may be also emphasized that the remaining threesmall clusters are all located in Kerala and have uniformly preferred to register theirSPVs as Private Limited Companies. This preference arises mainly on account of labourmarket conditions, and a chronic fear of political interference in the functioning ofregistered societies. It is seen that for the two small clusters located in Gujarat andWest Bengal, the SPVs have been registered as a societies and not a private limitedcompany. The state of Gujarat has a long and illustrious history of cooperation andGandhian traditions and so does Shantiniketan is West Bengal. The organizational formof the SPVs does not necessarily have any strong correlation with size if one takes intoaccount specific regional factors and traditions. However the preferred organization94

Chapter No: 5– The Special Purpose Vehcilemost suitable for democratic collective action seems to be Societies rather than PrivateLimited Companies.It is also important to emphasize here that, while the effectiveness of soft interventionsare expected to enable clusters in the formation of SPVs, in several cases the SPVs havebeen formed and registered while soft interventions may have continued to linger on. Insuch cases as we shall see subsequently the larger involvement and participation ofcluster members in the formation and membership of the SPVs have been limited andthe inclusiveness of cluster actors in hard interventions has been low.Table No.-5.1: SPECIAL PURPOSE VEHICLES REGISTERED IN SAMPLED CLUSTERSSl Cluster Name TotalNo ofUnits inClusterOrganizational formof SPVYear of SPVRegistrationStage ofOperationViabilityandRankingInitialMembershipPresentMembershipInvolvementandInclusiveness1. Leather GoodsClusterShantiniketan2. Plywood ClusterPerambavoor80 Society 2006 III MVS(12)85 Pvt. Ltd.Company2003 IV VDS(16)10 87 H5 24 L3. Rice MillingCluster Kalady70 Pvt. Ltd.Company2004 IV VDS(15)28 41 H4. Rubber ClusterChengnacherry315 Pvt. Ltd.Company2003 V MVS(9)18 49 L**5. Bell MetalCluster Hazo6. Brass UtensilCluster Pareo7. Foundry ClusterAhmadabad200 Society 2007 IV MVS(13)500 Society 2004 IV MVS(8)76 Society 2006 V VDS(18)346* NA H100 124 H41 41 L8. Plastic ClusterAluva108 Pvt. Ltd.Company2006 IV MVS(1)24 24 L9. SurgicalInstrumentsCluster Baruipur10.11.Wet GrinderClusterCoimbatoreWhite WareCluster Khurza600 Society 2007 IV MVS(7)700 Society 2005 IV MVS(6)494 Society 2007 II MVS(4)180 180 H30 30 L10 10 LNote: *Multiple memberships from same household allowed.**Low in account of statutory limits on shareholders (individual) however holding companyoptions are available.MVS- Most Viable and Sustainable VDS – Viable but Difficult to SustainL – Low H - HighYet another interesting observation based on Table 5.1 is that of the 11 SPVs formedand registered as many as 8 (73 percent) belong to clusters, which are categorized asmost viable and sustainable (MVS). This clearly indicates that there is a definite positivecorrelation between SPV formations and the Viability and sustainability of the clusterbased on its specific cluster configuration. It is therefore necessary to evolve verycomprehensive guidelines for the conduct of the diagnostic study which must incorporateproper measures of cluster density, scale of operations, measures of homogeneity andheterogeneity and other critical measures that can then be weighed against the desiredand clearly stipulated norms for the initial and critical selection of the clusters for95

Chapter No: 5– The Special Purpose Vehcileintervention. This process of selection must be devoid of subjective and politicalconsiderations that lead to the improper selection of the cluster and the subsequentfailure or lack of impact of the SICDP. This clearly highlights the importance of thediagnostic study and the proper selection and training of CDEs. These issues have beenmore elaborately treated in earlier chapters.The level of involvement or inclusiveness of the individual cluster actors in the SPVs isalso indicated and classified into two simple categories H and L. This has been compiledusing figures related to initial membership at the time of registration, presentmembership, the percentage change in membership, as well as the total number ofindividual cluster units in each of the clusters covered during the study.The involvement of cluster members depends on how keen and motivated they are onbeing a part of the SPV. There keenness will also depend on how aware they are of thebenefits of common facilities as compared to the risks and financial commitmentsinvolved. Initially there may be only a few who are willing to join however as thecommon facility project gets approved and starts to unfold more persons may beattracted to join the SPV. These late applicants may or may not be encouraged to joinas SPV members by the existing incumbents, even if such late admission involves asubstantially higher financial commitment in terms of share money. Moreover there maybe statutory upper limit on the number of shareholders permitted depending on theorganizational form adopted. In the case of a private limited company for instance thislimit is fixed at 49 members. However even this statutory limit can be extended to coverall 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 theindividual members are shareholders in the SPV formed and registered. The degree ofinclusiveness would be high if the existing members of the SPV encourage moremembers to join even at a later stage and constantly encourage enhanced involvementand participation by those who initially prefer to stay out but later do not want to missthe boat.In Table 5.1 we see that the level of involvement and inclusiveness varies among the 11SPVs covered during the study. In the case of 5 SPVs the involvement and inclusivenessis observed to be high. Four of these 5 SPVs are registered as societies while only one ofthem is registered as a private limited company. Not all these clusters that these SPVsrepresent are large, indicating that democratic participation, involvement andinclusiveness in a SPV does not really depend on whether the cluster is large or small butis certainly determined by the organizational form adopted by the SPV representing thecluster. In the case of 6 SPVs, the involvement and inclusiveness is low, among these 3are registered as private limited companies while the remaining three are registeredsocieties. Here again these SPVs represent, both large and small clusters, and so thesize of the cluster does not have much to do with explaining involvement andinclusiveness. However take the case of the Wet Grinder Cluster in Coimbatore havingas many as 700 individual units and thus a large and dense cluster making it most viableand sustainable yet surprisingly at the time of registration of its SPV as a society, as farback as 2005, it had only 30 members. To make matters worse, in 2008 March, when96

Chapter No: 5– The Special Purpose Vehcileour 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. Validexplanations of such low involvement and inclusiveness do not lie in just theorganizational form adopted by the SPV but other factors as well.One important factor is the heterogeneity in these clusters, with very large unitsoperating along with very small ones. The second factor, which is related to the first, isthat large units in these clusters subcontract work to smaller units and also act asintermediaries in both the market for inputs and finished goods. There is a fairly wellestablished system of ‘dependence’ and ‘dominance’ within the cluster that would beseriously threatened by wider involvement and inclusiveness. The responses of clusterunits 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 inSPVsOne of the major non-economic features of homogeneity within clusters is the social andethnic composition of individual units owners in the cluster. Since the SPV is a sub set ofthe larger cluster that it represents, the social and ethnic composition of the cluster ismost 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 monopolizedby the larger and more dominant players, while on the other units of different sizes mayparticipate equally in the SPV.As seen in Table 5.2 all but one single SPV that we have covered, is dominated by singlecaste or community, this most probably provides a strong cementing force in each of theclusters. This homogeneity that has evolved over a long period of time is a majorcharacteristic of clusters in India. We thus need to recognize this and work within itwithout attempting to assign it with any racial or communal connotations. In fact thisrich and diverse collage of communities reflects the talent expertise and contribution ofdifferent castes and communications in industrial development.Turning to the participation by units of different sizes in each SPV, it seen that in 4 of the11 SPVs the participation is confined to large units only. These SPVs belong to clustersthat are relatively more heterogeneous in terms of size and scale of operation. Howeverin the case of as many as 7 of the 11 SPVs the participation is by units of all sizes whichoften include very small units as well. These are clusters with a higher degree ofhomogeneity in terms of size and scale of operations.97

Chapter No: 5– The Special Purpose VehcileTable No.-5.2: COMPOSITION OF, AND PARTICIPATION IN SPVsSl ClusterComposition1. Leather GoodsClusterShantiniketan2. Plywood ClusterPerambavoor3. Rice MillingCluster Kalady4. Rubber ClusterChengnacherry5. Bell MetalCluster Hazo6. Brass UtensilCluster Pareo7. Foundry ClusterAhmadabad8. Plastic ClusterAluva9. SurgicalInstrumentsClusterBaruipur10. Wet GrinderClusterCoimbatore11. White WareCluster KhurzaDominanceof OneCaste/Community/Religion√√√√√√√√√√Mixed Castes/Communities/Religion√Participation by largeunits only√√√√ParticipationParticipation by Unitsof all Sizes√√√√√√√5.6 Perceptions Regarding Reasons for Non-Participation in SPVsIn order to enhance our understanding and clarity on various issues, and to design ourfield instruments for canvassing the relevant data we organized a few pilot field visit tosome clusters. One of the important issues that emerged from our observations anddiscussions with SPV functionaries and individual cluster unit owners/managers was thelack of involvement and participation in the SPV while the SPV functionaries had theirown perceptions regarding the matter, so did many individual cluster units. While therewere common perceptions among these different respondents there were alsoperceptions that were contradictory and at variance with each other. It may bementioned that the field instruments were canvassed among the functionaries of the 11SPVs that had been formed, and also among the units in these 11 clusters where SPVshad been formed. The individual units owners/managers were those that were aware ofthe scope and functions of the SPV but were not SPV members, these were often thosethat consisted of the more ‘peripheral’ and dissident units usually quite small in theirscale of operations. We covered 31 such units across the 11 clusters, which hadregistered SPVs and were at various stages in the implementation of ‘hard interventions’.98

Chapter No: 5– The Special Purpose VehcileAs seen in Table 5.3, we have carefully identified eight major factors that affectparticipation and involvement and compiled the responses obtained on these factors.These factors include risk aversion, financial constraints, awareness regarding thebenefits, 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 riderproblem, and the appropriateness of the CFC.Table No.-5.3: PARTICIPATION AND INVOLVEMENT IN SPVsSl. Factors AffectingParticipation% Distributionof ResponsesResponses ofSPVsResponsesof ClusterActors1. High Risk Aversion 10 90.90 29 93.54% Distributionof Responses2. Financial Constraints 9 81.81 26 83.873. Lack of Awareness 7 63.63 23 74.19regarding Benefits4. Lack of Contact 5 45.45 15 48.385. Skepticism andDoubts regardingViability6. Fear of the Monopolyand Dominance of afew7. Free Rider Syndrome(or benefitting bythe effort of others)8. Common Facility NotAppropriate (notevolved on the basisof concerns)11 100.00 28 90.323 27.27 25 80.658 72.72 14 45.162 18.18 23 74.19As seen in the table there is a fairly high degree of agreement among the two sets ofrespondents on some factors such as risk aversion, financial constraints, lack ofawareness, skepticism regarding viability, and the free rider problem. The highestdegree of agreement on the above issues is on factors such as skepticism regardingviability, risk aversion, the free rider problem, and the lack of awareness regardingbenefits. The highest degree of disagreement is seen to exist on factors such as theappropriateness of the CFC and the fear of monopoly and dominance of a few strongplayers. The identification of these factors should enable the policy makers tospecifically direct efforts that will effectively lower the impact of such factors, if notremove them altogether. The most feasible policy strategy to effectively solve some ofthese rather intractable problems would be to permit and support the formation of subclusters and SPVs in order to lower the effects of homogeneity based on size and scale ofindividual units. However this would only apply to large and dense clusters with a highdegree of viability and sustainability. It should also be emphasized that the guidelinesand norms related to the SICDP and particularly those related to the role and functionsof the SPV in the creation, management and sustenance of the CFC should be99

Chapter No: 5– The Special Purpose Vehcilecomprehensively reviewed and revised before the implementation of the programmeduring the 11th Five Year Plan.5.7 Suggested Methods of Removing Constraints faced by SPVsHowever while obtaining the responses of SPV functionaries on the constraining factorsaffecting the formation and effective functioning of SPVs, we also obtained theirresponses on measures to handle these constraints and challenges. Various usefulmeasures were suggested by the SPV functionaries that they considered to be importantand which they initiated in order to overcome constraints. These are classified in twobroad groups, the first consisting of Trust Building Initiatives/Measures required to beundertaken by the SPVs themselves, and the second consisting of FacilitativeInitiatives/Measures that are required to be taken up by the Government and PublicAgencies.There are 11 specific initiatives or measures on which the responses of the SPVs werecanvassed, while we have received a very high level of affirmative responses in the caseof each of the eleven measures highlighted it is clearly evident from Table 5.4, theaffirmative responses on seven of these 11 issues are relatively higher. The highestaffirmative response is seen for three trust building measures. The first is the cleararticulation of the concrete benefits and advantages of working together. The second isthe clear articulation of the concrete benefits of the CFC and its viability. The thirdmeasure is the obtaining of clarification on guidelines and procedures and effectivelydisseminating them among cluster actors to clear doubts and ambiguities that give riseto skepticism. It may be mentioned here that the other measures listed in some detail inthis self-explanatory table 5.4 are equally important and there is considerable unanimityin 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 theseinitiatives 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 theGovernment, it is observed that the affirmative responses of the SPVs are very high, withall the responding SPVs unanimously endorsing the need for as many as four out of thesix measures listed in Table 5.4. Here the most important measures seem to be supportof the State Governments in the proper and timely enforcement of regulations, theprovision of infrastructure and assistance in land acquisition, provision of appropriate taxconcessions and other development incentives as well as the streamlining andsimplification of procedures. The second important measure that is desired from thegovernment is the support of the MSME to dovetail the relevant programmes andschemes offered by other ministries and agencies including the financial institutions. Thethird important initiatives is the proper selection and training of CDEs, and providingthese key catalytic functionaries with the resources and facilities to carry out their taskseffectively. Last but not the least is the importance assigned to the revision andelaboration of the programme guidelines and norms to remove all the presentambiguities and lack of clarity. It is also seen that at the level of actual implementationthese measures are perceived to be deficient and far from satisfactory.100

Chapter No: 5– The Special Purpose VehcileTable No.-5.4: RESPONSES ON INITIATIVES AND MEASURES REQUIRED FOREFFECTIVELY MEETING CHALLANGESSl . Required Initiatives/Measures AffirmativeResponseResponses onMeasuresUndertaken(A) Trust Building Initiatives by SPV1. Frequent personal meetings with diffident cluster actors. 7 42. Articulation of the concrete benefits and advantages of 10 3working together3. Articulation of the concrete benefits of the CFC and its 10 2viability4. Closely monitoring and supporting the work of the CDE 8 55. Obtaining detailed clarifications on guidelines and 10 4procedures and effectively disseminating this amongcluster actors to remove ambiguities and skepticism6. Keeping membership options open for late entrants 9 77. Maintaining transparency through circulation of accounts 9 8and annual report8. Open access to MOAs and Rules framed at the time of 8 6registration9. Collectively removing elements that impede grater 9 2participation by cluster members10. Involving existing Associations in the cluster and 8 5leveraging on their influence.11. Arranging Facilitating visits to exhibitions /industrial fairs 9 7both at home and abroad and also demonstration visits toother successful cluster development projects andcommon facilities created there in.(B) Facilitative Initiatives by Government1. Support of State Governments in regulations, 11 3infrastructure and land acquisition and taxconcessions/incentives, streamlining and simplifyingprocedures2. Support of MSME-DIs 8 73. Support of Department of Science & Technology 9 14. Support of MSME to dovetail the relevant programmes of 11 1other ministries5. Proper selection/Training and resources for CDEs 11 26. Revision and Elaboration of Programme Guidelines andnorms to remove ambiguities and lack of clarity.11 1It is also important to stress that some of these initiatives require the provision ofadditional resources through project funding for soft and hard interventions as also tothe MSME-DIs during the 11th FYP. Implementation of these measures will considerablyimprove the effectiveness and impact of the SICDP.101

Chapter No: 5– The Special Purpose Vehcile5.8 Perceptions Regarding the Role of the CDE and Effectivenessof Soft InterventionsThe cluster Development Executive (CDE) is a key functionary in the SICDP as seen inan earlier chapter. Among his important functions there is the conduct of diagnosticstudy, the building of trust and confidence among cluster units, spreading of awarenessand advocacy for collective action and several other motivational and mobilizationmeasures that constitute what are broadly classified as ‘soft interventions’.These soft interventions prepare the cluster for the hard interventions and theireffectiveness and usefulness enables the SICDP to steadily progress and be successfullycompleted. 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 ofthe CDE, as well as regarding the effectiveness or ineffectiveness of various softinterventions.In Table 5.5 we have presented the perceptions of the SPVs regarding the CDE assignedto the cluster.Table No.-5.5: PERCEPTIONS OF THE SPVs REGARDING THE ASSIGNED CDEsPerception of SPVs Regarding the CDENumbers ofResponsesVery Effective and Helpful but could do better with training 6Fairly Effective and helpful but could do better with training and4necessary resources and facilitiesNot Effective due to lack of training and the burden of other tasks 1Extremely Indifferent and Ineffective 0It is seen that in the case of 6 SPVs, the assigned CDE is perceived to be very effectiveand useful, but could do much better if adequately trained and provided with additionalfacilities to function effectively. In the case of 4 SPVs the perceptions regarding the CDEare that they are fairly effective and helpful, but require proper training and necessaryskills along with additional resources and facilities to function effectively. However in thecase of one SPV the perceptions regarding the effectiveness of the CDE is rathernegative, in this case it is perceived that not only does he lack training but is alsoburdened with tasks by his parent department that are not related to the CDPprogramme. Fortunately none of the SPVs find the assigned CDE to be extremelyindifferent and ineffective.The perceptions of the SPVs regarding various soft interventions are presented in Table5.6. It is seen, that there are as many as 8 different types of activities that constitutethese soft interventions. A careful scrutiny of the responses recorded regarding theseinterventions shows that, the first among the most effective soft interventions are groupmeetings that enhance mutual trust and confidence among members and help in theevolution of a consensual business or strategic plan. The second effective softintervention appears to be exposure visits to other clusters and CFCs. The third effectivesoft intervention is the participation in exhibitions and trade fairs.102

Chapter No: 5– The Special Purpose VehcileTable No.-5.6: RESPONSES ON THE EFFECTIVENESS OF SOFT INTERVENTIONSSoft InterventionsResponsesEffective NotEffectiveNoResponseGroup Meetings (to evolve a consensus 9 2 0on a business plan)Personal visits and interaction with4 3 4Cluster MembersExposure visits to other Clusters or8 2 1CFCsCommon Website/ Information Portal 0 0 11Participation in Exhibitions/ Trade Fairs 6 4 1Training Programmes and Seminars 5 5 1Marketing Visit 2 5 4Medical Conferences 4 2 5It is also quite revealing to find that marketing visits, and the conduct of training andseminars are perceived as being ineffective. Furthermore the number of No Responses isquite high indicating a fairly high degree of cynicism regarding soft interventions and thecasual manner in which these activities are treated. At the SPV level one cannot takethis indifference lightly as it is the SPV that benefits most from these interventions.It is therefore necessary to comprehensively revamp these soft interventions, byadopting the required professional approach through the involvement of behavioral andorganizational experts, and expert agencies. It would be worthwhile to commission aspecial study that puts together the best and most effective practices required tomobilize and motivate collective action, resolve conflicts and interpersonal differences,and effectively learn to cooperate.103

Chapter No: 6 – Hard Interventions in Sampled ClustersCHAPTER6HARD INTERVENTIONS IN THESAMPLED CLUSTERS6.1 IntroductionHard Interventions are so termed in any cluster development industrial strategy becausethey unlike soft interventions are expected to produce concrete results by way ofcollectively reducing costs, improve productivity, maintain quality and standards ofindividual units. Hard interventions thereby enhance competitiveness in globalisedmarkets and create a level playing field, especially for a large cluster or group of smalland micro-enterprises who in their individual capacities are unable to undertake the largeinvestments required for the purpose.One of the main objectives of our evaluation study was to study the status and impact ofhard interventions in the sample clusters that are being assisted under the MSE-CDP.Hard interventions involve a series of distinct processes arranged in pre-determinedstages. Each stage has to be successfully implemented before the next stage is takenup. The end result of the successful implementation of these essential stages is thesetting up of a common facility that can be utilized by all cluster actors while they pursuetheir individual enterprise activities. This common facility should be operated, managed,sustained, and even expanded independently and needs to adopt a legitimateorganizational form like any industrial enterprise or firm. It thus needs a regular andprofessional 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 beenachieved in each case, the impact of hard interventions emerge and can only beassessed after each of these essential stages has been successfully completed and thecommon facility built, tested and commissioned.As seen in the previous chapter there are only eleven clusters out of the 22 clusterssampled for this study that have started to implement hard interventions each of theseclusters are at different stages of implementing hard interventions and only two of theseeleven 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 haveonly functioned for a limited period. In such a situation the impact is limited and unlessthese facilities stabilize and overcome various ‘teething’ problems a full assessment oftheir impact may not be possible at this early stage. Nevertheless their presentfunctioning provides early and useful indicators that help in streamlining policies andprocedures and thereby incorporating corrective features to strengthen and sustain theMSE-CDP programme in the days to come.In this chapter we shall therefore emphasize the justification for hard interventions, therationale and objectives of hard interventions, the necessary stages that have to besuccessfully negotiated and the specific constraints that emerge in each of these stages104

Chapter No: 6 – Hard Interventions in Sampled Clustersthat need to be removed, the current status of hard interventions in the sampledclusters, and the impact of these hard interventions which are reflected in the functioningof the CFCs.6.2 The Justification for Hard InterventionsHard interventions are those measures implemented by legally constituted group ororganizations called SPVs that are involved in different common functional areascollectively serving a cluster or agglomeration of small and micro enterprises involved inthe processing and manufacture of largely similar goods or services.These Special Purpose Vehicles or “Hard Networks” are constituted for the followingreasons:• 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 aspurchase of essential and common inputs, procuring finance, production andmarketing.• To increase bargaining strength vis-à-vis input suppliers or customers or distributors.• To collectively bear the risks and costs involved in undertaking large projectsinvolving high investments and possible risks.• To avail the benefits of support schemes and special assistance by the state, financialinstitutions, and development agencies, which often requires the benefits to betransferred to legally constituted and accountable entities that function under specificregulatory statutes and rules.• To effectively demonstrate the power and concrete benefits of collective action andcooperation and also to provide a ‘safety net’ in a highly predatory and aggressivelycompetitive industrial system dominated by large national and multinationalenterprises.Hard interventions can be implemented on a Public-Private Partnership basis, and thebenefits derived from these initiatives in such a context may have greater justification asa long-term strategic measure rather than for short term commercial gain. It is alsoseen that some of these hard networks are created entirely on the basis of privateinitiatives, while others may be led by the State and State Agencies.It should be emphasized that with the advent of liberalization and “reforms”, theprotection and support provided to small and micro enterprises have undergone a greatdeal 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 earlierused for defining a small enterprise. Many fear and have been often proved right aboutthe adverse effects of “opening up” the manufacturing sector in response to the call forfree multilateral trade. These adverse effects impact the developing countries moreseriously than they do, in the case of developed nations. The need for “safety nets” isnow universally justified perhaps fearing a major economic disaster that may have itsown political consequences. The Cluster Development Programme can also be visualizedas an effective industrial safety net in this era liberalization and ‘reforms’.105

Chapter No: 6 – Hard Interventions in Sampled Clusters6.3 The Rationale and Objectives of Hard InterventionsThere are several benefits that have accrued to SMEs who have collectively formed aconsortium in the form of a SPV, which is a legally constituted entity. These benefitshave been exploited in one or more ways and have helped in the improvement ofmargins, and thus their individual incomes as well as competitiveness, we feel it isessential to briefly describe these collective initiatives and highlight some of the casesacross clusters in India.These hard interventions have been as follow:SPVs to exploit Supplier/Market Access- The SPVs in this case directly accesssuppliers and customers without individually having to interact with their clients throughdistributors and other intermediaries. The margins that they surrender tointermediaries, who are often large, and affecting their own margins are thus effectivelycontrolled and internalized. The foundry cluster units in Hyderabad have directlyapproached the Steel Mills as against their suppliers who were basically steel distributorsand traders. The Wet Grinder Cluster in Coimbatore has been able to procure copperwire for their individual cluster units directly from manufacturers rather than dependingon local traders. The cases of many small coir units in Alleppey have similarly organizedthemselves to avoid middlemen and ‘coir depots’ to collectively access finance andmarkets. These are all real instances of collectively organizing in the form of a legalentity and accessing markets directly to improve individual incomes and margins.Individual cluster units can collectively take up harnessing Economies of Scale- commonmanufacturing processes on a large scale and of uniform quality and standards.Common components procured from outside the cluster can be manufactured in acommon facility. The cost of manufacture of these individually by the cluster unitsthough possible would be prohibitively expensive. A common process can also becollectively organized and the necessary investments (usually large) mobilized toeffectively exploit the economies of scales. The Wet Grinder Cluster in Coimbatore hasplanned a common facility to produce certain common components that were beingoutsourced from firms outside the cluster, this would not only reduce costs but also helpin controlling quality and standards. The export clusters producing home furnishings andtextiles in Kannur, Kerala, and Tirupur, Tamil Nadu respectively, have established theirown spinning mills to reduce units costs. Yet another example is of the Rubber Cluster inChenganacherry which has set up a mixing mill to reap the economies of scale, andimprove the quality and standards of the products manufactured and exported by theindividual units in the cluster.Improving Bargaining Power- Common bulk procurement of raw materials is yetanother initiative that can benefit individual units considerably and improve the collectivebargaining power as compared to the low bargaining strength that small and micro unitswould have. The Tery Towel Cluster in Sholapur, Maharashtra, has directly negotiatedwith 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 anincreasing need for new and renewable energy sources that help in the progressive useof cleaner fuels and effectively supplement the energy needs of small and microenterprises. Common initiatives for harnessing wind energy, biogas, and even micro106

Chapter No: 6 – Hard Interventions in Sampled Clustershydel power apart from viable solar energy applications can be collectively pursuedthrough hard interventions. Moreover the recycling of waste, the use of valuable byproducts, and also the treatment of toxic effluents and wastes open up many usefulcollective options for both lowering unit costs and protecting the environment. Withincreasing environmental concerns come severe regulation and restrictions that are likelyto affect small and micro enterprises in particular as they can hardly take up theseinitiatives individually. The only way out seems to be collective action through hardinterventions. The Rice Milling Cluster in Kalady, and the Rubber Cluster inChenganacherry are examples of some such hard initiatives.Spreading or Collectively Sharing, Risks- Though it may be possible for an individualunit to set up a facility that he himself can use and also hire out to others, he would haveto be sure that the others use the facility so that the capacity which is created is fullyutilized. These are however risks involved in such a venture. It is therefore preferred toundertake such a project collectively so as to share the risks by spreading them over themembers of the SPV. The solvent extraction project taken up in the Rice Milling Clusterin Kallady was viable even at the level of an individual unit, as long as there wasadequate demand for this facility by millers other than the unit setting up the facility onan individual basis. The investment involved in plant and machinery was large but thereturns were also equally attractive, however considering the long-term viability of ricemilling in the state of Kerala, and also the uncertainty regarding the demand for theservices of this facility, the risks involved were substantial. The project was thuscommissioned in 2005 entirely as a privately led collective intervention in order to spreadthe risks as well as share the benefits among the private consortia/SPV that was formedfor the purpose. No support except for soft interventions was provided for this projectunder the MSE-CDP programme, clearly demonstrating that the logic of the programmeand its impact are very robust and more importantly that hard interventions can besuccessfully carried out even without much support from the government.The CoirCluster at Alleppey is yet another example of the effective sharing of risks andresponsibilities as well as the benefits among SPV members. Yet another interestingcase is that of several SPVs belonging to the Handloom Cluster, in Kannur, Kerala joininghands to invest in a common retailing outlet for products. This outlet was located in theexpensive up market locality in the city and involved large investments as well as risksthat were shared.Availing Benefits of State Support – State and State promotional agencies makesupport conditional to the formation of a legally constituted and accountable SPV. TheState often expects the equitable and widespread participation of cluster units and attimes clearly defines the minimum number of cluster units that are required to bemembers of the SPV formed for the proper channelization of State funds. Though hardnetworks/ SPVs can be based entirely on the basis of private involvement with no statesupport, it is seen that most Cluster Development Initiatives adopt the PPP mode. TheState is the ‘hand holder’ in the earlier stages of cluster development but progressivelytakes a ‘back seat’ as the cluster matures and becomes a self sustaining collective.107

Chapter No: 6 – Hard Interventions in Sampled Clusters6.4 The Role of the State in Supporting Hard InterventionsThough State support is required to play a supportive role in the setting up of SPVs andcommon facilities there is a need to carefully target this support for the equitable benefitof the entire cluster. The MSE-CDP is designed to support these initiatives but it appearsweak in regard to the targeting of this support. What is being stressed here is thatunless it is carefully directed at clusters that are genuinely composed of small and microenterprises there may be a tendency to treat the programme as a convenient mode ofutilizing 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 theindividual units are predominantly small. The identification and selection of theseclusters should specifically incorporate criteria that lead to the selection of such clustersonly.The second issue related to State support is that it becomes most essential for the stateto 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 thestate should encourage. The form, which is most conducive to the most widespreadcollective participation by cluster units, should be preferred.The fourth issue related to state support for hard interventions is the size and bankabilityof the project. If the project is bankable then the funding burden of the State can bereduced to support a larger number of cluster initiatives with the resources available,and the accountability and responsibility of the beneficiaries considerably enhanced. Thepolicy framework specially relating to hard interventions need to explicitly incorporatethese issues in order to avoid the dangers of ‘unhealthy’ privatization. The State must‘partner’ the private sector by strongly targeting its support towards measures thatstrengthen and support small and micro enterprises, measures that build the strongroots of democratic collective strength among those who need to be supported the most.6.5 Hard Interventions in Sampled ClustersIn what follows we will be analyzing the various hard interventions that have beeninitiated in the sampled cluster that were covered during this study. As seen in earlierchapters (Chapter 2), hard interventions are implemented in stages and culminate withthe commissioning and functioning of the CFC. Each stage of hard intervention isimportant in itself and is necessary for enabling the next stage. We shall first highlightthe status of hard interventions by examining the various stages that have beenachieved. The profile of hard interventions will then be briefly analyzed to throw somelight on the implementation of the hard interventions and the problems thereof. Weshall then finally look at the functioning of the CFC and comment on what could beconsidered the early indications of the impact of the MSE-CDP.108

Chapter No: 6 – Hard Interventions in Sampled Clusters6.6 Stages of Intervention under MSE-CDPAt the time this evaluation study was conducted it was observed that of the 22 sampledclusters as many as 11 were still at the 1st stage of soft interventions, as indicated inTable 6.1. This by itself is a fairly disturbing revelation and indicates the need tocatalyze soft interventions with added vigour during the 11th plan period. Thisstagnation also reflects the ineffectiveness of soft interventions and requires theimmediate attention of programme functionaries.Table No.-6.1: SUMMARY TABLE ON STATUS OF INTERVENTIONSSl. Coverage and Stages ofProgressStage ofProgrammeImplementationNumber ofSampledClusters1. Total Number of ClustersCovered (during Study)%DistributionNA 22 100.002. Clusters Implementing SoftInterventions (as on date)3. Number of Clusters where inSPVs have been formed andRegistered4. Number of Clusters where inSPVs are formulating DPRs forApproval5. Number of Clusters where inConstruction and Installation ofCFC is in Progress6. Number of Clusters where inCFCs have been Commissioned &are FunctionalI 11 50.00II 11 50.00III 2 9.09IV 7 31.82V 2 9.09It is however encouraging to note that the remaining 11 sampled clusters havesuccessfully 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 beformulated or has been formulated but not approved. They are thus stuck in the IIIrdstage and have not progressed beyond it. There are as many as 7 SPVs who have nowprogressed 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 onaccount 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 andsuppliers have defaulted on the timely delivery and installation of equipment. It is only inthe case of two clusters that the respective SPVs have commissioned the CFC and theseare functional.It may be mentioned here that the timely implementation of various stages of the MSE-CDP depends to a great extent on the clarity and lack of ambiguity in the programmeguidelines and though it is claimed that these guidelines and norms werecomprehensively revised in March 2006, it is felt that immediate efforts are necessary toreview and reformulate the detailed guidelines of the programme to remove existingambiguities and lack of clarity.109

Chapter No: 6 – Hard Interventions in Sampled Clusters6.7 Implementation Profile of Hard Interventions in the SampledClustersWe have various important indicators related to hard interventions in Table 6.2. Theseindicators provide us with a convenient tabulation of the profile of the implementation ofhard interventions in the concerned clusters. First of all it is seen that only in 3 of the 11cases have the SPVs been formed and registered after the revised guidelines for theMSE-CDP were issued by the MSME. In the 9 other clusters the SPVs were formed muchearlier so it is clear that the concept of hard interventions and the SPV predates theMSE-CDP. In some cases it predates even the earlier version of the programme that wascalled the SICDP. This indicates that programme is still in its infancy and in the processof being structured. It is also therefore obvious that the development of clusters under ithave only started to bear an impact.It is also seen that a larger number of SPVs have preferred to be organized as registeredsocieties while only four are registered as Private Limited Companies. All the four SPVsadopting the company format are located in Kerala.It needs to be mentioned that since a lot of information particularly that related to thedate of DPR submission, the date of DPR approval and the date of receipt of funds werenot made available, we were unable to judge the pace of implementation in many of thecases. However wherever this information was provided we were on a case-by-casebasis, able to comment on the pace of implementation.It may also be stressed that the information provided are partial and incomplete in manycases and so we have not attempted any interpretation. We have however attempted toassess the pace of implementation in the case of 9 clusters for which some informationhas been provided and needs to be confirmed. So as a word of caution it may be statedthat the interpretation may not be entirely correct.There are five distinct processes involved during the different stages of implementationand these processes may take varying periods of time. The five distinct processes arethe formulation of DPR, the approval of DPR, the release of funds, the period ofconstruction, 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 therange of 3 to 24 month in the different cases. While in the case of 4 SPVs namely thoseof the Bell Metal Hazo, Foundry, Ahmadabad, Surgical Instruments, Baruipur, and theWet Grinder, Coimbatore the process of DPR formulation has been completed within 6months. In the case of the SPV of the Rice Milling Cluster Kalady the Formulation of DPRhas taken 9 months, while in the case of the Plywood and Leather Clusters SPVs inPerimbavorr and Shantiniketan it has taken up about 22 to 24 months. While in mostcases 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 ofthe 6 SPVs providing data while in the case of surgical Instruments SPV it has beendelayed over a period of 21 months. Overall the time taken by the authorities to110

Chapter No: 6 – Hard Interventions in Sampled Clustersapprove the DPR has been quite reasonable but their seems to be scope for improvingand 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 INTERVENTIONSSl Cluster Date of SPVRegistrationType ofSPV1. Rice Milling ClusterKalady2. Rubber ClusterChenganacherry3. Plywood ClusterPerambavoor4. Leather GoodsClusterShantiniketan5. Plastic ClusterAluva6. White WareCluster Khurza7. Brass UtensilCluster Pareo8. Bell Metal ClusterHazo9. Foundry ClusterAhmadabad10. SurgicalInstrumentsCluster Baruipur11. Wet Grinder ClusterCoimbatoreNote- NA- Information not made available as yet.∗ to be confirmedDPRSubmissionDateDPRApprovalDateDate ofReceipt offunds fromMSMEStage of CFC27.11.2004 Pvt. Ltd.Company09.08.2005 07.02.2007 21.03.2007 UnderConstruction2001 Pvt. Ltd. 2003 2003 NA CFC FunctionalCompany14.10.2003 Pvt. Ltd. 04.08.2005 07.02.2007∗ 15.03.2007 UnderCompanyConstructionJan 2006 Society Feb .2008 Yet to be NADPRApprovedsubmitted2.12.2006 Pvt. Ltd.CompanyNA 22.12.2006 20.03.2007 UnderConstruction27.07.2007 Society Not Yet to be NA No progressSubmitted Approved23.12.2004 Society NA NA NA UnderConstruction17.06.2007 Society 02.11.2007 15.02.2008 15.03.2008∗ UnderConstruction02.01.2006 Society 15.05.2006 26.03.2007 26.04.2007∗ CFC FunctionalNov 2005 Society 02.02.2006 Nov 2007 NA UnderConstruction19.08.2004∗ Society 28.01.2005 28.02.2005 15.03.2008 UnderConstructionThe third important process is the release of project funds (the first installment, thesubsequent releases depending on the utilization of funds and the submission ofutilization certificates). It is seen in Table 6.2 that in nearly all the cases for which datawas provided, the release of funds look a period of 1 to 3 months. Only in one case thatof the Wet Grinder SPV in Coimbatore was the fund reported to be released after a lapseof 37 months. This is an exceptional delay and needs to be probed further to unravel thereasons behind such a delay.The period of construction of the CFC has also varied considerably and since it has notbeen completed and is in progress, it is difficult to judge the time taken. Moreover sinceprojects vary considerably in nature and complexity it is possible to expect suchvariation. However it is expected that the SPVs would make all efforts to completeconstruction at the earliest so that themselves and the cluster actors can obtain theactual benefits of the project. The pace of construction should be also speeded up inorder to avoid the escalation in cost that would have to be met by the SPV.6.8 The Functioning and Impact of the CFCAs seen earlier there are only two clusters in the entire sample of 22 clusters covered bythis study where the CFC has been commissioned and has started functioning. The first111

Chapter No: 6 – Hard Interventions in Sampled Clusterscase is that of the CFC at the Rubber Cluster in Chenganacherry, Kerala, here a largeautomated rubber mixing plant has been constructed. This common facility is reportedto enable the uniform mixing of raw rubber with various other chemicals and agents toproduce treated rubber which is further processed into various products. The quality ofthe mixing determines the final quality and finesse of the goods produced by theindividual 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, andat the time of our visit to Chenganacherry in early March 2008 it had completed 13months of operations providing us a glimpse its monthly revenue, expenditure andoperating 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)MonthUserChargesWagesAccessoriesConsumablesLubricantsAMC &RenewalsElectricityChargesRubberOil forPumpsTotalOperatingSurplus/DeficitFeb 07 2310 4800 181 200 591 5772 -3462Mar 07 93008 37552 27433 4555 3700 67659 23810 164709 -71701Apr 07 145524 37800 2737 3100 2703 157715 37254 241309 -95785May 07 181458 31035 3116 11426 103937 46454 195968 -14510June 07 180888 41615 2103 3740 3300 109988 46307 207053 -26165July 07 226341 40695 2695 1185 700 110447 57943 213665 12676Aug 07 239790 42985 2140 3525 3150 10450 136594 61386 260230 -20440Sept 07 171358 40310 825 2123 4760 300 129298 43868 221484 -50126Oct 07 221990 44944 3990 4552 1040 1200 105579 56829 218134 3856Nov 07 240544 41784 377 4887 5990 20522 140367 61285 275212 -34668Dec 07 264697 50684 5267 1040 11876 140762 28358 237987 26710Jan 08 306579 56645 861 2342 5946 146058 32883 244735 61844Total 2274487 470849 35626 38083 24205 72123 1348404 496968 2486258 -211771It is encouraging to see that the revenues earned by way of monthly user charges hassteadily risen over the 12 month period while the monthly expenditure on various itemshave remained largely stable. This has resulted in operating deficits mainly in the initialmonths but also moderate operating surplus as the functioning of the facility hasprogressed. While there have been operating deficits during 5 of the initial six monthsand only one month during which there has been an operating surplus the workingresults seem to have improved in the last 6 months with only three months of operatingdeficit and three months of operating surplus. While electricity charges account for thelargest single component of total expenditure (54.23%), the second largest componentof expenditure is that incurred for the Rubber Oil for Pumps (19.99%), these two112

Chapter No: 6 – Hard Interventions in Sampled Clustersexpenditure items account for as much as 75 percent of the total expenditure. Labourcosts account for the third largest component of expenditure (18.94%). The entireprocess is energy intensive and with no immediate supplementary energy sources insight this will continue to remain a major challenge. This facility is also reported to beworking at a fairly low level of capacity utilization at present. The facility was reported tobe working on a single shift and at a capacity utilization of 33 percent. It is also reportedby SPV functionaries that a majority of the individual cluster units are making low endrubber products which do not require high quality rubber, and thus the utilization of thisfacility is low. However this scenario is likely to change once the cluster starts movingup the value chain. The increasing competitiveness, and quality consciousness is alsolikely to force this movement up the value chain.Moreover the strong demonstration effects that the CFC has already induced, is expectedto improve its capacity utilization quite significantly in the near future. Some large firmsfrom outside the cluster are reported to be using this facility and if the spare capacitycontinues to persist the SPV is likely to continue allowing the use of this facility to nonclustermembers. However in such a situation a higher differential tariff for non-clustermember needs to be introduced in order to attract cluster members, who are not yetattracted 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 afairly large conference hall. It is important to recollect that this cluster is highlydispersed with units located far apart. One is hard pressed to find an adequate numberof users from within the cluster. The cluster is also reported to have only a limitednumber of individual units raising doubts regarding the full utilization of this facility onthe basis of its use by cluster members alone. It is most likely that in an attempt togenerate additional revenue to meet the operating costs this facility will have to bethrown open to non cluster users. The size of the auditorium is also disproportionate tothe actual needs of the cluster members and is likely to be hired out for users unrelatedto the common needs of cluster actors. Turing to the working results complied in Table6.4 for period of seven months, one finds that the figures on revenues as compared toexpenditures incurred are not very encouraging with fairly large operating deficits in 6out of the seven months during which this facility has functioned.Table No.-6.4: REVENUES, EXPENDITURE AND OPERATING SURPLUS/DEFICIT OF CFC(FOUNDRY CLUSTER AHMADABAD)(All figures in this table are in Rs. unless specified otherwise)MonthUserChargesLabourexpensesElectricityRawMaterialsOtherExpTotalExpensesProfit/LossOct-07 17150 32002 4416 34730 71148 -53998Nov-07 27675 41295 3984 14100 59379 -31704Dec-07 29850 41770 3325 34536 79631 -49781Jan-08 43800 41623 4232 28310 74165 -30365Feb-08 81825 41723 3770 30812 76305 5520Mar-08 134688 52261 7282 137178 196721 -62033Apr-08 31600 48360 2151 5669 56180 -24580Total 366588 299034 29160 285335 613529 246941113

Chapter No: 6 – Hard Interventions in Sampled ClustersUnlike the common processing facility seen in the first case this facility is adevelopmental facility and the very nature of this facility makes it difficult to sustainspecially 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 followingperceptions 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 valuechain.• 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-clustermembers.• 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 actorswhether they be users or non users has been significantly positive.In the case of the CFC in the Foundry Cluster in Ahemdabad the following responseswere 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-endmarkets.• There are serious doubts regarding the full utilization of the facilities by clustermembers 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 awhole to any significant extent, as access is difficult and involves high transactionscost.Considering the responses above the overall impact of the CFC on individual clusteractors has been rather mixed if not insignificant.114

Chapter No: 7 – Conclusions nd RecommendationsCHAPTER7CONCLUSIONS ANDRECOMMENDATIONSBefore listing the specific conclusions and recommendations of our study it is importantto clearly stress that, at the overall level, our assessment of the CDP leads us to thedefinite conclusion, that the programme is most essential, and can be extremelyeffective.It should also be emphasized that it provides the much-needed support for the SMEsector at a time when we are opening up the economy and exposing our small industryto fierce global competition. This programme in fact provides the only ‘safety net’ forsmall and micro enterprises in the country. It is therefore recommended that the effortsof the MSME should be fully supported through the provision of additional resourcesduring the 11th Plan Period. Since the plan document clearly states its intentionsregarding inclusiveness, further support for this programme is certainly justified. Inwhat 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 CDPprogramme. This may have led to the identification of a very large number of clustersfar beyond those which can be taken up considering the present capabilities of theinstitutions and functionaries involved. A more focused, feasible and prioritized set ofclusters needs to be identified for effective interventions. The basic criteria for theselection 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 predominantand where traditional skills combined with an abundance of locally available inputswhich enables the production of goods which can compete nationally andinternationally because of their uniqueness and high quality.• Clusters, which are already organized and assisted, by strong associations, unionsand lobbies should be preferred.The need for determining a critical mass of viable and functional individual and strictlyindependent units, which have sustained their activities profitably over the last 5 years.This critical mass should reflect low dispersion and high density ensuring its effectivemanagement. Moreover a high degree of homogeneity (in terms of size / turnover /product range and other social characteristics) needs to be seriously considered toensure cooperation and collective action between the constituent units.Experts or institutions that have the requisite capabilities, and are capable of carryingout this task in a definite time frame, should undertake the identification andprioritization of clusters for effective interventions. These institutions should also berequired to conduct the diagnostic study for which standard guidelines should be115

Chapter No: 7 – Conclusions nd Recommendationscarefully evolved and framed. (some suggestions in the regard have been made inChapter IV of this report)The choice of persons or institutions selected for the identification of clusters and theconduct of the diagnostic study should be from among those persons or institutions thatare independent, autonomous and strictly devoid of vested interests of any kind.While identifying clusters and preparing a diagnostic study these persons or institutionsmay consult and be assisted by the State governments, Scientific Institutions and theMSME-DIs covering specific regions. The assigned Mentor, CDE and the LNA should beclosely associated with the institution conducting the diagnostic study.7.2 A Clearer Articulation of the Objectives and Scope of the CDPThe objectives and scope of the cluster development programme needs to be moreclearly articulated. It should be focused and avoid the objectives and scope which arenot feasible in the context of the present administrative and financial resources availablefor the programme. The general objectives and scope of the CDP should be to enhancethe productivity and competitiveness of the cluster actors through the exploitation ofexisting economies of scale and helping these cluster actors to help themselves. Thisgeneral 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 collectiveaction.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 andmarkets, and information on fiscal incentives, concessions and regulations.• To assist in the setting up of Common Infrastructure for the cluster, such as• Development of Industrial Estates/ Plots.• Common power and water supply arrangements.• Common drainage and effluent treatment.• Common Display Facilities/ Centers.• Common Canteens, basic first aid centres and crèches for workers.• To assist in addressing environmental concerns related to the cluster, such as• Energy audit and conservation.• Development of new and renewable energy sources to supplement existing energyneeds.• Pollution control and self-regulation.• To assist in addressing Common Social Responsibilities of the cluster such as116

Chapter No: 7 – Conclusions nd Recommendations• 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 offacilitating agencies and functionaries. The concerned Central Ministry/ Department, theconcerned State Government and its line department, the regional offices anddevelopmental 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 directlyor indirectly in the cluster development programme. The functionaries particularly thosedealing with the programme in the central and state governments and those who areemployed in the regional institutions of the MSME require to be specially trained andequipped to manage the programme effectively. The areas that need to be specificallyconsidered 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 existingfacilities.• Enhancing the involvement of the relevant scientific institutions through speciallyfunded programmes.The earmarking of additional funds for the study of training and other institutionalneeds, as well as for the specific initiatives mentioned above, would require additionalfunds 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 developmentprogramme. They carry out several vital functions and act not only as essentialintermediaries between cluster participants but also between the cluster participants andthe various state bodies. There are several important issues that concern them whichneed to be addressed.Presently most CDEs are drawn from different departments and are inadequately trainedto carry out the specialized functions related to cluster development. A majority of themare drawn from the field offices of the MSME or from the state industries department andhave a very diverse educational background not necessarily related to the tasks thatthey are required to carry out. Most of them are fairly advanced in age and nearretirement with little motivation to be trained and deployed in their present position. Itis therefore necessary to select younger persons with the necessary background indisciplines such as management, economics, finance and engineering. The post of CDEsshould also be opened up to the private sector so that young and qualified persons are117

Chapter No: 7 – Conclusions nd Recommendationsprovided an opportunity to carry out these challenging tasks. A campus recruitmentprogramme can also be launched for the purpose.In the present situation the CDEs are not adequately trained and familiarized with clusterdevelopment. There is a need to provide a comprehensive long-term foundation courseto freshly appointed CDEs. There is also the need to strengthen their skills and abilitiesthrough regular refresher courses specially designed on subjects such as financialmanagement, project management, organizational behaviour, team work, andcooperation.At present the facilities and allowances provided to the CDEs are extremely deficient.Matters are made worse by assigning them with additional responsibilities not directlyrelated to the CDP, and also the responsibility of managing more than one cluster at atime. The tenure conditions of the CDEs are very unstable and they are frequentlytransferred from one place to another. It is also important to mention here that thesuccess of a CDE largely depends on the goodwill and rapport that he develops over asufficiently long tenure. His frequent transfer from one cluster to another does not reallyallow 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 wayin guiding and assisting the work of the CDE. This Mentor could either be a retiredofficer/executive with the necessary competence and experience or could also be aninstitution, which assists and guides the CDE in his day-to-day functions. It is also veryessential to appoint a Network Development Agent (NDA) or Local Organizer to assist theCDE 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 andindividual units.Additional funding and support is urgently required for the purposes highlighted aboveduring the 11th FYP.7.5 Soft Interventions, their Content, Scheduling, Evaluation,and Validation:Soft interventions are important measures designed to spread the necessary awarenessregarding the benefits of the cluster development programme. These interventions arenormally targeted at individual cluster actors. These interventions are meant to bringthe individual constituents of the cluster on a common platform and provide anopportunity for the democratic firming up of common objectives and to collectively meetthe common challenges faced by the cluster. Soft interventions also provideopportunities for visiting and learning from the experiences of other successful clustersthereby effectively bringing about a conducive mindset for cooperation. Based on ourstudy the following issues have emerged and require attention:The funds presently allocated for soft interventions needs review and revision. Theyshould be increased from the present level of Rs 10 lacs to Rs 50 lacs of which Rs 10 lacsshould be specifically earmarked to meet the cost of monitoring these interventions.118

Chapter No: 7 – Conclusions nd RecommendationsThese enhanced funds should be released without delays in order to provide adequatetime 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 thepace of intervention far too slack to have any significant impact. Cluster actors tend toloose interest in the programme in such a situation. Therefore all soft interventionsshould 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 theperiod provided for soft interventions, further interventions in the cluster should beterminated.In order to ensure that the soft interventions are effectively implemented they should beclosely monitored by a suitable monitoring agency appointed for the purpose. Theagency should be required to submit a detailed quarterly report on the progress of softinterventions and the utilization of funds. The soft interventions should be suspended inthe event of an adverse report. The funds allocated for soft interventions may bereleased in two or three installments subject to the proper utilization of funds as reportedby the monitoring agency.If the cluster succeeds in forming and registering the SPV during the period in which softinterventions 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’ shouldreplace 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 ofspecific responsibilities and the transfer of funds for the creation of a common facilitycentre catering to the needs of the individual units in the cluster. Our study of sampledclusters indicates the following:Institutional Form of the Organization: SPVs can be established in the form ofCooperative Societies or Private Ltd. Companies. In the case of dense clusters with alarge number of individual units the formation of a registered Cooperative Society ismore suitable. In the case of clusters with a limited number of individual units theformation of the SPV as a Private Ltd. Company seems more suitable. However onemust be warned that the upper limits normally stipulated on the number of personsforming the company often restricts participation and leads to the domination of the SPVby those who are members of the board. Constituent units combining to jointly own thecontrolling shares in the SPV however can overcome this problem.Democratic Participation and Inclusiveness: In order to sustain and equitably sharethe benefits of hard interventions it is most essential to maintain democratic participationand inclusiveness. It is therefore necessary to ensure that all willing cluster actors who119

Chapter No: 7 – Conclusions nd Recommendationsdesire to join as members of SPV even at a later stage are allowed to do so bypurchasing controlling share at a higher price.A Clear Statement of its Strategic Intentions: It is observed that few SPVs thathave been formed from among the sampled clusters do not have a clear mission orstrategy 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 andcommit itself to following the stipulated strategy prior to the release of centralassistance.Clear Definition of its Objectives and Scope: It is equally important for the SPV toclearly articulate its objectives and scope in order to avoid attempting more than what isviable and feasible or subsequently diluting its objectives and scope.Democratic and Representative Choice of Common Facilities: The commonfacilities are the basis of the creation of the SPVs and the large expenses incurred tocreate these facilities can only be justified if allowances are made to arrive at a properconsensus on the type of common facilities that are needed by the cluster at large. Thefuture viability and proper capacity utilization of these facilities will only be sustained ifsuch facilities are selected and created with the active participation of all the potentialusers. Arrangements therefore should be made to consider the opinions of cluster actorsunder the close supervision of the CDE/CDA. It is noticed that at present, commonfacilities are being selected by a set of influential office bearers and dominantpersonalities 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 carefullyformulated as the planned project it often involves the use of fairly advanced technologyand procurement of expensive equipment. The DPR should be formulated on the basis ofdetailed consultations with technical experts and should be a time bound exercise.Adequate provisions should be made for consulting experts and expert institutions, andthe costs related to consultancy should be factored into the estimates submitted forapproval. The careful formulation of a DPR and its time bound approval is most essentialin order to avoid subsequent revisions and modifications. These are likely to be not onlytime consuming but also lead to cost escalations. Costs escalations arising fromsubsequent modifications are not likely to be sanctioned by the sponsors. In many casesit has been observed that the sponsor has insisted that the escalations or additional costsbe born by the SPV or alternatively a revised proposal resubmitted and consideredafresh.7.7 Hard Interventions,heir Contents, Scheduling, Evaluation andValidationThe entire CDP programme ultimately works towards the implementation of hardinterventions in the form of a common facility centre. It is only with the completion andcommissioning of the CFC that the real benefits of cluster development aredemonstrated. The successful implementation of these hard interventions providessubstantial gains in productivity thereby helping the cluster to sustain itself and grow.120

Chapter No: 7 – Conclusions nd RecommendationsThe SPV is enabled to generate its own resources and expands its activitiesindependently without further handholding by the state. Our study of hard interventionsreveals the following:Hard interventions have been successfully initiated in only a few sampled clusters whilein seven clusters the common facilities are being presently constructed they have yet tobe commissioned. It is only in the case of two clusters that the hard interventions byway 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 ofdevelopment. Therefore the impact of hard interventions is limited.Though SPVs have been formed in a fairly large number of clusters, long delays in theformulation of the DPR has brought the entire programme to a grinding halt with hardlyany forward movement. The SPVs in many cases require immediate assistance in theformulation of DPRs. Therefore efforts are immediately required to provide additionalassistance for these SPVs in the formulation of DPRs. The MSME and the concernedstate government should identify competent professional agencies to assist the SPV inthis critical task.The flow of funds and its utilization for implementing hard interventions involves manycumbersome procedures. These procedures need to be carefully studied andstreamlined. A special study should be commissioned in this regard to carefully look intothe various procedural delays and constraints and recommend the elimination of amultiplicity of agencies through which the flow of funds are presently being cleared andcanalized. A proper assessment of the need and justification for such agencies shouldalso 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 lowlevel of utilization is affecting the profitability of SPVs. At present many cluster actorsare not using the facilities. This is being compensated by allowing these facilities to beused 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 manneras to attract the individual units in the cluster who are not using this facility. This maymean 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 thelong run. The equitable use of common facilities is also an issue that needs to be lookedinto as there is a tendency for the larger units to monopolize the use of common facilityas they are located closer to the common facility as compared to the smaller units whoare inevitably located in the outlying area, or periphery of the cluster.The MSME should also seriously consider implementing a second phase of hardinterventions wherein the financial commitments of the State is substantially lowered.This will go a long way in sustaining the further strengthening and development of thecluster, till a stage is reached when the cluster is self sufficient, and does not require anyfurther state assistance.121

Chapter No: 7 – Conclusions nd Recommendations7.8 Ensuring the Involvement of Prominent Scientific andResearch Institutions through Dedicated GrantsThere are a large number of scientific institutions in the country supported and fundedby the Government of India. Some of these are involved in research and developmentpertaining 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 arecarrying out commendable work in their fields. It is very paradoxical to observe, thatwhile such vast scientific talent and resource exists in this country, the numerousclusters are often starved for scientific guidance and support. It is therefore suggestedthat the MSME make a very special effort to solicit the active cooperation of thesescientific institutions through the provision of dedicated grants to establish projects orcells in these institutions, in order to enable an active linkage between science and smallindustries. The active involvement of the MSME in “The Innovation Project” recentlyinitiated by TIFAC with the support of the World Bank would help in realizing thisimportant linkage. We strongly recommend that additional resources be earmarked inthe XIth Plan for this purpose.122