Evaluation Study (MSME) Cluster PDF

TABLE OF CONTENTS
CHAPTER DESCRIPTION PAGE

NUMBER NO.
1. INTRODUCTION.............................................................................. 1
1.1 CLUSTER DEVELOPMENT: CONCEPTS & ISSUES ................................... 1
1.2 THE SME SECTOR IN INDIA .......................................................... 1
1.3 NEED FOR A CLUSTER DEVELOPMENT APPROACH .................................. 2
1.4 CLUSTER DEVELOPMENT IN INDIA ................................................... 2
1.5 APPROACH TO CLUSTER DEVELOPMENT ............................................. 3
1.6 EVALUATION STUDY: OBJECTIVES AND METHODOLOGY .......................... 5
1.6.1 Rationale For The Evaluation Study.................................. 5
1.6.2 Scope and Objectives of the Study................................... 5
1.6.3 Study Methodology and Process ...................................... 6
1.6.4 Target Groups .............................................................. 6
Cluster Development Executive................................................. 6
Functionary of SPV .................................................................. 6
Other Cluster Actors ................................................................ 6
1.6.5 Selection of Sample Clusters........................................... 7
1.6.6 Sample Size covered ..................................................... 8
1.6.7 Field Instruments Used .................................................. 8
1.7 CHAPTERISATION OF THIS REPORT .................................................. 9
ANNEXURE 1.1 GUIDELINES FOR CLUSTER DEVELOPMENT PROGRAMME ....... 10
2. THE GENERAL PROFILE OF SAMPLED CLUSTERS ............................ 16

2.1 INTRODUCTION ....................................................................... 16
2.2 GEOGRAPHICAL SPREAD OF CLUSTERS ........................................... 17
2.2.1 Number of Constituent Units in Sampled Clusters............. 19
2.2.2 Size and Scale of Activity as Reflected by Turnover .......... 20
2.3 CLUSTER CONFIGURATION,VIABILITY,AND STAINABILITY...................... 23
2.4 NATURE OF THE SAMPLED CLUSTERS ............................................. 25
2.5 INPUT PROFILE OF SAMPLED CLUSTERS .......................................... 26
2.6 AVAILABILITY OF MANPOWER ...................................................... 29
2.7 ACCESS TO MARKETS AND MARKET PROSPECTS ................................. 31
2.8 ACCESS TO FINANCE ................................................................ 34
2.9 ACCESS TO INFORMATION .......................................................... 36
2.10 ACCESS TO RESEARCH AND DEVELOPMENT INSTITUTIONS ..................... 37
2.11 ENVIRONMENTAL CONCERNS IN THE CLUSTERS.................................. 39
2.12 PROGRESS AND PRESENT STATUS OF THE CDP.................................. 42
ANNEXURE: 2.1- DETAIL TABLES ON RESPONSES ON IMPEDIMENTS FACED BY UNITS
OWNERS .............................................................................. 45
3. THE CLUSTER DEVELOPMENT EXECUTIVE/AGENT .......................... 51

3.1 INTRODUCTION ...................................................................... 51
3.2 THE ROLE AND FUNCTIONS OF THE CDE/CDA .................................. 51
3.3 T HE CORE COMPETENCIES OF THE CDE/CDA .................................. 53
3.4 THE PROFILE OF CDES IN SAMPLED CLUSTERS.................................. 54
3.5 AWARENESS OF CURRENT JOB RESPONSIBILITIES .............................. 56
3.6 TENURE AND STAGE OF DEPLOYMENT OF CDE................................... 58
3.7 THE TRAINING OF CDES ........................................................... 60
3.8 FUNCTIONAL RESOURCE REQUIREMENT OF CDES ............................... 62
3.9 PERCEPTION OF CDES ON FACTORS ENABLING CLUSTER DEVELOPMENT ..... 63
4. SOFT INTERVENTIONS IN THE SAMPLED CLUSTERS....................... 66

4.1 INTRODUCTION ...................................................................... 66
4.1.1 Awareness Creation..................................................... 67
4.1.2 Confidence Building..................................................... 67
4.1.3 Capacity Building ........................................................ 67
4.2 SOFT INTERVENTIONS UNDER THE CDP .......................................... 67
4.2.1 Allocation and Utilization of Funds for Soft Interventions ... 68
4.2.2 Beneficiary Responses on Awareness of Soft interventions. 71
4.2.3 Beneficiary Responses on Participation in Soft Interventions
. 71
4.2.4 Responses on the Benefits Derived from Soft Interventions 72
4.2.5 Impact of Soft Interventions ......................................... 72
4.3 EARMARKING OF FUNDS FOR SOFT INTERVENTIONS .......................... 73
4.3.1 Detailed Features of the Diagnostic Study ..................... 75
4.4 THE WAY AHEAD (ACTIONABLE ISSUES) ......................................... 76
ANNEXURE 4.1 TABLE PERTAINING TO MAJOR SOFT INTERVENTIONS CARRIED
OUT IN VARIOUS CLUSTERS ......................................................... 77
5. THE SPECIAL PURPOSE VEHICLE ................................................... 80

5.1 INTRODUCTION ...................................................................... 80
5.2 THE SCOPE AND FUNCTIONS OF THE SPECIAL PURPOSE VEHICLE ............. 81
5.3 THE MOST SUITABLE ORGANIZATIONAL AND LEGALLY RECOGNIZED FORM OF
THE SPECIAL PURPOSE VEHICLE ................................................... 82
5.4 THE GENERAL PROFILE OF SAMPLED SPVS ...................................... 83

5.5 THE SOCIAL AND ETHNIC COMPOSITION OF AND PARTICIPATION IN SPVS .. 86
5.6 PERCEPTIONS REGARDING REASONS FOR NON-PARTICIPATION IN SPVS .... 87
5.7 SUGGESTED METHODS OF REMOVING CONSTRAINTS FACED BY SPVS........ 89
5.8 PERCEPTIONS REGARDING THE ROLE OF THE CDE AND EFFECTIVENESS OF
SOFT INTERVENTIONS .............................................................. 91
6. HARD INTERVENTIONS IN THE SAMPLED CLUSTERS...................... 93

6.1 INTRODUCTION ....................................................................... 93
6.2 THE JUSTIFICATION FOR HARD INTERVENTIONS ................................. 94
6.3 THE RATIONALE AND OBJECTIVES OF HARD INTERVENTIONS .................. 95
6.4 THE ROLE OF THE STATE IN SUPPORTING HARD INTERVENTIONS ............. 97
6.5 HARD INTERVENTIONS IN SAMPLED CLUSTERS .................................. 97
6.6 STAGES OF INTERVENTION UNDER MSE-CDP ................................... 98
6.7 IMPLEMENTATION PROFILE OF HARD INTERVENTIONS IN THE SAMPLED
CLUSTERS ............................................................................ 99
6.8 THE FUNCTIONING AND IMPACT OF THE CFC ...................................100
7. CONCLUSIONS AND RECOMMENDATIONS.................................... 104

7.1 NEED FOR A SCIENTIFIC DEFINITION OF A CLUSTER .........................104
7.2 A CLEARER ARTICULATION OF THE OBJECTIVES AND SCOPE OF THE CDP...105
7.3 FACILITATING AGENCIES AND FUNCTIONARIES:................................106
7.4 THE ROLE & FUNCTIONING OF CLUSTER DEVELOPMENT EXECUTIVES (CDE)106
7.5 SOFT INTERVENTIONS, THEIR CONTENT, SCHEDULING, EVALUATION, AND
VALIDATION:........................................................................107
7.6 SPECIAL PURPOSE VEHICLES (SPV): ............................................108
7.7 HARD INTERVENTIONS ,HEIR CONTENTS , SCHEDULING, EVALUATION AND
VALIDATION .........................................................................109
7.8 ENSURING THE INVOLVEMENT OF PROMINENT SCIENTIFIC AND RESEARCH
INSTITUTIONS THROUGH DEDICATED GRANTS ..................................111
8. ANNEXURE
Photographs of few sample clusters..112 - 126
INDEX OF TABLES
Table No.- 1.1: CLUSTER COVERED IN THE STUDY................................................................................... 7

Table No.- 1.2: SAMPLE SIZE ............................................................................................................... 8
Table No.-2.1: GEOGRAPHICAL SPREAD OF THE SAMPLED CLUSTERS .......................................................18
Table No.-2.2: NUMBER OF CONSTITUENT UNITS ..................................................................................19
Table No.-2.3: IMPACT ON TURNOVER OF INTERVENTION .......................................................................21
Table No.-2.4: CLUSTER CONFIGURATION, VIABILITY AND SUSTAINABILITY .............................................24
Table No.-2.5: TYPES OF UNITS IN THE SAMPLED CLUSTERS ...................................................................25
Table No.-2.6: INPUT PROFILE OF SAMPLED CLUSTERS ...........................................................................27
Table No.-2.7: LOCATION OF INPUT SOURCES FOR SAMPLED CLUSTERS ...................................................28
Table No.-2.8: AVAILABILITY OF MANPOWER .........................................................................................29
Table No.-2.9: ACCESS TO THE MARKETS ..............................................................................................31
Table No.-2.10: MARKET PROSPECTS FOR THE GOODS MANUFACTURED IN SAMPLED CLUSTERS .................32
Table No.-2.11: ACCESS TO FINANCE IN SAMPLED CLUSTERS..................................................................34
Table No.-2.12: ACCESS TO INFORMATION IN SAMPLED CLUSTERS ..........................................................37
Table No.-2.13: ACCESS TO R&D INSTITUTIONS IN SAMPLED CLUSTERS ..................................................38
Table No-2.14: ENVIRONMENTAL CONCERNS IN THE SAMPLED CLUSTERS.................................................39
Table No.-2.15: TYPE OF ENVIRONMENTAL CONCERNS IN SAMPLED CLUSTERS .........................................41
Table No.-2.16: CDP IN SAMPLED CLUSTERS AND PRESENT STATUS.........................................................43
Table No.-2.17 (a): Responses on Production Related Impediments to Further Growth (Agro-Based Clusters).45
Table No.-2.17 (b): Responses on Production Related Impediments to Further Growth (Metal and
Manufacturing based Clusters) .......................................................................................................46
Table No.-2.18(a): Responses on Market Related Impediments to Further Growth (Agro-Based Clusters) ......47
Table No.-2.18 (b): Responses on Market Related Impediments to Further Growth (Metal and Manufacturing
Based Clusters)............................................................................................................................48
Table No.-2.19 (a): Responses on Finance and Technology Related Impediments to Further Growth (Agro-
Based Clusters)............................................................................................................................49
Table No.-2.19 (b): Responses on Finance and Technology Related Impediments to Further Growth (Metal and
Manufacturing Based Clusters). ......................................................................................................50
Table No.-3.1: PROFILE OF CLUSTER DEVELOPMENT EXECUTIVE IN SAMPLED CLUSTERS ............................55
Table No.-3.2: AWARENESS AND CONFIDENCE LEVELS AMONG CDES REGARDING CURRENT JOB
RESPONSIBILITIES.......................................................................................................................57
Table No.-3.3: STAGES AT WHICH CDEs WERE DEPLOYED IN SAMPLED CLUSTERS .....................................59
Table No.-3.4: STATUS OF TRAINING AMONG CDEs ................................................................................61

Table No.-3.5: RESPONSES ON THE ADEQUACY OF RESOURCES AND ADDITIONAL ASSISTANCE REQUIRED..63
Table No.-3.6: RESPONSES OF CDES ON PRIME FACTORS ENABLING CLUSTER DEVELOPMENT ................64
Table No.-4.2: ALLOCATION OF FUNDS FOR SOFT INTERVENTION ............................................................69
Table No.-4.3: RESPONSES ON THE AWARENESS OF ACTIVITIES UNDERTAKEN UNDER SOFT INTERVENTIONS
..................................................................................................................................................71
Table No.-4.4: RESPONSES ON THE PARTICIPATION IN THE ACTIVITIES UNDER SOFT INTERVENTIONS .......72
Table No.-4.5: RESPONSES ON EXTENT OF BENEFITS RECEIVED BY THE UNITS FROM SOFT INTERVENTION
ACTIVITIES .................................................................................................................................72
Table No.-4.1 (a): MAJOR SOFT INTERVENTIONS CARRIED OUT IN THE SAMPLED CLUSTERS ......................77
(I) Primary Goods Based Clusters ...................................................................................................77
(II) Secondary Goods Based Clusters (I) .........................................................................................78
(II) Secondary Goods Based Clusters (II) ........................................................................................79
Table No.-5.1: SPECIAL PURPOSE VEHICLES REGISTERED IN SAMPLED CLUSTERS. ....................................84
Table No.-5.2: COMPOSITION OF, AND PARTICIPATION IN SPVs...............................................................87
Table No.-5.3: PARTICIPATION AND INVOLVEMENT IN SPVs ....................................................................88
Table No.-5.4: RESPONSES ON INITIATIVES AND MEASURES REQUIRED FOR EFFECTIVELY MEETING
CHALLANGES...............................................................................................................................90
Table No.-5.5: PERCEPTIONS OF THE SPVs REGARDING THE ASSIGNED CDEs ...........................................91
Table No.-5.6: RESPONSES ON THE EFFECTIVENESS OF SOFT INTERVENTIONS .........................................92
Table No.-6.1: SUMMARY TABLE ON STATUS OF INTERVENTIONS .............................................................98
Table No.-6.2: PROFILE OF IMPLEMENTATION OF HARD INTERVENTIONS ................................................ 100
Table No.-6.3: REVENUES, EXPENDITURE AND OPERATING SURPLUS/DEFICIT OF CFC (RUBBER CLUSTER
CHENGANACHERRY) ................................................................................................................... 101
Table No.-6.4: REVENUES, EXPENDITURE AND OPERATING SURPLUS/DEFICIT OF CFC (FOUNDRY CLUSTER
AHMADABAD) ............................................................................................................................ 102
Chapter No:1 - Introduction
ACKNOWLEDGEMENT
We would, first of all, like to express our gratitude to the Ministry of Micro, Small and Medium
Enterprises, Government of India, for entrusting us with the responsibility of conducting this
important evaluation study of micro & small enterprises cluster development programme, and
for supporting our efforts through a generous research grant. It has been a rare privilege for
the IIPA to conduct and successfully complete this study.
We would also like to express our deep sense of gratitude to the Commissioner MSME, Jt.
Commissioner, Mr. B. K. Sinha, Dy. Director (CD), Mr. Vinod Kumar, for their guidance,
constant support and assistance in planning and executing this evaluation study.
A very special word of acknowledgment is due to Mr. B.K. Sinha, who has been a constant
source of support and encouragement to us, right through this evaluation study, and who
carried out his responsibilities as the nodal officer for this study, with vigorous commitment
and dedication in spite of his existing work responsibilities.
I would also like to thank the various State Governments and related State Agencies as well
as the MSME-DIs for extending their wholehearted support to us and our field teams during
the study. I would specially like to thank Mr. Sathyaraj N., Former CDE of Rubber Cluster
Chenganacherry, Mr. Lambert Joseph, Director MSME- Development Institute, Thrissur, Mr.
V. Rajgopal, CEO Kerala Bureau of Industrial Promotion, Mr. D. K. Singh, Deputy Director
MSME, Bihar and Mr. S. Van Roy, Kerala Bureau of Industrial Promotion for their valuable
help. A special word of acknowledgement is also deserved for the help, guidance and
logistical assistance extended to our field teams by several Cluster Development Executives,
SPV functionaries and many individual cluster actors.
I would also like to particularly thank the concerned CDEs, officers of the State Governments
of U.P, Haryana, Punjab, Bihar, Orissa, West Bengal, Assam, Gujarat, Rajasthan, Tamil Nadu,
and Kerala. These officers, along with a large number of concerned subordinate officers and
staff, were very supportive during the extensive site visits of our field teams. It must be
mentioned here that they extended all the necessary guidance and logistical arrangements to
us during these visits, and also provided vital documents and reports that were necessary for
the proper conduct of this evaluation. Without their sincere assistance and complete
cooperation, this study would not have been possible.
I would also like to express my indebtedness to the Indian Institute of Public Administration
and its staff for extending all the necessary facilities, and a conducive work environment for
the conduct of this study. The project team is specially grateful to Shri Bhartendra Singh
Baswan, Director IIPA, for his guidance, and encouragement which he most willingly
extended, particularly during the more difficult and strenuous phases of our work. I would
finally like to express my sincere thanks to Shri Devender Singh and Ms. Rajni Choudhary for
constantly assisting me, as well as sincerely sharing all the responsibilities involved in the
timely conduct and completion of this study. Last but not the least, I would like to thank Ms.
Kavita Haldwal and Shri Prayag Joshi for their unstinting and dedicating secretarial
assistance.
(ANIL CHANDY ITTYERAH)

New Delhi, 30th January 2009
7
COMMONLY USED ABBREVIATIONS
BDS Business Development Services

CC&S Cluster Configuration and Status
CDE Cluster Development Executive
CDP Cluster Development Programme
CFC Common Facility Centre
DPR Detailed Project Report
EDI Entrepreneurship Development Institute
FYP Five Year Plan
GOI Government of India
IIE Indian Institute of Entrepreneurship
KBIP Kerala Bureau of Industrial Promotion
LNA Local Network Agent
LVS Least Viable and Sustainable
MSE-CDP Micro and Small Enterprises Cluster Development
Programme
MSME Ministry of Micro Small & Medium Enterprises
MVS Most Viable and Sustainable
PGBC Primary Goods Based Cluster
S&T Science and Technology
SGBC Secondary Goods Based Cluster
SICDP Small Industries Cluster Development Programme
SPV Special Purpose Vehicle
SSI Small Scale Industry
UPTECH Technology Up-gradation and Management Programme
VDS Viable but difficult to Sustain
8
PROJECT TEAM
SNo. Name Designation Qualifications Research

Experience
(in years)
1. Dr. Anil Chandy Project Director M.A., Ph.D. 28
Ittyerah (Economics)
2. Ms. Rajni Sr. Research M.Sc. 10
Choudhary Associate (Maths)
3. Mr. Devender Chief Field MBA, 18
Singh Coordinator P.G.Dip.
(Advt. & PR)
4. Ms. Gayathri Singh Chief Field M.A 19
Coordinator
5. Mr. C. D. Mishra Field Associate M.Sc. 8
6. Mr. O.S. Dwivedi Field Associate M.A. 20
7. Mr. Subarna Pyne Field Associate M.Com. 16
8. Mr. Arjun Singh Field Associate MCA 4
9. Mr. Inderjit Singh Field Assistant B.A. 19

Hira
10. Mr. Prayag Joshi Project Assistant B.A. 1
11. Ms. Kavita Project Assistant B.A. 1
LIST OF PERSONS MET DURING EVALUATION STUDY ON MSE-CDP

OFFICIALS:
Sl Name Designation Department/ Institution

1. Mr. Lambert Director MSME- Development Institute,
Joseph Thrissur, Kerala
2. Mr. V. Rajgopal CEO Bureau of Industrial Promotion,
Kerala
3. Mr. S. Van Roy Executive Bureau of Industrial Promotion,
Assistant to CEO Kerala
4. Mr. S. Santhosh Bureau of Industrial Promotion,
Kerala
5. Mr. Arvind Kumar Principal Director MSME Technology
Development Centre, Agra
6. Mr. P.R. Joshi Assistant Director MSME Technology
Development Centre, Agra
7. Mr. R.K. Gupta CEO Centre for Development of
Stone, Jaipur
8. Mr. K.R. Sharma Director MSME- Development Institute,
Jaipur
9. Mr. C.P. Khattar Principal Director MSME-Tool Room, Jallandhar
9
CLUSTER DEVELOPMENT EXECUTIVES:
Sl Name Cluster
1. Mr. M.K. Handique Bamboo Cluster Dimapur
2. Mr. K.M. Bangar Food Processing Cluster Muzffarpur
3. Mr. G.P Agarwal Leather Goods Cluster Agra
4. Mr. D. Ghosh Leather Goods Cluster Shantiniketan
5. Mr. Chandan T.S. Plywood Cluster Perambavoor
6. Mr. B.N. Kapoor Rice Milling Cluster Karnal
7. Mr. P.N. Solanki Rice Flakes Cluster Ahmedabad
8. Mr. B. Sivaprasad Rice Milling Cluster Kalady
9. Mr. Sathyaraj N. Rubber Cluster Kottayam
10. Mr. Ajay Sharma Ball bearing Cluster Jaipur
11. Mr. B.B. Panigrahi Bell metal Cluster Khurda
12. Mr. S. Deka Bell metal Cluster Hazo
13. Mr. D.K. Singh Brass Utensil Cluster Pareo
14. Mr. B.C. Singh Bisht Cotton Hosiery Cluster Kanpur
15. Mr. Mr. R.S. Nirwan Diesel Engine Cluster Rajkot
16. Mr. Arvind Patwari Fan Industry Cluster Hyderabad
17. Mr. Neelambaran K.V. Plastic Cluster Aluva
18. Mr. S.S. Bedi Sewing Machine Cluster Ludhiana
19. Mr. S.K. Roy Surgical Instruments Cluster Baruipur
20. Mr. V. Ramakrishanan Wet Grinder Cluster Coimbtore
21. Mr. K.C. Singh White ware Cluster Khurza
HEADS OF SPV:
Sl Name Designation Cluster

1. Mr. Budhadeb President Leather Goods Cluster Shantiniketan
Sengupta
2. Mr. C.K. Abdul Majid President Plywood Cluster Perambavoor
3. Mr. N.P. Antony Managing Rice Milling Cluster Kalady
Director
4. Mr. K.J. Louis Managing Rubber Cluster Kottayam
Director
5. Mr. Abhadur General Bell metal Cluster Hazo
Rahman Secretary
6. Mr. Tulsi Prasad Secretary Brass Utensil Cluster Pareo
7. Mr. K.K. Ibrahim Managing Plastic Cluster Aluva
Director
8. Mr. Kamal Das Secretary Surgical Instruments Cluster
Baruipur
9. Mr. N. Rajan Secretary Wet Grinder Cluster Coimbtore
10. Mr. Rajiv Kalra Secretary White ware Cluster Khurza
11. Mr. P.N. Bhagawati President Foundry Cluster Ahmedabad
Note: In addition to the above interactions were held with 30 cluster actors in each cluster that
were covered in the study.
10
CHAPTER
1
INTRODUCTION
1.1 Cluster Development: Concepts & Issues
Small and medium enterprises operating in the same or inter- related industrial sectors
tend to concentrate in specific geographic locations. This phenomenon has been
observed in all parts of the world. There are sound economic reasons for this
phenomenon (Krugman 1991). Micro and small units operating in such clusters derive a
clear competitive advantage from:
The proximity to sources of raw materials and other inputs,

The availability of suitably customised business development services (BDS),
The abundance of clients attracted by the cluster tradition in that industry, and
The presence of a skilled labour force.
A cl u ster may, therefore, be defined as the agglomeration of SMEs producing

same/similar products/services or engaged in the same line of manufacturing activities
or services, located within an identifiable and, as far as practicable, contiguous area.
Not all the clusters are however characterised by the same dynamism or indeed by the
same economic success. The literature on the so-called Italian industrial districts (Piore
and Sabel 1984, Best 1990, Porter 1990) describes SSE clusters that have reached high
levels of growth and leadership in profitable niches of world markets (e.g. leather goods,
textile, jewellery, ceramic tiles, and spectacle frames). Similar accounts exist from other
developed countries such as Germany (Semlinger 1993), the USA (Saxenian 1989),
Japan (Friedman 1988), and increasingly from low-income countries (Schmitz 1995,
World Development 1999). However, in many other clusters, SSEs do not achieve the
same high-growth trajectory. On the contrary, they often struggle for bare survival
within increasingly open and globalized markets.
Worldwide, the micro and small enterprises (MSEs) play a leading role in propelling
economic growth sustaining livelihood and in promoting equitable regional development.
The MSEs constitute over 90% of total enterprises in most of the developing economies
and are credited with generating the highest rates of employment growth and accounting
for a major share of industrial production and exports.
1.2 The SME Sector in India
In India too, the MSEs play a pivotal role in the overall industrial economy of the
country. It is estimated that in terms of value, the sector accounts for about 39% of the
manufacturing output and around 33% of the total export of the country. Further, in
recent years the MSE sector has consistently registered a higher growth rate compared
to the overall industrial sector. The major advantage of the sector is its employment
potential at low capital cost. As per available statistics, this sector employs an estimated
11
31 million persons spread over 12.8 million enterprises and the labour intensity in the
MSE sector is estimated to be almost 4 times higher than the large enterprises. There
are about 388 documented SME clusters in India.
1.3 Need for a Cluster Development Approach
SSE clusters constitute ideal targets for a SSE support agency (Mead & Liedholm 1998,
OECD 1998). The concentration of largely homogenous enterprises within a relatively
limited geographical area facilitates the intervention because of their similarity of needs
and support requirements, speeds up the dissemination of best practices because of the
pervasiveness of demonstration effects, and allows for a distribution of the fixed costs of
interventions among a large number of beneficiaries. This is true for under-achieving
clusters as well as for the best performing ones.
However, underachieving clusters are characterized by environments where information

does not flow easily and where the various actors are not accustomed to talking with one
another. In stark contrast with their counterparts in the more successful well-performing
clusters, especially in developed countries, entrepreneurs in under-performing clusters
rarely if ever meet one another, do not usually have on-going relationships with BDS
providers and are not accustomed to presenting articulated calls for actions to the local
policy makers. On the contrary, these clusters are more often than not characterized by
extremely fragmented knowledge, latent conflicts, and an absence of a discussion forum.
The SSEs in these clusters therefore have a very poor perception about the feasibility of
joint actions.
1.4 Cluster Development in India
The Ministry of Micro, Small & Medium Enterprises laid special emphasis for development
of clusters and launched a scheme for technology up-gradation and management called
UPTECH in 1998. Although it was having a cluster based approach for development of
MSEs, it was mainly technology-focused comprising of a diagnostic study, setting-up of a
demonstration plant and organising workshops, seminars, etc. for quicker diffusion of
technology across the cluster of small enterprises.
In August 2003, the scheme of the Ministry of Micro Small and Medium Enterprises was
renamed as Small Industry Cluster Development Programme (SICDP) and made broad
based by adopting a holistic pattern of development of the cluster encompassing
marketing, exports, skill development, setting up of common facility centres, including
technology upgradation of the enterprises, etc. SICDP guidelines were comprehensively
revised in March, 2006 making the cluster programme more broad-based by facilitating
substantial economies of scale in terms of deployment of available resources in the
medium to long term. The Government of Indias assistance under the scheme was
enhanced upto Rs.8 crore per selected cluster to support soft as well as hard
intervention, including setting up of a common facility centre.
As per the Promotional Package announced by the Government, SICDP was renamed as
Micro & Small Enterprises - Cluster Development Programme (MSE-CDP) to make it more
12
attractive, though the basic features of this scheme have been retained as such. The
proposals for setting up new clusters shall now be considered under MSE-CDP and the
quantum of grant has been raised to 75% of the cost and the project cost has been
raised from Rs. 5 crore to Rs 10 crore. Raising the project cost to Rs. 10 crore and the
central grant upto 7.5 crore is quite attractive and is expected to encourage the setting
up of new clusters for micro and small enterprises. Please refer Annexure 1.1 for detailed
guidelines 2006 issued by the MSME (appended at the end of this Chapter).
1.5 Approach to Cluster Development
The UNIDO started a Cluster Development Programme in 1995 to strengthen the

competitive advantage of under-achieving SSE clusters. The current approach for the
CDP in India largely draws its concepts and methodology from the UNIDO model which
draws lessons from the experience of successful clusters and implements them through
technical cooperation projects in various developing countries. The strategy adopted is to
identify the collective competitive advantage of particular clusters, and to build up local
capabilities to realise it by supporting the broadest spectrum of cluster actors, such as
SSE owners, producers associations, BDS providers, local policy makers, etc.
Cluster approach is different from the concept of development of Industrial Estates. The
latter is largely based on infrastructure development and creation of new assets,
whereas, cluster development aims at holistic development (covering diverse areas like
marketing, export promotion, skill up-gradation, infrastructure etc.) and may be
designed to cover industrial estates as well as natural clusters, which may have evolved
on their own historically at any place.
The methodology addresses both the vision and capacity building objectives. This section
emphasises the three phases which each cluster project is expected to undergo over its
lifetime, namely: Preparation of a diagnostic study and formulation of a cluster action
plan; Implementation of pilot and strategic projects; and the self-management phase.
It must be stressed, however, that the boundaries between the various phases are not
strictly defined and that all phases contribute to vision and capacity building.
A key tool for cluster development is the diagnostic study. This study gathers previously
dispersed and fragmented knowledge about the economic and social conditions of the
cluster and its development potential, as well as the state of inter-firm relationships and
the existing institutional support mechanisms. The diagnostic study also provides a
valuable opportunity to enforce awareness about the approach and to promote trust
among the cluster actors. Moreover, it helps to identify potential leaders from within the
cluster and, more generally, the suitable counterparts to assist implementation. The
diagnostic phase ends with the preparation of a broad action plan for the cluster. This
document is drafted by the Focal Point together with key cluster representatives and
offers a vision around which to gather the support and collaboration of the various
cluster actors. The preparation of such a plan is the essential first step in developing
long-term local capacities for responding to evolving economic and technical
circumstances, rather than as a once-for-all prescription. The first draft of the cluster
13
action plan is thus a working document which must be revised as more information about
the cluster is disclosed and on the basis of the results of the initial interventions.
Nevertheless, it is expected that the information gained as a result of the diagnostic
study and the joint preparation of the action plan (especially concerning the competitive
position of the cluster in the national and international market) will suffice to identify the
potentialities of the cluster as well as the key obstacles which prevent it from taking up
the opportunities provided by the globalisation of the Indian economy. As these obstacles
are identified, a key task is to help the partner institutions to prioritise them (both in
terms of their importance and of the capacity of the cluster actors to jointly tackle them)
and to identify the initiatives which can relieve them including the utilization of existing
BDS and the development of new ones.
The elaboration of an action plan is meant as the initial step for the development of pilot
projects where groups of firms sharing similar constraints (networks) are formed and
specific initiatives are formulated and implemented. During this phase, co-operation
starts bearing concrete results to the participating enterprises. The initiatives are
generally of a commercial and/or promotional kind (e.g. joint participation in fairs, joint
purchase of raw materials, design of a collective catalogue). The idea is to generate
visible results (although of a short-term nature) to engender optimism and trust. At the
same time, the pilot projects consolidate willingness of the networks and associations to
undertake long-term strategic initiatives around an increasingly shared vision for the
cluster as a whole. These projects generally entail an increase in the degree of
specialization by process and/or by product of the firms involved (e.g. restructuring or
creation of common service facilities, new product lines, common brands). It is at this
stage that the involvements of both technical and financial institutions become essential
and that the initiatives are meant to contribute more directly to the creation of capacities
at the cluster level. UNIDO therefore ensures that the networks/associations supported
by the projects can draw assistance from the available institutions. As will be emphasised
in subsequent Chapters, this task often implies upgrading the capacity of BDS providers
or even initiating their establishment, especially in clusters characterised by a relatively
weak support framework.
Finally the intervention gives way to a self-management phase, as the networks /

associations gain greater autonomy from the sponsoring agencys assistance and the
capacity to undertake further joint activities independently. It is during this phase that it
becomes possible to test whether the earlier investment on vision- and capacity building
has delivered the expected results and if the cluster approach has won the endorsement
of the various cluster actors. Self-management is not always easily achieved. Often the
networks/associations tend to lean on sponsoring agencys assistance for a longer time
than initially envisaged. In order to avoid dependency the work plan established by the
cluster actors and the Focal Point must have a specific time frame. The cluster actors
thus know from the beginning that they can count on assistance only for a limited period
of time. As the various networks/associations develop, sponsoring agencys intervention
shifts towards softer co-ordination and a progressive transfer of responsibilities to the
cluster actors is ensured.
14
Following are the main steps:

Selection of cluster(s)
Selection of Cluster Development Executive(s)
Trust building
Diagnostic study
Preparation of action plan
Approval of budget and leveraging of funds from various institutions
Implementation of the action plan
Monitoring and evaluation
Handing over and exit
Self-management phase
1.6 Evaluation Study: Objectives and Methodology
1.6.1 Rationale For The Evaluation Study
The Ministry of Micro Small and Medium Enterprise has been running the Cluster
Development Programme since 1998 though the latest comprehensive guidelines have
been issued only in 2006. The CDP is being implemented in 90 clusters across different
states.
Before making the budgetary allocation in the next plan, the GOI decided to conduct a
comprehensive evaluation of the CDP to assess its performance and identify the areas of
corrective action if any, and if required, to further strengthen it. Indian Institute of
Public Administration (IIPA) was selected by the Ministry to undertake this evaluation
study.
1.6.2 Scope and Objectives of the Study
The Ministry of MSME wants to assess the impact of the MSE-CDP programme and
various schemes undertaken under the programme.
The scope of the study is as follows:
1. To assess the impact of soft interventions undertaken in terms of:

Improvement in existing skills
Adoption of new skills, techniques or technologies
Awareness of modern trends and needs in the markets
Adoption of better and efficient manufacturing practices
Increase in market share in domestic and global markets
2. To assess the impact of hard interventions undertaken in terms of:
Improvement in the product quality
Improvement in processes and technologies
Cost competitiveness
Diversification in the product portfolio
User fee and self management of SPVs
3. To identify the specific areas of improvement in the existing schemes.
15
4. Role of the schemes in bringing cohesiveness among the enterprises and increasing
their ability to face external competition.
5. To examine the systems and procedures for approval and receipt of funds.
6. Development of benchmark indicators for periodic evaluation of the progress of
different schemes in the future.
7. To examine the role of the scheme in improving the economic status of special
population groups.
8. To assess the outreach and access of the scheme in general and particularly in the
northeast region.
9. To develop strategies for increasing the outreach of the scheme.
1.6.3 Study Methodology and Process
Prior to the main study, an exploratory study was carried out. The research team visited
two Clusters in Kerala, the state having achieved maximum success in implementation of
CDP, and held detailed interactions with various stakeholders to get an insight into
various important aspects of the programme.
1.6.4 Target Groups
The following target groups were covered in the study for data collection:
Cluster Development Executive

The Cluster Development Executive (CDE) is appointed by the Programme Implementing
Agency to conduct the Diagnostic study and carry out soft interventions. A detailed
schedule was canvassed to the CDE. All facts and figures related to the Cluster were
also collected from the CDE using a Fact Sheet.
Functionary of SPV
An SPV schedule was administered to the member or office bearer of the SPV to
understand the impact of various soft interventions, challenges faced in mobilization of
cluster actors for the formation of SPV and issues related to the functioning of the SPV
and the CFC.
Other Cluster Actors

A Beneficiary schedule was administered to the unit owners in the study cluster to
ascertain their awareness and familiarity of the programme; issues and concerns;
reasons for joining/ not joining the SPV and use of the CFC. Equal quota was kept for the
three categories of Cluster actors for the Clusters having a functional CFC:
Members of SPV and using the CFC.
Members of SPV but not using CFC
Not members of SPV but using the CFC.
In the clusters not having a functional CFC, the sample size was equally divided between
members and non-members of SPV.
16
1.6.5 Selection of Sample Clusters
One of the main objectives of the study was to assess the impact of soft and hard
interventions. Therefore, clusters having received both soft and hard interventions were
selected for the study.
There were only two Clusters where the hard interventions in the form of Common
Facility Center (CFC) were fully functional (Foundry Cluster Ahmadabad and Rubber
Cluster Kerala). Both Clusters were covered during the study.
Nine other clusters, where setting up of CFC was in progress, were also covered during
the study. Since there were no other clusters having received both soft and hard
interventions, those having received only soft interventions were included in the study.
Overall, twenty-six clusters were covered in the study. Of these twenty-six clusters, 4
clusters did not conform to the CDP Guidelines of 2006 (Center for support of herbal and
aromatic plants, Patna, Bihar; Center for support of herbal and aromatic plants, Ganjam,
Orissa; Centre for Development of Stones, Jaipur and Hand Tools Cluster, Jallandhar),
hence they were not included in the study. Moreover the absence of key functionaries
such as CDE, as well as a complete non-availability of adequate information and
documentation forced the IIPA research team to exclude these clusters. In the case of
the Centre for the Development of Stone, Jaipur the involvement of the MSME was
negligible and the project was sponsored and managed by the Ministry of Mines in close
collaboration with the State Government.
Therefore, the study was carried out in 26 clusters but the findings have been presented
for 22 clusters.
Table No. - 1.1 CLUSTERS COVERED IN THE STUDY

North Zone
1 Rice Milling Cluster Karnal, Haryana
2 Sewing Machine Cluster Ludhiana, Punjab
3 Leather Goods Cluster Agra, Uttar Pradesh
4 Cotton Hosiery Cluster Kanpur, Uttar Pradesh
5 White ware Cluster Khurza, Uttar Pradesh
6 Food Processing Cluster Muzffarpur, Bihar
7 Brass Utensil Cluster Pareo, Bihar
South Zone
1 Plywood Cluster Perambavoor
2 Rice Milling Cluster Kalady
3 Leather Goods Cluster Shantiniketan
4 Rubber Cluster Kottayam
5 Plastic Cluster Aluva
6 Wet Grinder Cluster Coimbatore
7 Fan Industry Cluster Hyderabad
17
Table No. - 1.1 (contd.)

East/ North East Zone
1 Surgical Instruments Cluster Baruipur, West Bengal
2 Bell metal Cluster Khurda, Orissa
3 Bell metal Cluster Hazo, Assam
4 Bamboo Cluster Dimapur, Nagaland
West Zone
1 Ball bearing Cluster Jaipur, Rajasthan
2 Foundry Cluster Ahmedabad, Gujarat
3 Rice Flakes Cluster Ahmedabad, Gujarat
4 Diesel Engine Cluster Rajkot, Gujarat
1.6.6 Sample Size covered
The size and composition of the sample drawn for the study is given in the table below:
Table No. - 1.2 SAMPLE SIZE

Sl. Target group Sample Per Cluster Total Sample
1 Cluster Development Executive 1 22
2 Functionary of SPV 1 22
3 Other Cluster Actors 15 323
1.6.7 Field Instruments Used
As mentioned earlier apart from conducting detailed discussions with various

stakeholders of the SICDP in the clusters covered during the study, our teams also
collected various project related documents provided by MSME-DIs, State Governments,
SPVs and CDEs. Our field teams also used three comprehensively designed field
schedules as well as a fact sheet for each cluster. We have also referred to various
reports, books and journals, as well as the Annual Reports of the relevant ministries, and
organisations.
18
1.7 Chapterisation of this Report
This report contains seven chapters in all (including chapter annexure). The chapter
scheme adopted by us is as follows:
Chapter I : Introduction
(Containing a brief subject introduction, scope and methodology of the study)
Chapter II :The General Profile of Sampled Clusters

(Covering various features of the clusters studied during this evaluation)
Chapter III : The Cluster Development Executive/Agent
Chapter IV:Soft Interventions in the Sampled Clusters

(The nature and impact of Soft Interventions)
Chapter V: The Special Purpose Vehicle

(The concept, legal form and other issues)
Chapter VI:Hard Interventions in the Sampled Clusters

(Concepts, features and impact of Hard Interventions)
Chapter VII:Conclusions and Recommendations
19
ANNEXURE 1.1 Guidelines for Cluster Development Programme
The current guidelines were issued in March 2006 having the following salient features
Introduction
1. The Ministry of Small Scale Industries (SSI), Government of India (GoI) has adopted
the cluster approach as a key strategy for enhancing the productivity and
competitiveness as well as capacity building of small enterprises (including small scale
industries and small scale service and business entities) and their collectives in the
country. Among other things, this approach also facilitates substantial economies of scale
in terms of deployment of available resources for effective implementation and more
sustainable results in the medium to long term.
2. In view of the large number and dispersed locations of the small enterprise clusters
and varied status of collaborative self-help capabilities of these cluster-based enterprises
across the country, the success of this Programme depends not only the initiatives of the
cluster-based enterprises but also on the active involvement of the State Governments
and other institutions engaged in the promotion of small enterprises. The following
guidelines are, therefore, issued, in super session of the existing guidelines, to assist all
the stakeholders in formulating proposals for financial support from the Ministry of Small
Scale Industries for implementation of cluster development initiatives under the Small
Industries Cluster Development Programme (SICDP).
Implementing Agencies
3.1 A clear legal entity with evidence of prior experience of positive collaboration among
its members, whether formally or otherwise, as the applicant of the proposed cluster
development initiative assures sound management. Ideally, therefore, all proposals for
cluster development seeking assistance under the SICDP must emanate from special
purpose vehicles (SPV), consisting of the actual/likely cluster beneficiaries/enterprises
organised in any legally recognised form like a cooperative society, registered society,
trust, company, etc.
3.2.1 Considering, however, the uneven state of development of such collaborative

initiatives among small (and tiny or micro) enterprises in the country, it would be
permissible for a lead Government institution to be the prime mover of a proposal for
cluster development in the initial stages of its conceptualisation, design, determination of
technical parameters, project preparation and documentation, etc., in consultation with
the cluster beneficiaries. It will, however, be necessary to constitute the SPV at the
earliest possible, with clear indication of the time frame for completion of this essential
requirement while submitting the proposal for Government assistance.
3.2.2 In short, in addition to the SPVs of cluster beneficiaries, institutions/ agencies of

the following categories will, therefore, be eligible to propose and implement cluster
development projects under the SICDP, with financial support of the Ministry of SSI
20
Field organisations/offices and autonomous/public sector institutions/enterprises of the

Ministry of SSI, Ministry of Agro and Rural Industries (ARI) and other Ministries of the
Government of India.
State Governments and their autonomous/public sector organisations.

National and international institutions engaged in promotion and development of the
small enterprises, including SSI, sector.
Any other institution/agency approved by the Ministry for this purpose, keeping in view
the special circumstances applicable to a State or Union Territory.
Selection of Cluster(s)
4. Detailed study of the features of the clusters with due care and application are
essential prerequisites for selection of a cluster of the right type. The criteria may vary to
some extent depending on the type of clusters and the goals sought to be achieved
through the cluster development initiatives. However, broadly, the following illustrative
aspects should be kept in view:
Importance of the clusters (s) in terms of number of units, employment, production,
exports, etc.
Existence of critical gaps in technology, product quality, common facilities, skill up
gradation, availability of raw material, marketing support, etc. National and
international institutions engaged in promotion and development of the small
enterprises, including SSI, sector.
Viability of the cluster.
Vibrancy of local industry association and/or interest evinced by other institutions
engaged in development financing and SSI promotion in development of the cluster.
5. Social and environmental considerations like gender inequalities, poverty conditions,

need for employment generation, pollution scenario, etc. Clusters of SSI units
manufacturing products, which fall under the administrative purview of other Ministries
of the Government of India, may also be considered for financial assistance under this
Programme, with the consent of the Ministry concerned.
6. In case the implementing agency is not the Government of the State in which the
cluster is located or an organisation of that State Government, the agency will also need
to necessarily consult the State Government concerned and take its views into account
while selecting the cluster and drawing up the strategy and/or action plan for its
development.
Illustrative Steps in Cluster Development Programme
7. The main steps are:

Selection of cluster(s)
Selection of Cluster Development Executive(s)
Trust building
Diagnostic study
21
Preparation of action plan

Approval of budget and leveraging of funds from various institutions
Implementation of the action plan
Monitoring and evaluation
Handing over and exit
Self-management phase
Cluster Development Executive (CDE)
8. An officer/executive of the cluster-based SPV or the implementing agency (other than

the SPV) has to be selected and trained to act as the Cluster Development Executive
(CDE). The CDE is required to conduct the Diagnostic Study, prepare the Action Plan
based on the former and get the Plan implemented with full participation of the Cluster
Actors, so as to build up the collective capacity of the units in the Cluster to sustain and
carry on the promotional as well as commercial activities in the long run even after the
project comes to an end.
9. In case the selected cluster is far away from the office of the implementing agency,
office space may be provided to the CDE on rent with basic equipment and furniture,
etc., within or near the cluster. Funds will, however, not be provided by Ministry of SSI
for construction of office building, purchase of vehicle, costly furniture and furnishing,
etc. Provision for office expenditure and travelling expenses at a reasonable scale,
usually ranging between 10 to 15 per cent of the total project cost, may also be
considered depending on necessity.
10.The National Resources Centre (NRC) for SSI Cluster Development created at the
National Institute of Small Industry Extension and Training (NISIET), Hyderabad-500 045
and the International Centre for Cluster Competitiveness and Growth (IC3G) at the
Entrepreneurship Development Institute of India, P.O. Bhat-382428, District -
Gandhinagar, Gujarat have been established for providing training and related services
for cluster development. They conduct courses spread over 3 to 4 weeks for training of
CDEs on the tools and methodology of conducting diagnostic studies and implementing
cluster development initiatives. Implementing agencies may approach the NRC or IC3G
for organising training of the CDEs after the Ministry of SSI approves their project
proposals
Cost of Project and Government of India Contribution.
11.The project cost may vary from cluster to cluster and will depend on parameters like
the duration of the project (usually 3 years), size of the cluster, nature and scope of the
proposed interventions, etc., as emerging from the diagnostic study. However,
contribution of the Ministry of SSI will not exceed 80 per cent of the total project cost,
subject to a ceiling of Rs.10 crore per project including Rs. 10 lakh for soft activities
i.e. capacity building activities in the cluster where no fixed asset is acquired or formed.
12.The formats of proposals for such soft interventions are detailed in Part I of the
enclosures to these guidelines (Annex I to IV). These need to be adhered to strictly.
22
13.1.a. Wherever required, assistance under this Programme may also be considered for
setting up Common Facility Centre (CFC) in the cluster. The Detailed Project Report
(DPR) for the CFC together with appraisal report prepared by a bank (if bank financing is
involved) or an independent Technical Consultancy Organisation/reputed Consultant will
have to be submitted in such cases.
13.1.b. With the grant-in-aid sought from the Government, the proposed CFC must be
financially and operationally as viable as any commercial project. As a result, all CFC
proposals should comply with the financial norms of appraisal that a commercial bank
would seek, e.g., internal rate of return, break-even point analysis, debt-service
coverage ratio, sensitivity analysis, etc., using basic templates such as projected profit &
loss account and projected balance sheet for the proposed CFC. The proposed CFC must
also justify its need in terms of its likely impact at the level of an individual
representative enterprise of the group that it intends to benefit.
13.1.c. In keeping with the objective as stated at the beginning of paragraph 13.1.b
above, CFC projects would be classified and the Central Government (viability gap
funding) assistance therefore would be based on the following broad norms:
Developmental CFC projects: Central Government support of 70 per cent of the project
cost and the remaining to be provided by the State Government concerned and the
project beneficiaries.
Quasi-Developmental CFC projects: Central Government support of 50 per cent of the

project cost and the remaining to be provided by the State Government concerned and
the project beneficiaries.
Quasi-Commercial CFC projects: Central Government support of not more than 30 per
cent of the project cost and the remaining to be provided by the State Government
concerned and the project beneficiaries.
However, in case of clusters of micro and / or village enterprises, i.e., enterprises with
investment in plant and machinery (excluding land and building) in each case not
exceeding Rs. 25 lakh, the extent of Central Government assistance may be raised to 80,
60 and 40 per cent of the project cost in the three types of CFCs respectively.
In all the cases stated above, the entire cost of land and building shall be met by SPV /
State Government concerned.
13.2. Implementing agencies shall be responsible for setting up and commissioning of

the CFC on a turn-key basis. The CFC thus established will have to be run by the Special
Purpose Vehicle (SPV) on commercial lines, with enough current revenue surplus to meet
all its current expenses as well as cost of replacement/expansion of assets as and when
necessary. Ministry of SSI shall not accept any financial liability arising out of operation
of any CFC.
23
13.3. The formats for proposals in this regard are given in Part II of the enclosures
(Annex V and VI). The guiding principles elaborated in Part II need to be gone through
carefully.
14. Contribution of the Ministry of SSI to the total cost of the project will be decided
keeping in view the availability and willingness of other stakeholders and partners like
State governments, industry associations, firms in the cluster etc. For further details of
funding scales, reference is invited to Part I and Part II of the enclosures to these
guidelines. Implementing agencies (including State Governments, cluster beneficiaries
and/or their SPVs) are expected to mobilise resources to fund the remaining cost, as
detailed in Part I/II of the enclosures.
Linkages with Business Development Services (BDS)
15. Development of capacities of BDS providers to meet the needs of small enterprises
and establishing linkages between them and small enterprise clusters constitute a
priority area of the cluster development strategy. Therefore, the proposed cluster
development activities should include establishment of linkages between the cluster units
and the BDS providers in the public and private sectors capable of catering to the needs
of small enterprises.
Dovetailing with Other Schemes of the Ministry of SSI/ARI and Schemes of Other
Ministries of the Government of India
16. Implementing agencies will be encouraged to dovetail the cluster development

initiatives with other Schemes of the Ministry of SSI/ARI. Similar schemes of other
Ministries of the Government of India should also be tapped.
17. Implementing agencies may, wherever necessary, seek assistance from technical
agencies like the Product and Process Development Centres and Central Tool Rooms of
the Ministry of SSI as well as the Central Glass and Ceramics Research Institute, Central
Leather Research Institute, Technology Information Forecasting and Assessment Council
and other similar institutions of other Ministries and Departments of the Government of
India engaged in technology up gradation of client enterprises, including SSIs.
Formats and Approval of Project Proposals
18.1. The proposals for seeking financial assistance from the Ministry of SSI should be
made in the formats given in Part I and Part II of the enclosures to these Guidelines.
These formats, though quite detailed, are still illustrative and necessary
additions/amendments to the contents may be done by the implementing agencies,
depending on the nature of the cluster and the proposed activities.
18.2. The proposals will be considered and approved by the Steering Committee of the
Small Industry Cluster Development Programme under the chairmanship of Secretary,
Ministry of SSI for projects costing Rs. 1 crore and above and of the Development
Commissioner (SSI) for projects costing less than Rs. 1 crore. However, projects costing
24
Rs. 5 crore and above will be scrutinised on file by the office of DC(SSI) in consultation
with FA, before putting up to the Steering Committee for approval.
Disbursement of Funds
19.1 Funds will be released by the office of the DC (SSI) directly to the SPV/IA, under
intimation to the State Government. The disbursement schedule of the GoI grant would
generally be in accordance with the annual installments requested in the proposal of the
project, with justification for the said schedule to be considered and approved by the
Steering Committee. However, in general, upfront contribution by the SPV or the
.beneficiaries share would be a prerequisite before release of the first installment of GoI
assistance. Where bank finance is involved, written commitment of the bank concerned
to release proportionate funds will also be necessary before release of GoI assistance.
This will also apply to the State Government contribution, wherever applicable.
19.2 Further releases of the GoI grant will be contingent on furnishing of prescribed
utilisation certificate(s) and verification of release of contribution by the bank and the
State Government. DC (SSI) may also require physical verification of the progress of
works before release of the second and subsequent installments of GoI grants.
Monitoring and Evaluation
20.1 In case of projects implemented by the State Governments, their autonomous

bodies and SPVs with the State Government as one of the stakeholders, monitoring of
the projects to ensure satisfactory and time-bound implementation of the activities will
be the responsibility of the State Governments concerned. Each of the State
Governments will also be required to constitute a Project Steering Committee consisting
of representatives of all the stakeholders for this purpose. State Governments will send
Quarterly Progress Reports (QPR) on physical and financial parameters progress as well
as utilisation certificates prescribed under the General Financial Rules of the Central
Government to the Office of the Development Commissioner (Small Scale Industries).
20.2 In case of cluster development projects not covered by the provisions in the
preceding paragraphs, the Ministry of SSI will directly monitor the progress through
monitoring committees constituted at the level of the Ministry or through its State level
offices.
25
Chapter No:2 The General Profile of Sampled Clusters
CHAPTER
THE GENERAL PROFILE OF
2 SAMPLED CLUSTERS
2.1 Introduction
The clusters we have selected for the study have been broadly classified into two groups.
The first group of clusters which are the Primary Goods Based Clusters (PGBC), mostly
involve the processing and value addition to primary goods produced in the agriculture
and animal husbandry sector. These clusters are seen to add value to primary products
such as food grain, fruits and vegetables, Bamboo and Wood, Rubber, and Leather.
These agro-based activities are largely taken up as cottage or artisanal occupations that
supplement meager agricultural incomes and are based on easily available inputs, and
local skills, catering to the needs of local markets and peri-urban demand. They are
usually based on labour intensive production methods and are dependent on surplus
labour. Their working capital requirements are confined to simple tools and traditional
technologies. Since members of the household normally take them up, these activities
are widely dispersed over village habitations covering a large geographical area,
sometimes an entire block or even a small district.
However it needs to be clarified that there are some exceptions among these PGBCs
which use fairly advanced processing technologies and industrial inputs, though their
major raw material is drawn from the primary sector. The Plywood and Rubber Goods
Manufacturing Clusters in this group stand out as exceptions since they involve relatively
higher levels of processing, technology and the use of skilled industrial labour. Rice
Milling has also to a very large extent evolved from being a traditional household based
activity to a large scale, highly mechanized industrial process using modern machinery
and power. Their scale of operation is quite large and similar to any normal
manufacturing activity.
Over time these activities tend to get concentrated and localized among the better
equipped and skilled artisan groups who are able to cater to the demand for goods that
are standardized and of higher quality. This gradual process leads to the formation of
identifiable clusters. In spite of being relatively dispersed over a large geographical
area, they provide opportunity to harness the collective energies and externalities of
cooperation.
The Secondary Goods Based Clusters (SGBC) unlike the first group are more localized
and relatively less dispersed as they are often located in traditionally well defined
industrial areas and estates where essential infrastructure like
power and water supply is available and accessible. They are dependent on both skilled
and unskilled labour, utilizing tools plant and machinery that embody a fairly
sophisticated level of technology and technical inputs.
Unlike their agro-based counterparts, they require relatively higher investments and
need larger doses of working capital.
26
The range of products that they produce is more diversified and they often serve as
ancillaries of larger firms both at home and abroad. Not only do the units in these
clusters require maintaining a cost advantage, they require constant modernization and
innovation to face the stiff competition that they face from the larger firms at the
national and international level.
Based on this broad classification the subsequent sections would attempt to highlight the
spatial dispersions of the clusters, the number of constituent units, the economic size of
the units as reflected in the average annual turnover, the product range of the clusters,
their input profile and other general characteristics.
2.2 Geographical Spread of Clusters
The nature of activities as well as the sources of various inputs determines the
geographical spread or dispersion of the clusters. While some clusters are compact with
their individual units located over a smaller and more manageable area, there are others
where individual constituent units are spread out and dispersed over a large area.
In order to highlight the geographical spread or dispersion of the sampled clusters we

have adopted a classification that categorizes the sampled clusters into two groups
namely Compact, and Dispersed clusters. It is important to mention here that the
mobilization of individual units for collective action, the effective use of common
facilities, and the overall management of the CDP is better facilitated in case of a
compact cluster as compared to a dispersed cluster.
As seen in Table 2.1 of the 9 sampled clusters that are primary goods based, as many as
6 are highly dispersed being spread over an area exceeding 250 square kilometers. The
remaining 3 clusters are compact and are spread over an area of less than 250 square
kilometers. Among the compact clusters we have the Bamboo Cluster, Dimapur, the
Leather Goods Cluster, Shantiniketan and the Rubber Goods Cluster in Chengancherry.
27
Table No.-2.1: GEOGRAPHICAL SPREAD OF THE SAMPLED CLUSTERS

Primary Goods Based Clusters
Sl Cluster Compact Dispersed Area
(C) (D) (in Sq
Kms)
1 Bamboo Cluster Dimapur 100
2 Food Processing Cluster Muzffarpur 800
3 Leather Goods Cluster Agra 625
4 Leather Goods Cluster Shantiniketan 90
5 Plywood Cluster Perambavoor 962
6 Rice Milling Cluster Karnal 3000
7 Rice Flakes Cluster Ahmedabad 3000
8 Rice Milling Cluster Kalady 314
9 Rubber Cluster Chenganacherry 30
Secondary Goods Based Clusters
Sl Cluster Compact Dispersed Area
(C) (D) (in Sq
Kms)
10 Ball bearing Cluster Jaipur 225
11 Bell metal Cluster Khurda 25
12 Bell metal Cluster Hazo 2
13 Brass Utensil Cluster Pareo 1
14 Cotton Hosiery Cluster Kanpur 400
15 Diesel Engine Cluster Rajkot 100
16 Fan Industry Cluster Hyderabad 28
17 Foundry Cluster Ahmedabad 2500
18 Plastic Cluster Aluva 45
19 Sewing Machine Cluster Ludhiana 25
20 Surgical Instruments Cluster Baruipur 225
21 Wet Grinder Cluster Coimbatore 150
22 White ware Cluster Khurza 224
Note: C- Compact Cluster- Spread over an area less than 250 Sq Kms
D- Dispersed Cluster- Spread over an area more than 250 Sq Kms
250 Sq Kms approximates an area with a radius of about 9 Kms.
Turning to the 13 secondary goods based clusters covered in this study we see that as
many as 11 of these sampled clusters are compact. This means that they are spread
over a compact area of less than 250 square kilometers. There are however 2 sampled
clusters in this group which are highly dispersed. These are the Cotton Hosiery Cluster,
Kanpur and the Foundry Cluster, Ahmedabad.
As compared to the sampled clusters in the first group of primary goods based clusters,
the sampled clusters in this second, group of secondary goods based clusters are less
highly dispersed.
28
2.2.1 Number of Constituent Units in Sampled Clusters
The number of constituent units in each cluster normally reflects the size of the cluster.
It also helps us in estimating the cluster density, which stands out as an important
operational parameter in any Cluster Development Programme. A large enough number
of units in a cluster ensures a critical mass not only for effective intervention but also
indicates the extent of externalities that can be exploited for mutual benefit.
Here in this section we have again used a simple two-fold classification of small and
large clusters in order to highlight the size of the sampled clusters in our study.
In Table 2.2 it seen that as many as 7 out of the 9 PGBCs sampled, are small clusters
with less than 360 individual units. However there are 2 large clusters in this group,
which have individual units in excess of 360. It may be mentioned here that the cut off
number, which is 360 units, represents the median in our range of cluster sizes and is
not an arbitrary figure. Turning to the clusters in the second group it is seen in Table 2.2
that of the 13 clusters in the group as many as 6 are small clusters while there are 7
clusters that are large.
Small clusters may be easier to manage particularly if they are homogeneous. In the
case of large clusters there is always scope for identifying more than one cluster wherein
the CDP can be initiated simultaneously. These multiple clusters are likely to reinforce
each other by learning from each other and constantly sharing vital information. In such
cases a single diagnostic study would serve the purpose of identifying more than one
cluster for intervention thus saving a great deal of resources and effort. One additional
benefit that can be visualized is that soft interventions can be carried out jointly thereby
saving precious time and resources.
Table No.-2.2: NUMBER OF CONSTITUENT UNITS

Sl Cluster Small Cluster Large Cluster NCU
(S) (L)
1 Bamboo Cluster Dimapur 120
2 Food Processing Cluster Muzffarpur NA
3 Leather Goods Cluster Agra 2300
4 Leather Goods Cluster Shantiniketan 80
5 Plywood Cluster Perambavoor 85
6 Rice Milling Cluster Karnal 221
7 Rice Flakes Cluster Ahmedabad 70
8 Rice Milling Cluster Kalady 70
9 Rubber Cluster Chenganacherry 315
10 Ball bearing Cluster Jaipur 101
11 Bell metal Cluster Khurda 110
12 Bell metal Cluster Hazo 200
13 Brass Utensil Cluster Pareo 500
14 Cotton Hosiery Cluster Kanpur 467
15 Diesel Engine Cluster Rajkot 4180
29
Table No. -2.2 (Contd.)

Sl Cluster Small Cluster Large Cluster NCU
(S) (L)
16 Fan Industry Cluster Hyderabad 300
17 Foundry Cluster Ahmedabad 76
18 Plastic Cluster Aluva 108
19 Sewing Machine Cluster Ludhiana 800
20 Surgical Instruments Cluster 600
Baruipur
21 Wet Grinder Cluster Coimbatore 700
22 White ware Cluster Khurza 494
Note: S - Small Cluster- Upto 360 constituent units.
L - Large Cluster- More than 360 constituent units.
NCU- Number of constituent units.
If the geographical spread is considered along with the number of constituent units it
could be concluded that the cluster density in the second group tends to be generally
higher than that observed for the first group.
2.2.2 Size and Scale of Activity as Reflected by Turnover
The magnitude of the average turnover is a fairly realistic reflection of the scale of
operations of the individual units in a cluster. However one must hasten to add that
these averages conceal the degree of heterogeneity that may exist in each cluster and
are likely to underestimate the turnover of the larger units, and like wise overestimate
those of the very small constituents. However as a first pass, these averages do give us
a fair picture of the scale of operations. These figures also reflect the level of technology
and capital intensity that exists in the individual units of the cluster. As the scale of
operations in a unit increases it is normally expected that the capital intensity would also
increase, and the technological processes involved would also tend to become more
complex and sophisticated. It is also important to note that all the individual units in a
cluster may not be in a position to uniformly scale up their activities, and the related
capital intensity, resulting in some lagging behind. This uneven development of the
cluster leads to increasing the heterogeneity within the cluster. It is now well recognized
that heterogeneity as against homogeneity has important implications for cluster
development through collective action. Democratic participation and collective action
through cooperation is the essence of the cluster development programme. It is
therefore extremely important to carefully assess the turnover of each unit in the cluster
which along with cluster density enables policy designers to determine the cluster
configuration. It is only on the basis of a cluster configuration that clusters can be
identified and carefully selected and prioritized to initiate the most appropriate set of
interventions that are likely to deliver tangible results in the shortest possible time.
These tangible results are highly demonstrative, and are the most effective catalyst of
cluster development.
The aggregated turnover of each cluster in our sample both before and after selection
and intervention are presented in Table 2.3. This table also indicates the number of
constituent units, as well as the average annual turnover of each unit. The figures on
30
the turnover have been canvassed through the fact sheet for each cluster and have been
provided by the CDE for each of the clusters. In the absence of the CDE other cluster
functionaries have reported the figures. It is however important to stress that these
figures are at times not compiled too carefully and may also be considered guesswork in
some cases. Since these figures are not as accurate as they need to be and have not
been estimated using the appropriate method and procedure, they should be treated
with caution. However as a first pass they do provide some interesting information.
First of all, it is reported that there has been some spectacular increases in turnover in
the case of some clusters among the sampled PGBCs.
Table No.-2.3: IMPACT ON TURNOVER OF INTERVENTION

Sl Cluster ATBI ATAI AAT Turnover
Status
1 Bamboo Cluster Dimapur 11.30 L 139.10 L 1.16 L M
2 Food Processing Cluster NA NA NA M
Muzaffarpur
3 Leather Goods Cluster Agra 200 Cr 265 Cr 11.52 L M
4 Leather Goods Cluster 2.50 Cr 5.50 Cr 6.88 L M
Shantiniketan
5 Plywood Cluster Perambavoor 305 Cr 680 Cr 800.00 L H
6 Rice Milling Cluster Karnal 1200 Cr 1300 Cr 588.24 L H
7 Rice Flakes Cluster Ahmedabad 80 Cr 110 Cr 157.14 L M
8 Rice Milling Cluster Kalady 2000 Cr 2890 Cr 4128.57 L H
9 Rubber Cluster Chenganacherry 300 Cr 500 Cr 158.73 L M
Sl Cluster ATBI ATAI AAT Turnover
Status
10 Ball bearing Cluster Jaipur 108 Cr 200 Cr 198.02 L H
11 Bell metal Cluster Khurda 20 Cr 24 Cr 21.82 L M
12 Bell metal Cluster Hazo 2 Cr 5 Cr 2.50 L M
13 Brass Utensil Cluster Pareo 30 Cr 36 Cr 7.20 L M
14 Cotton Hosiery Cluster Kanpur .52 Cr 10 Cr 2.14 L M
15 Diesel Engine Cluster Rajkot 4980 Cr 5000 Cr 119.62 L M
16 Fan Industry Cluster Hyderabad 200 Cr 300 Cr 100.00 L M
17 Foundry Cluster Ahmedabad 400 Cr 425 Cr 559.21 L H
18 Plastic Cluster Aluva 70 Cr 350 Cr 324.07 L H
19 Sewing Machine Cluster Ludhiana 365 Cr 425 Cr 53.13 L M
20 Surgical Instruments Cluster 5.2 Cr 100 Cr 16.67 L M
Baruipur
21 Wet Grinder Cluster Coimbatore 225 Cr 350 Cr 50.00 L M
22 White ware Cluster Khurza 123 Cr 283 Cr 57.29 L M
Note: ATBI- Aggregate Annual Turnover Before Intervention H - High Turnover
ATAI- Aggregate Annual Turnover After Intervention M - Modest Turnover
AAT- Average Annual Turnover
As seen in Table 2.3 there has been a more than ten fold increase in the turnover of the
Bamboo Cluster in Dimapur. A near doubling of the turnover in the case of the Leather
Goods Cluster, Shantiniketan, the Plywood Cluster in Perimbavoor, and the Rubber
Cluster in Chenganacherry.
31
In the SGBCs also there are as many as six clusters that report significant increases, the
most notable in this regard being the Plastic Cluster in Aluva, and the Surgical
Instruments Cluster, Baruipur. However it is important to note that these significant
increases in the turnover are likely to be exaggerated, and may not have occurred
entirely as a result of identification and intervention under the CDP. However these
recent increases in turnover do perhaps reflect the potential for growth of these clusters,
if nurtured through appropriate interventions.
It may also be seen that the annual average turnover varies very widely in both the
groups. This variation can be observed to be much larger in the case of the PGBCs as
compared to the SGBCs. This wide variation reflects the considerable differences in the
scale of activities among different clusters. The differences among individual units within
a cluster or the heterogeneity in the cluster is however likely to be much lower in the
case of those clusters where the annual average turnover is low. This inter-unit
heterogeneity is most likely to increase as the average annual turnover of the cluster
increases. It is important to mention here that the differences in heterogeneity would
also require different types of organizational structures or institutions to effectively
enhance collective initiatives and democratic participation.
32
2.3 Cluster Configuration,Viability and Sustainability
On the one hand we have the geographical spread or dispersion along with the number
of individual units giving us the cluster density and on the other we have the turnover
that gives us an idea of the scale of activity. If we now combine these two
characteristics we obtain the cluster configuration. The cluster configuration provides us
a useful theoretical basis for identifying and selecting clusters for intervention. On one
end of the cluster configuration we have clusters that are compact and having a large
number of units making them dense along with a high turnover. These clusters are both
viable and sustainable as they provide the ideal critical mass for effective interventions.
On the other extreme of the cluster configuration we have those that are very widely
dispersed and having a small number of individual units making them low in density
along with a low turnover. These clusters are generally less viable and sustainable as
they often are difficult to manage. These do not provide the critical mass for effective
intervention. Between these two extremes both density and turnover may combine in
different ways to determine the degree of viability and sustainability. In these cases the
additional factor such as the degree of heterogeneity/homogeneity also determines how
easy it would be to mobilize individual units for collective action and sustained
cooperation. Clusters in this range of cluster configuration which are highly
heterogeneous, with individual units varying widely in size and scale of activity, are likely
to appear viable but would be difficult to manage and sustain in the long run. In these
heterogeneous clusters the larger units may come forward to form SPVs and to set up
common facilities, however the use of these facilities are likely to be monopolized with
the smaller units being discriminated against. Such conflict situations have often been
noticed in the case of heterogeneous clusters.
In Table 2.4 we have combined the three characteristics namely geographical dispersion,
number of units (size of cluster), and aggregate turnover as well as the average annual
turnover. These were separately discussed earlier in this chapter. Considering the
cluster configuration worked out on the bases of these characteristics we have broadly
and roughly indicated the present status of these sampled clusters. This three fold
classification of the status of clusters are, clusters which are most viable and sustainable
(MVS), clusters which are least viable and sustainable (LVS) and clusters which due to a
high level of heterogeneity are Viable but difficult to sustain (VDS).
On the whole, with both our sampled cluster groups taken together, it is seen that as
many as 14 of the 22 clusters (64 percent) are most viable and sustainable. However it
must be noted that the viability and sustainability in the case of these 14 clusters varies
according to their respective ranks. It is also seen in Table 2.4, that there are 4 specific
clusters that appear to be viable but would be difficult to sustain. This is mainly on
account of both their respective cluster configuration as well as the fact that they are
observed to be more heterogeneous with the inter-unit differences in these clusters
being substantial. We also have a group of 4 specific sampled clusters that we consider
to be the least viable and sustainable, and as a result of our analysis we would consider
the development of these clusters to prove problematic in the future.
33
Table No.-2.4: CLUSTER CONFIGURATION, VIABILITY AND SUSTAINABILITY

All Sampled Clusters
Sl Cluster Dispersion Size Turnover Cluster Rank
Configuration
C D L S H M
& Status
18. Plastic Cluster Aluva MVS 1
10. Ball bearing Cluster Jaipur MVS 2
15. Diesel Engine Cluster Rajkot MVS 3
22. White ware Cluster Khurza MVS 4
19. Sewing Machine Cluster MVS 5
Ludhiana
21. Wet Grinder Cluster MVS 6
Coimbatore
20. Surgical Instruments MVS 7
Cluster Baruipur
13. Brass Utensil Cluster Pareo MVS 8
9. Rubber Cluster MVS 9
Chenganacherry
16. Fan Industry Cluster MVS 10
Hyderabad
11. Bell metal Cluster Khurda MVS 11
4. Leather Goods Cluster MVS 12
Shantiniketan
12. Bell metal Cluster Hazo MVS 13
1. Bamboo Cluster Dimapur MVS 14
8. Rice Milling Cluster Kalady VDS 15
5. Plywood Cluster VDS 16
Perambavoor
6. Rice Milling Cluster Karnal VDS 17
17. Foundry Cluster Ahmedabad VDS 18
3. Leather Goods Cluster Agra LVS 19
2. Food Processing Cluster LVS 20
Muzffarpur
14. Cotton Hosiery Cluster LVS 21
Kanpur
7. Rice Flakes Cluster LVS 22
Ahmedabad
Note: C - Compact; D - Dispersed; L - Large; S - Small; H - High Turnover; MModest Turnover
MVS-Most Viable and Sustainable; VDS-Viable but Difficult to Sustain (due to Heterogeneity)
LVS- Least Viable and Sustainable
34
2.4 Nature of the Sampled Clusters
The units in each cluster we have sampled are likely to be independent units catering
entirely to the internal local or national market. They could also be purely ancillary units
who supply their output to other firms who use these as essential intermediate inputs in
their production process. The units could also be primarily export-oriented units only
catering to international demand. Moreover the units in a cluster could be a mix of all
three types.
In Table 2.5 we see that of the 9 sampled clusters in the PGBC as many as 8 consist of
predominantly independent units catering to the internal market, however there are 5
clusters in this group wherein they produce for the export market as well. It is also seen
that they are mostly involved in the production of final products and do not act as
ancillaries for larger firms.
Table No.-2.5: TYPES OF UNITS IN THE SAMPLED CLUSTERS

Predominant Type of Primary Goods Secondary Total
Units in the Sampled Based Clusters Goods Based Sampled
Cluster Clusters Clusters
Independent Units 8 12 20
Ancillary Units - 2 2
Export Oriented Units 5 2 7
It is also seen that of the 13 sampled clusters in the SGBC there is a predominance of
independent units in 12 clusters. Only two of the sampled clusters in this group contain
ancillary and export units. It is interesting to note that contrary to common belief, the
units in most clusters are independent units producing finished products for the market.
The degree of ancillarisation is low and this reflects that they have maintained
themselves as independent entities enjoying a level of autonomy not common among
small enterprises the world over. The low level of export orientation that the units in
most clusters display is mainly on account of two reasons. The first reason is the
protected and insulated existence of Indian Industry in general and SMIs in particular
during the post independence and pre liberalization period (from 1951 to 1991). The
second reason is the existence of a large and growing internal market which is rapidly
opening up and which many in the world are more than eager to exploit.
However it is important to mention here that both ancillarisation and export orientation
among the units in the sampled clusters are likely to increase rapidly as Indian Industries
compete in the world markets as a result of economic reforms, liberalization and
globalization. These trends are likely to have a wide-ranging set of implications for the
Cluster Development Programme and special efforts would be required to facilitate the
enhancement of the export capabilities of these cluster units and equip them to
effectively compete and survive in the globalised world market.
35
2.5 Input Profile of Sampled Clusters
The availability of and the access to raw materials and other intermediate inputs is an
important concern in sustaining the activities of individual units in a cluster. It is
therefore not only important to examine the current input profile of the sampled clusters
but also to anticipate the likely constraints that may be faced by the units in the medium
and long term. A clear temporal perspective regarding the availability of the required
raw materials and other inputs particularly helps in planning for alternate inputs and
technologies, as well as timely diversification. The development of such a long-term
strategy, which comprehensively takes into account future constraints, is most essential
for the very survival and sustainability of the cluster and its constituents.
Table 2.6 highlights the responses of cluster leaders and key cluster functionaries
regarding their perception of raw material availability in the sampled clusters covered
under this study. The table incorporates the cluster specific responses on current
availability as well as that which is perceived in the medium and long term.
For the first group of 9 Primary Goods Based Clusters it is reported by two clusters
namely the Bamboo Cluster in Dimapur as well as the Rice Milling Cluster in Karnal that
currently, there is an abundant availability of raw materials. The remaining seven
clusters in this group report an adequate current availability of raw material. For the
medium term also, the profile of availability remains unchanged across the sampled
clusters. However in the long term a shortage of raw materials is anticipated in the case
of two specific clusters in the group namely the Leather Goods Cluster in Agra, and the
Rice Milling Cluster in Kallady, (Kerala).
Turning to the Secondary Goods Based Clusters in our sample, the majority of the
clusters report that access and availability of required inputs is not only adequate in the
current context but is likely to remain so in both the medium and long term. However in
the case of three specific clusters in this group it is reported that while there are
shortages of inputs in the current period they anticipate the shortages to continue in the
medium and long term as well.
36
Table No.-2.6: INPUT PROFILE OF SAMPLED CLUSTERS

Current Medium term Long term
Sl Cluster Abun Adeq Short Abun Adeq Short Abun Adeq Shor
dant uate age dant uate age dant uate tage
1 Bamboo Cluster
Dimapur
2 Food Processing
Cluster Muzaffarpur
3 Leather Goods Cluster
Agra
4 Leather Goods Cluster
Shantiniketan
5 Plywood Cluster
Perambavoor
6 Rice Milling Cluster
Karnal
7 Rice Flakes Cluster
Ahmedabad
8 Rice Milling Cluster
Kalady
9 Rubber Cluster
Chenganacherry
Sl Cluster Abun Adeq Short Abun Adeq Shor Abun Adeq Shor
dant uate age dant uate tage dant uate tage
10 Ball bearing Cluster
Jaipur
11 Bell metal Cluster
Khurda
12 Bell metal Cluster Hazo
13 Brass Utensil Cluster
Pareo
14 Cotton Hosiery Cluster
Kanpur
15 Diesel Engine Cluster
Rajkot
16 Fan Industry Cluster
Hyderabad
17 Foundry Cluster
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
37
Each of these three clusters have reported specific reasons for the present and
anticipated shortages in the required inputs, and even anticipate that these serious
constraints are likely to increase in the future and if the issue is not addressed
appropriately and in time it is bound to affect the very survival of these clusters. In the
case of the Ball Bearing Cluster in Jaipur the units have been facing a severe shortage of
steel as well as a steep rise in prices. In the case of the Plastic Cluster in Aluva, Kerala
where plastic granules are produced from plastic waste there has been a fall in the
supply of waste as the garbage containing waste plastic is not being properly segregated
and is increasingly being used for land filling.
In case of the Rice Milling Cluster in Kallady the input constraints have taken a very
serious turn. This is because local paddy production and procurement in Kerala has been
steadily declining as farmers turn to cultivating more lucrative commercial crops or to
even stop cultivation altogether, diverting land to alternate uses. What has made
matters worse is that the adjacent states like Karnataka and Tamil Nadu have now
restricted or even banned the export of paddy to other states and Keralas large cereal
requirement is provided in terms of Rice rather than paddy.
It is also observed in Table 2.7 that while 7 of the 9 sampled clusters procure inputs
from local sources in close proximity of the cluster, there are two specific clusters which
procure their inputs from sources in a larger region.
Table No. - 2.7: LOCATION OF INPUT SOURCES FOR SAMPLED CLUSTERS

Inputs are available in
Sl Cluster Close Regional National
Proximity Proximity Proximity
1. Bamboo Cluster Dimapur
2. Food Processing Cluster Muzaffarpur
3. Leather Goods Cluster Agra
4. Leather Goods Cluster Shantiniketan
5. Plywood Cluster Perambavoor
6. Rice Milling Cluster Karnal
7. Rice Flakes Cluster Ahmedabad
8. Rice Milling Cluster Kalady
9. Rubber Cluster Chenganacherry
10. Ball bearing Cluster Jaipur
11. Bell metal Cluster Khurda
12. Bell metal Cluster Hazo
13. Brass Utensil Cluster Pareo
38
Table No.-2.7 (contd.)

14. Cotton Hosiery Cluster Kanpur
15. Diesel Engine Cluster Rajkot
16. Fan Industry Cluster Hyderabad
17. Foundry Cluster Ahmedabad
18. Plastic Cluster Aluva
19. Sewing Machine Cluster Ludhiana
20. Surgical Instruments Cluster Baruipur
21. Wet Grinder Cluster Coimbatore
22. White ware Cluster Khurza
A more detailed presentation of production related impediments and constraints faced by

individual cluster units in each of the sampled clusters belonging to both the PGBCs and
SGBCs groups is presented in Tables 2.17(a) and 2.17(b) which is seen in Annexure 2.1
to this Chapter. These tables provide a more comprehensive perception of the
constraints faced by individual units in the cluster unlike the more general table
discussed above which is primarily based on the perceptions of Cluster Development
Functionaries such as the CDE and others.
2.6 Availability of Manpower

The growth and development of Clusters requires the availability of both skilled and
unskilled manpower. As seen in Table 2.8 the availability of unskilled manpower is
reported to be either abundant or adequate in most sampled clusters and understandably
this is more so in the PGBCs as compared to the SGBCs. However in the case of the
Rubber Cluster in Chenganacherry, Kerala it is reported that the units face shortages
even in the case of unskilled labour. The Foundry Cluster in Ahmedabad also reports a
shortage of unskilled manpower.
Table No. -2.8: AVAILABILITY OF MANPOWER

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

8. Rice Milling Cluster
Kalady
9. Rubber Cluster
Chenganacherry
10. Ball bearing Cluster
Jaipur
11. Bell metal Cluster
Khurda
13. Brass Utensil Cluster
Pareo
14. Cotton Hosiery Cluster
Kanpur
15. Diesel Engine Cluster
Rajkot
16. Fan Industry Cluster
Hyderabad
17. Foundry Cluster
Ahmadabad
19. Sewing Machine Cluster
Ludhiana
20. Surgical Instruments
Cluster Baruipur
21. Wet Grinder Cluster
Coimbatore
22. White ware Cluster
Khurza
Turning to the availability of skilled manpower it is seen that the shortages are more
pronounced. The shortage of skilled manpower is reported by 4 of the 9 sampled
clusters in the first group of PGBCs. Three of the four clusters are located in Kerala while
one is located in Karnal, Haryana. Two of these clusters are involved in the production of
Rubber goods and plywood, while the other two are engaged in Rice Milling. It is seen
that these clusters are fairly capital intensive and utilize advanced processes and
technology that require maintaining and operating by skilled labour.
There are four other clusters in the SGBCs, which report severe shortages of skilled
labour. These are Ball Bearing Cluster in Jaipur, the Bell Metal Cluster in Khurda, the
Foundry Cluster in Ahmedabad and the Plastic Cluster in Aluva. Here it may be
mentioned that clusters located in and around already well established industrial areas
may find it possible to attract skilled labour however a lot depends on the level of wages
prevailing in these places and smaller units in the cluster may not be able to afford these
wages. The only viable solution to this pressing problem is to create common facilities
for upgrading the skills of the abundantly available unskilled labour. This has to be a
collective effort as individual units may not be capable of taking up this task. This issue
must be adequately addressed, as increasing capital intensity invoked by the use of
40
advanced processes and technologies is likely to occur in most clusters in the near
future. The large numbers of MSME-DIs have an important role to play in this regard
and would require significant up gradation to be able to effectively contribute in tackling
this issue.
A more detailed presentation of manpower related impediments and constraints faced by

SGBCs groups is presented in Tables 2.17(a) and 2.17(b) which are Annexure 2.1 to this
Chapter. These tables provide a more comprehensive perception of the constraints faced
by individual units in the cluster unlike the more general table discussed above which is
primarily based on the perceptions of Cluster Development Functionaries such as the
CDE and others.
2.7 Access to Markets and Market Prospects
The sustained and healthy growth of clusters is critically dependent on their access to
markets. It is encouraging to note that a fairly large number of sampled clusters report
that they have sufficient access to markets. However there are an equally large number
who report that market access is a problem and is limited.
Among the PGBCs there are three specific clusters that report limited access to markets
these are the Food Processing Cluster in Muzzafarpur, Bihar, the Leather Goods Cluster
in Shantiniketan, West Bengal, and the Rubber Cluster in Chenganacherry, Kerala. In all
these cases it is the standardization, quality, packaging and design of the products that
limit market access.
Limited access to markets seem to be more prevalent among the SGBCs. As seen in
Table 2.9 there are as many as Seven Clusters that report limited access to markets.
Table No.-2.9: ACCESS TO THE MARKETS

Sl Cluster Sufficient Limited No
Access Access Access
Muzaffarpur
Shantiniketan
41
Table No.-2.9 (Contd.)

Sl Cluster Sufficient Limited No Access
Access Access
17. Foundry Cluster Ahmadabad
Here we see that apart from the need for standardization, quality control, packaging and
design, there are also constant threats from substitutes and cheap high quality and low
priced imports. In the long run these clusters would need to diversify into new products
and cater to the changing needs and requirements of the consumer.
It is also essential to highlight the perception of the sampled cluster regarding the
market prospects for the goods manufactured by them. In Table 2.10, the current,
medium term and long term perceptions of the market prospects are indicated.
Table No.-2.10: MARKET PROSPECTS FOR THE GOODS MANUFACTURED IN SAMPLED

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

Sl Cluster Good Adequate Low Good Adequate Low Good Adequate Low
10 Ball bearing
Cluster Jaipur
11 Bell metal
Cluster Khurda
12 Bell metal
Cluster Hazo
13 Brass Utensil
Cluster Pareo
14 Cotton Hosiery
Cluster Kanpur
15 Diesel Engine
Cluster Rajkot
16 Fan Industry
Cluster
Hyderabad
17 Foundry
Cluster
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
For the clusters in the first group it is seen that most of them perceive the prospects to
be good accept in the case of the Rubber Cluster, Chenganacherry, Kerala, wherein the
current and medium term prospects are reported to be adequate, however in the long
term the market prospects are anticipated to be low.
In the case of SGBCs too the current and future market prospects are perceived to be
either good or adequate accept in the case of the Bell Metal Cluster in Khurda and Hazo,
the Brass Utensils Cluster in Pareo, Bihar, and the Sewing Machine Cluster in Ludhiana.
The pessimism regarding market prospects particularly in the long term is mainly due to
changing tastes and the increasing availability of substitutes and cheap imports.
However with adequate diversification and increase in the product range these
perceptions could change over time.
A more detailed presentation of market related impediments and constraints faced by

43
CDE and others.
2.8 Access to Finance

The availability and adequate access to finance is of critical importance to each of the
functional units in the cluster. While financially stronger clusters having good market
demand and prospects are likely to have adequate access to finance from banks and
other financial institutions, others are likely to face problems. In Table 2.11 it is seen
that in the case of 8 of the 22 sampled clusters, the cluster functionaries report that
there is sufficient access to finance.
There are however as many as 9 clusters that report that access to finance is limited,
these are clusters wherein the scale of activity and the size of the individual units is
limited. From the perception of the financial institution these clusters and the units
therein may be into activities that are relatively more risky.
Table No. - 2.11: ACCESS TO FINANCE IN SAMPLED CLUSTERS

Muzaffarpur
Shantiniketan

44
Table No .-2.11 (Contd .)

20. Surgical Instruments Cluster
Baruipur
Moreover there are as many as 5 specific clusters that are severely constrained in terms
of finances and report that they have no access to institutional finance a large number of
units in these clusters are extremely small, often highly dispersed, with very limited
turnover. A fairly large number of individual units borrow money at very high interest
rates from loan sharks and local moneylenders and are drained off investable surpluses
resulting in retarded growth. These units may need to be assisted to access finance
through special measures as regular banks and other institutions are likely to shy away
from providing finances to them.
Overall it can be concluded that access to adequate finances are a major constraint faced
by a fairly large number of clusters with as many as 14 of the 22 sampled clusters
reporting limited or no access to finance. There is thus a need to strengthen the CDP
through special measures and facilities to improve access to finance for the participating
clusters.
A more detailed presentation of finance related impediments and constraints faced by

CDE and others.
45
2.9 Access to Information
Units in each cluster constantly require a whole range of information. Information

related to market trends and new products are necessary to adapt quickly and effectively
to market demand and changing tastes. Information related to market trends also helps
units to diversify and attempt changes in the product range to stay and survive in highly
competitive markets. Units also need to keep abreast with price trends and price related
information concerning both inputs as well as finished products.
Units also constantly require information related to new processes and technologies that
can improve the quality of products, technologies and processes that can reduce costs
and conserve energy, technologies and processes that are less polluting and thereby
more sustainable in the long run. Participating units also need information related to
regulatory measures, standards, taxes and various schemes and incentives provided by
the State and Central Government and various other developmental agencies.
Access to information is thus the key to success and survival specially in the highly
competitive world of today. With significant progress in information technology and
communication access to information has been brought within easy and affordable reach
of even the smallest of individual enterprises. However individual small entrepreneurs
would still find it difficult to spare the time to access this wealth of information that they
can utilize. Common facilities or a common information centre catering to these
individual units can considerably enhance timely access to information.
We also observe that there is no dearth of information and very often there is too much
of it leading to an information overload, this can in fact do more harm than good to the
small entrepreneur and leave him confused and disoriented. It is therefore very
essential to know what information is most required in a cluster and make the necessary
arrangement to collectively gather the information and disseminate it to the individual
units. The importance of this collective access to information and its regular and
effective dissemination should be very high on the agenda of the CDEs when they are
carrying out soft interventions. The efforts at creating a high level of awareness
regarding the benefits of regular access to information should not end with the soft
interventions, but must be implemented through hard interventions in the concerned
cluster.
As seen in Table 2.12 only 4 out of the 22 sampled clusters reported access to sufficient
information. In the case of 10 clusters it was reported that access to the required
information was limited. It is also important to note that there were as many as 8
sampled clusters that reported that they had no access to information.
46
Table No.-2.12: ACCESS TO INFORMATION IN SAMPLED CLUSTERS

Muzaffarpur
Shantiniketan
Baruipur
On the whole it is very clear that most clusters do not have adequate access to the
required information. This is a major handicap and requires immediate attention through
the strengthening of soft and hard interventions under the CDP.
2.10 Access to Research and Development Institutions
Individual units in a cluster constantly require technical and scientific advice and
assistance. They particularly need the assistance of expert institutions regarding the
choice of appropriate technology, the input mix and various processes that help in the
improvement of quality and conservation of energy. They also need expert guidance in
effectively treating problems related to the proper disposal of effluents other toxic and
waste as well as for effectively tackling pollution. It must also be emphasized that the
ability to succeed in the face of stiff competition can only come with constant innovation
for which scientific and technological inputs are most essential.
47
Though there are many scientific institutions in the country particularly those that
specialize in areas that are of direct relevance to the sampled clusters in our study there
seems to be an utter lack of access by these clusters to scientific institutions.
As seen in Table 2.13 only one of the 22 sampled clusters reports that it has sufficient
access to R&D institutions. There are however 13 clusters which claim that they have
only limited access to R&D institutions. Most of the assistance or advice that these
receive on scientific and technology matters are normally confined to informal or casual
contacts and since such scientific or technical inputs often come at a price, individual
small units are not always in a position to afford such services. It is also quite
disheartening to see that as many as 8 clusters report that they have no access what so
ever to scientific and technological information that they desperately require.
Active linkages with the relevant R&D institutions seems to be one of the critical
deficiencies of the Cluster Development Programme and unless such linkages are actively
encouraged and nurtured, the long term competitive abilities of these clusters are most
likely to suffer.
Table No.-2.13: ACCESS TO R&D INSTITUTIONS IN SAMPLED CLUSTERS

Access Access
Muzaffarpur
Shantiniketan
Access Access
48
Table No -2.13 (Contd.)

Baruipur
A more detailed presentation of technology related impediments and constraints faced

by individual cluster units in each of the sampled clusters belonging to both the PGBCs
and SGBCs groups is presented in Tables 2.19(a) and 2.19(b) which form Annexure 2.1
to this Chapter. These tables provide a more comprehensive perception of the
constraints faced by individual units in the cluster unlike the more general table
discussed above which is primarily based on the perceptions of Cluster Development
Functionaries such as the CDE and others.
2.11 Environmental Concerns in the Clusters
Environmental concerns are fairly high on the agenda of policy makers these days, and
regulatory measures draw a great deal of attention. Regulators have specifically
targeted industries, as they are known to be responsible for polluting the air and water.
These problems arise largely on account of the improper treatment of effluents and safe
disposal of toxic wastes. Our sampled clusters are involved in a fairly wide range of
industrial activity and it is important to identify whether they generate environmental
concerns.
Table No-2.14: ENVIRONMENTAL CONCERNS IN THE SAMPLED CLUSTERS

Sl Cluster Generates Does not
Environmental Generate
Concern
Shantiniketan
49

Sl Cluster Generates Does not
Environmental Generate
Concern
It is seen in Table 2.14 that there are 12 sampled clusters which generate environmental
concerns. Among these, there are 4 clusters which belong to the PGBC group and as
many as 8 clusters from the SGBC group. It is also reported that the remaining 10
sampled clusters do not generate environmental concerns though there are doubts
regarding this issue especially in the case of the plywood cluster in Perimbavoor, the Rice
Flakes cluster in Ahmedabad and the Rice Milling cluster in Karnal. If one takes this into
consideration then the number of polluting clusters increases to 15 out of the 22 sampled
clusters. With strict environmental regulation these clusters are likely to face problems
in their day to day functioning, some of them are already facing problems with the
concerned authorities who even go to the extent of closing down units which are not in a
position to address pollution issues.
There are three major types of pollution that clusters generate these are air pollution,
water pollution, and pollution caused by non-degradable toxic solid wastes. There may
be other forms of pollution also such as noise pollution, which affects not only the
workers but also neighbouring habitations.
As seen in Table 2.15 air pollution seems to be the most widespread among our sampled
clusters with as many as 12 clusters in our sample causing air pollution. There are 5
sampled clusters that are reported to be causing water pollution and is drawing the
increasing attention of regulators. Moreover there are 2 clusters that generate pollution
through non-degradable toxic solid wastes.
50
Table No.-2.15: TYPE OF ENVIRONMENTAL CONCERNS IN SAMPLED CLUSTERS

Type of Pollution
Sl Cluster Air Water Non-degradable
Pollution Pollution Toxic Solid
Waste
4. Leather Goods Cluster Shantiniketan
Type of Pollution
Sl Cluster Air Water Non-degradable
Pollution Pollution Toxic Solid
Waste
Baruipur
It is also important to note that there are as many as 6 sampled clusters that generate
more than one type of pollutant. Three of these clusters belong to the PGBC group
namely the Food Processing Cluster, Muzzaffarpur, and the two Rice Milling Clusters in
Karnal and Kalady. There are another three clusters in the SGBC group that generate
more than one type of pollutant. These are the Bell Metal Cluster, Khurda, the Plastic
Cluster in Aluva, and the White ware Cluster in Khurza. While the Bell Metal and Plastic
Clusters generate non degradable toxic solid wastes apart from polluting the air, the
White ware Cluster in Khurza pollutes both air and water. With increasing concern and
regulation regarding environmental problems, most of these clusters would increasingly
become the focus of control and would be required to effectively respond to regulation if
they are to grow and develop.
A high level of awareness regarding environmental regulation and standards would be

required through soft interventions. It may also be necessary to earmark a portion of
the funds released for hard interventions to be used for collective management of
51
environmental problems especially on the safe collective disposal or treatment of

effluents as well as the proper disposal of solid toxic wastes. At present it is noticed that
both soft as well as hard interventions do not address environmental issues adequately
and though there are some large individual units, which have the resources to undertake
anti pollution measures the larger majority of individual units lack the means of
addressing this problem effectively.
2.12 Progress and Present Status of the CDP
It would be most appropriate to conclude this chapter on the Profile of Sampled Clusters
by assessing the progress and present status of the Cluster Development Programme in
the sampled clusters covered by this study.
Each cluster identified for interventions under the CDP passes through five distinct
stages. The programme only stands competed when all these five important stages are
successfully competed. It is only then that a complete assessment of the impact can be
undertaken.
The first Stage or Stage I stands completed when the CDE undertakes a diagnostic study
and based on this the cluster is identified and soft interventions initiated. The second
Stage or Stage II is completed with the successful formation of the SPV and the formal
registration of the SPV.
The third distinct Stage or Stage III stands completed after the DPR for the CFC is
formulated along with detailed estimates of the cost, and then approved by the
concerned sponsors. The fourth Stage or Stage IV, involves the setting up of the CFC,
the CFC at any point of time may itself be in various stages of its construction and
testing. The final fifth Stage or Stage V is reached when the CFC is fully commissioned
and becomes functional and starts being used by individual cluster units. Each of these
stages are likely to take varying lengths of time for completion. It may be mentioned
that since no specific timeline is prescribed for each stage, there is a tendency for the
entire process to drag on.
Each of these stages involves different activities and are marked by specific problems
and constraints. For instance Stage I can be considerably prolonged if the CDE is not
appointed and adequately trained and equipped to carry out the diagnostic study and
effectively initiate soft interventions. Stage I may also be prolonged due to the delayed
release of funds, as well as the delayed approval and consent of the State Government,
which is essential for the initiation of the programme in any state.
The second stage also faces several intractable constraints specially when the cluster
identified is heterogeneous. In such situations it is always more difficult and time
consuming to get individual units to come together and form an SPV and register it in the
most suitable institutional form. The successful completion of Stage II is also conditional
to how carefully the cluster has been identified on the basis of a diagnostic study and
also how effectively the soft interventions are carried out. It may also be mentioned that
in a compact, dense, homogenous, cluster, already represented by an active association
or union, it is much easier and faster to form an SPV and complete its registration
52
formalities. Stage III involves the careful selection of the CFC and the formulation of a
Detailed Project Report (DPR), and the acceptance and approval of the proposal by the
sponsors. Arriving at a consensus on the choice of the most appropriate CFC is itself a
difficult and time consuming process. The formulation of a DPR often involves prolonged
consultations with experts, and equipment manufacturers. Access to affordable
expertise either from individuals or institution is not easy and often comes at a fairly high
cost. The process of approval may also prove to be very cumbersome and time
consuming and clusters are likely to get stuck in this stage. Stage IV involves the
setting up of the CFC, the pace of construction depends on the timely supply of
equipment and machinery, and this is conditional to the regular and timely disbursement
of payments. The timely release of approved funds by the MSME as well as the
concerned State Government is critical for the timely completion of this stage. Delays in
the Stage IV can lead to cost escalation which are not acceptable to sponsors and would
have to be born by the concerned SPV, as a consequence the DPR and related estimates
may have to be modified causing further delays in successfully completing this stage.
The final Stage V involves the commissioning of the CFC and ensuring the full utilization
of the capacity created.
The proper testing of installed machinery the conduct of trial runs, the removal of
teething problems which often takes time as equipment suppliers do not attend to the
need for prompt after sales services. The purchase agreements are also not properly
framed to incorporate the timely provision of such services.
The proper training of workers who are required to operate these machines may also
create problems in the initial phase of operations. The pricing of services provided by
the CFC is also an important issue as both under pricing or over pricing brings with it a
host of other problems affecting the equitable utilization of the facility by individual units
in the cluster.
We now turn to Table 2.16 to highlight the present status of cluster development in the
sampled clusters at the time this study was conducted. As seen in the Table 2.16 there
are as many as 11 clusters which are still in Stage I. While 4 of these clusters belong to
the PGBC group the remaining 7 clusters belongs to the SGBC group. It is rather
disappointing to find as many as 50 percent of the sampled clusters in Stage I. Several
factors as mentioned above have been responsible for the slow pace of implementation
of the CDP with such a large number of clusters still stuck at the very first stage of the
programme.
Table No.-2.16: CDP IN SAMPLED CLUSTERS AND PRESENT STATUS

Sl Cluster Stage
1. Rice Milling Cluster Karnal I
2. Rice Flakes Cluster Ahmedabad I
3. Rice Milling Cluster Kalady IV
4. Food Processing Cluster Muzffarpur II
5. Rubber Cluster Chengnacherry V
6. Bamboo Cluster Dimapur I
53

Sl Cluster Stage
7. Plywood Cluster Perambavoor IV
8. Leather Goods Cluster Agra I
9. Leather Goods Cluster Shantiniketan III
Sl Cluster Stage
1. Cotton Hosiery Cluster Kanpur I
2. Plastic Cluster Aluva IV
3. White ware Cluster Khurza II
4. Brass Utensil Cluster Pareo IV
5. Bell metal Cluster Khurda I
6. Bell metal Cluster Hazo IV
7. Foundry Cluster Ahmedabad V
8. Ball bearing Cluster Jaipur I
9. Hand tool Cluster Jallandhar I
10. Surgical Instruments Cluster Baruipur IV
11. Sewing Machine Cluster Ludhiana I
12. Wet Grinder Cluster Coimbatore IV
13. Fan Industry Cluster Hyderabad I
14. Diesel Engine Cluster Rajkot I
All Sampled Clusters
Sl Stage Numbers
1. I 11
2. II 2
3. III 1
4. IV 7
5. V 2
Note: The five different stages indicated in the tables above are defined as follows:
Stage I- CDE appointed, Diagnostic Study completed and Soft interventions carried out
Stage II- SPV formed and registered.
Stage III- DPR submitted and approved
Stage IV- Setting up of CFC in progress
Stage V- CFC commissioned and functional
It is also not very encouraging to note that only in the case of 2 clusters has Stage II
been accomplished. One cluster is still in Stage III of development, while 7 sampled
clusters are in Stage IV. Only 2 of the clusters have managed to accomplish Stage V.
Considering the stages in which the sampled clusters have been found at the time of the
study it is premature to assess the full impact of the CDP. The figures also clearly
indicate that the pace of implementation has been very slow and appropriate measures
are required to avoid this stagnation.
54
Annexure: 2.1- Detailed tables on responses on impediments faced by units owners

Table No.-2.17 (a): RESPONSES ON PRODUCTION RELATED IMPEDIMENTS TO FURTHER GROWTH (AGRO-BASED CLUSTERS)
Bamboo Food Leather Leather goods Plywood Rice Rice Flake Rice Mill Rubber
Cluster Processing Footwear industry Cluster Industry Mill Cluster Cluster
Dimapur Industry Industry Cluster, Kerala Cluster Ahmedabad Kerala Kerala
Cluster Cluster, Shantiniketan Karnal
Muzpur Agra
Nos 2 8 4 3 2
Raw Material Availability % (13) (53) (27) (20) (13)
Labour Availability Nos 1 1

% (7) (7)
Power Supply Nos 1 1 6

% (7) (7) (40)
Shortage of Skilled Nos 2 1 1

Manpower % (13) (7) (7)
High Salaries & Wages Nos 1 1

% (7) (7)
High Transportation Nos 6

Cost % (40)
Land is Expensive Nos 1 3 3

% (7) (20) (20)
No 3
Poor Quality of Inputs % (20)
High Cost of Inputs Nos 2 1

% (13) (7)
Fluctuation in Prices of Nos 1

Inputs % (7)
Restrictions on Pollution
Nos 2 2 1
% (14) (14) (7)
55
Table No.-2.17 (b): RESPONSES ON PRODUCTION RELATED IMPEDIMENTS TO FURTHER GROWTH (METAL AND MANUFACTURING BASED
CLUSTERS)
Ball Brass Bell Brass Hosiery Diesel Fan Foundry Aluva Sewing Surgical Wet White
bearing and Bell metal Untensil Cluster Engine Cluster, Industry Plastic machine Instrument Grinder ware
Cluster metal Cluster Cluster Kanpur Cluster, Hyderab Cluster Cluster Ludhiana s Cluster Cluster Industry
Jaipur Industry Hazo Pareo Rajkot ad Ahmedaba Baruipur Cluster
Cluster d Khurja
Khurda
Availability of Raw Nos 9 8 1 1 15 3 1 9 1

Materials
% (60) (53) (7) (7) (100) (20) (7) (60) (7)
Availability of Labour Nos 3 4 1

% (20) (27) (7)
Power Shortage Nos 13 9 13 1 2 11 1

% (87) (60) (87) (7) (13) (73) (7)
Shortage of Skilled Nos 1 2 5 5
Manpower
% (7) (13) (33) (33)
High Salaries & Nos 1 3 1
Wages
% (7) (20) (6)
Transportation Cost Nos 2 1
is High
% (13) (7)
Land is Expensive Nos 1 1 2 1
% (7) (7) (13) (7)
Quality Inputs Nos 1 2 1
% (7) (13) (7)
High Cost of Inputs Nos 1 0 3 1 2 3 4 8 4
% (7) (0) (20) (7) (14) (19) (27) (50) (41)
Fluctuation in Prices Nos
of Inputs %
Restrictions on Nos
Pollution
%
56
Table No.-2.18(a): RESPONSES ON MARKET RELATED IMPEDIMENTS TO FURTHER GROWTH (AGRO-BASED CLUSTERS)
Bamboo Food Leather Leather goods Plywood Rice Rice Flake Rice Rubber
Cluster Processing Footwear industry Cluster, Cluster Industry Mill Mill Cluster
Dimapur Industry Industry Shantiniketan Kerala Cluster Ahmedabad Cluster Kerala
Cluster Cluster, Karnal Kerala
Muzpur Agra
Marketing/Access to Nos 1 13 6 2 1 1 2
Markets
% (7) (87) (40) (14) (7) (7) (13)
Credit Sales Nos 2 1
% (13) (7)
Highly Competitive Nos 1 1
Market
% (7) (7)
Market Assistance Nos 2 1
% (13) (7)
Lack of Support for Nos 3 1
Exports
% (20) (7)
Ban on Exports Nos 3 3
% (20) (20)
Availability of Nos 2
Substitutes
% (13)
57
Table No.-2.18 (b): RESPONSES ON MARKET RELATED IMPEDIMENTS TO FURTHER GROWTH (METAL & MANUFACTURING BASED
CLUSTERS)
Ball Brass and Bell Brass Hosiery Diesel Fan Cluster, Foundry Aluva Sewing Surgical Wet White
bearing Bell metal Metal Utensil Cluster Engine Hyderabad Industry Plastic machine Instruments Grinder ware
Cluster Industry Cluster Cluster Kanpur Cluster, Cluster Cluster Ludhiana Cluster Cluster Industry
Jaipur Cluster Hazo Pareo Rajkot Ahmedabad Baruipur Cluster
Khurda Khurja
Marketing/ Access Nos 2 6 2 1 1 7 6 5

to Markets
% (14) (40) (13) (7) (7) (47) (39) (34)
Credit Sale Nos 2 1
% (13) (7)
Highly Competitive Nos
Market
%
Market Assistance Nos
%
Lack of Support for Nos
Exports
%
Ban on Exports Nos
%
Availability of Nos
Substitutes
%
58
Table No.-2.19 (a): RESPONSES ON FINANCE & TECHNOLOGY RELATED IMPEDIMENTS TO FURTHER GROWTH (AGRO-BASED CLUSTERS)
Bamboo Food Leather Leather Plywood Rice Rice Flake Rice Mill Rubber
Cluster Processing Footwear goods Cluster Industry Mill Cluster Cluster
Dimapur Industry Industry industry Kerala Cluster Ahmedabad Kerala Kerala
Cluster Cluster Cluster Karnal
Muzpur Agra Shantiniketan
Working Capital Nos 6 4 9 7 2 3 5 4

% (40) (27) (60) (46) (13) (50) (33) (27)
Non Availability of Soft Nos 1 3 1

Loan % (7) (20) (7)
High Interest Rate Nos 2

% (13)
Non Availability of New Nos 12 8 1 2
Technology
% (80) (54) (7) (13)
Nos 3
Non Availability of CFC
% (20)
Others Impediments
Government License Nos 4

% (27)
Nos 2 7
State Government Policy
% (13) (47)
Nothing/ Can't Say Nos 1 5 3
% (7) (33) (20)
59
Table No.-2.19 (b): RESPONSES ON FINANCE AND TECHNOLOGY RELATED IMPEDIMENTS TO FURTHER GROWTH (METAL AND
MANUFACTURING BASED CLUSTERS)
Ball Brass Bell Brass Hosiery Diesel Fan Cluster, Foundry Aluva Sewing Surgical Wet White
bearing and Bell metal Utensil Cluster Engine Hyderabad Industry Plastic machine Instruments Grinder ware
Cluster metal Cluster Cluster Kanpur Cluster, Cluster Cluster Ludhiana Cluster Cluster Industry
Jaipur Industry Hazo Pareo Rajkot Ahmedabad Baruipur Cluster
Cluster Khurja
Khurda
Working Capital Nos 3 4 2 5 2 9

% (20) (27) (13) (31) (13) (56)
Finance Nos 4 5 1 7 2 3 6
% (27) (33) (7) (47) (13) (20) (40)
Non Availability of Nos 6 4 1
Soft Loan
% (40) (27) (7)
Non Availability of Nos 7 7 9 1 4 1 1 4 4 2 6
New Technology
% (47) (47) (60) (7) (27) (7) (6) (27) (27) (13) (40)
ISI Certification Nos 1
% (7)
No R&D Facilities Nos 1
% (7)
Others Impediments
Nothing/ Can't Say Nos 3 2 2 1 1
% (20) (13) (13) (7) (7)
State Government Nos 5 5 2 7
Policy
% (33) (33) (13) (44)
60
Chapter No: 3 The Cluster Development Executive/Agent
CHAPTER THE CLUSTER DEVELOPMENT
3
EXECUTIVE/AGENT
3.1 Introduction
Many ongoing cluster interventions are being pursued through a catalyst - a Cluster
Development Executive (CDE) or a Cluster Development Agent (CDA). He or She is an
important pivotal functionary who stays with the cluster through all its stages of
evolution and maturity. This important agent of change has a very challenging mandate
and his role as a guide and facilitator is second to none in the CDP, and accounts for its
success or failure to a very large extent. Though the CDE plays an extremely critical role
under the CDP, his effectiveness needs to be reinforced by a mentor institution, a
supportive regional office of the MSME, the required technical consultants and R & D
institutions an experienced battery of BDS providers, and last but not the least an able
local Network Agent who is thoroughly familiar with the cluster.
3.2 The Role and Functions of the CDE/CDA
The initial task of the CDE/CDA is the proper identification of the cluster highlighting its
viability and sustainability. This is mainly done through the conduct of a detailed
diagnostic study that carefully puts together the important general characteristics of the
cluster such as its dispersion, size and the resulting density, the scale of operations
among the constituent units, the nature of the cluster, the markets it caters to, and the
various inputs that it requires. This diagnostic study comprehensively assesses the
existing externalities, the market prospects over the medium and long term as well as
the constraints and bottlenecks both contemporary and anticipated. Not only is the
cluster comprehensively studied and identified through this diagnostic study but also a
strategic plan for cluster development evolves on its basis. The selection of appropriate
interventions as well as the prioritization of these interventions is carried out on the basis
of this initial study.
This initial task is usually followed by the implementation of what are known as soft
interventions that mainly involve the creation of awareness among individuals cluster
units regarding the benefits of cooperation and the systematic exploitation of the existing
externalities for the collective good. Soft interventions are particularly targeted at
activities that mobilize individual cluster units for collective action by encouraging
dialogue and discussion among units, and are an attempt to evolve a shared vision and
strategy for enhancing competitiveness and productivity for the cluster as a whole.
Mobilization of individual cluster actors for collective action is not an easy task and
concerted efforts are needed particularly on the part of the CDE/CDA to convince and
motivate many a dissident cluster actor to join the fold. All the efforts are primarily
directed towards synergizing individual cluster actors into a vibrant collective and
unleashing the power of cooperation to survive and sustain in a highly predatory and
competitive industry normally dominated by large entities such as the large organized
national and international firms.
61
The next important task for the CDE/CDA is to catalyze the formation of a consortia or a
special purpose vehicle, which is necessary for the creation of a common facilities centre.
Here again while it may be possible to get individual cluster actors to form a consortia or
an SPV, it is often difficult to get them to evolve a strong consensus on the kind of
common facilities that are most required by the cluster. The formation of the SPV and
the institutional form it should take in order to ensure democratic participation and the
equitable sharing of both the managerial responsibilities as well as the benefits, also
depend on how strong a consensus emerges, largely based on the competence and
efforts of the CDA. The CDE therefore has an extremely responsible role to play and
should be adequately equipped to play his or her part most effectively. It is also
necessary for the CDE/CDA to build a high level of trust among individual cluster actors
and also to generate a strong sense of confidence and trust in his own actions, through
being transparent, unbiased and respectful in his dealing with all cluster members
irrespective of their social or economic status. The formal registration of the consortia or
SPV requires various formalities to be completed this includes a clear articulation of its
mission and objectives, the articles of association and rules, and also the mobilization of
share capital from each of the units forming the SPV. All these formalities need the
active guidance and close attention of the CDE/CDA.
Once the SPV is formally registered, the formulation of a Detailed Project Report is
initiated for the CFC. The proper formulation of the DPR and related estimates often
requires the involvement of technical consultants and also competent BDS providers.
The identification and short-listing of equipment manufacturers is also required. The
CDE/CDA has to actively liaison and closely interact with these experts often assisted by
the Information Manager of the SPV who is equipped adequately with the information
technology and systems to enable the proper collation and analysis of a range
technological options, that aid the selection and final choice of the process technology to
be adopted.
The CDE/CDA is also actively involved in the close monitoring of the administrative
procedures and acts as an effectively bridge between the SPV and the Concerned Central
Ministry as well as the State Government. The process of setting up a CFC often involves
various clearances by various regulators and it is the CDE/CDA who has to follow up on
these procedures and enable the CFC to be set up within the proposed time frame
specified in the DPR. Once the CFC is set up properly tested and commissioned the
CDE/CDA should be relieved to take up a fresh assignment preferably in a similar cluster
where his experience and expertise can be fully utilized.
The general mandate of the CDE/CDA is thus as follows:
To mobilize cluster actors for collective initiatives and utilize the externalities that exists.
To assist the cluster actors to develop governance frame work for the cluster and to
strengthen all associational initiatives for a strong collective identity and to evolve a
sustainable action plan.
To assist in formulating and catalyzing various interventions for achieving higher

productivity and competitiveness in accordance with a validated action plan.
62
To be working in a cluster specific local context through a field office that enables close
and constant contact with the cluster.
It is also important to emphasize that a CDE/CDA may be drawn from a Non-

Governmental Organization, an industry support organization, or an industry association.
He could also be selected from among independent industry professionals or competent
persons from the concerned scientific or research institutions or BDS providers.
Moreover the cluster actors as being unbiased and devoid of any vested interest should
perceive a CDE/CDA.
3.3 The Core Competencies of the CDE/CDA
Considering the varied role and functions of the CDE/CDA which is briefly described in
the previous section, there are several functional competencies required of a CDE / CDA.
There are two major areas of skills that are most essential for the effective functioning of
the CDE / CDA. The first set of essential skills are the Behavioural and Organizational
skills namely interpersonal communication, delegation of powers and responsibilities,
leadership, negotiation and conflict resolution skills, planning and strategizing skills, and
collective bargaining and decision making specially related to cooperative institutions.
The second set of essential skills required would be Managerial and Administrative skills,
namely public relations and effective liaison with concerned ministry and departments,
project and programme management skills, and also the ability to evolve appropriate
linkages with scientific and R and D institutions (specific to the cluster activity) as well as
BDS providers. Familiarity with some hard skills such as financial management,
accounting, business development, and information technology would also be desirable.
In addition to these essential skills and competencies it would also be desirable to take
into consideration the past working experience of a prospective CDE / CDA. Person
having worked on assignments involving SME development either in technical NGOs,
scientific institutions, or corporate concerns, could be preferred and would have an added
advantage. It is also essential to emphasize that apart from the core competencies and
experience required of a CDE/CDA, it is most essential to ensure that the person selected
attends a comprehensive foundation training programme that sensitizes him for his
assignment as a CDE / CDA. This programme should be very carefully designed to cater
to the specific training needs of these key functionaries and should be made an essential
pre condition before the person is assigned the task of a CDE / CDA. It is equally
important to emphasize that one cannot expect to find a CDE/CDA who has all the
desirable traits required to handle this pivotal function. It is therefore essential to
ensure that he is attached to and constantly assisted by the regional office of the MSME,
further assisted by a Mentor (individual or institution), supported also by an appropriate
sector specific scientific and technological institution, and the relevant BDS providers. A
Local Network Agent who belongs to the specific cluster and is familiar with the area and
the local language should also assist the CDE/CDA in all cases. This assistance from
below is most essential for the CDE/CDA to carry out his or her day-to-day functions,
and to remain in constant touch with the individual units that form the cluster.
63
It may finally be stressed that it is absolutely essential for the CDE to operate from a
field office cum residence, which is located in the cluster area. His office should be
adequately equipped and he should be provided the means to be able to travel
frequently both inside and outside the cluster area.
3.4 The Profile of CDEs in Sampled Clusters
In this section we look at the general profile of the CDEs in the sampled clusters covered
during our study. The information was canvassed through a schedule specially designed
to obtain the responses of the CDEs currently posted in the clusters covered by us. It
may be mentioned that only in the case of one cluster was the concerned CDE not
available as it was reported that the CDE had not been appointed in the cluster, and
furthermore that no soft interventions were carried out. Hard interventions were
however undertaken after the formation of the SPV and the CFC for this cluster has been
commissioned and has started to function. This appears to be an exceptional case where
in all the functions normally carried out by the CDE were successfully undertaken by
other entities.
It is seen in Table 3.1 that the 21 CDEs who are presently assigned to the sampled
clusters have a wide and diverse range of educational qualifications. As many as 7 of
these 21 CDEs have a general under-graduate or graduate degree or diploma. There are
12 CDEs that hold technical degrees or diplomas, while there are only 2 CDEs that have
qualifications related to management. It may be also seen that while two of the CDEs
hold graduate diplomas in Footwear Technology there are two others who hold diplomas
in Metallurgy.
64
Table No.-3.1: PROFILE OF CLUSTER DEVELOPMENT EXECUTIVE IN SAMPLED CLUSTERS

Sl Cluster Name CDE Name Parent Age of Educational Years of Years
Department CDE Qualification Service of
Service
as CDE
1 Bamboo Cluster M.K. Handique IIE 47 M. Com 21 3
Dimapur
2 Food Processing K.M. Bangar MSME 56 M.Sc. 29 8
Cluster Muzffarpur Months
3 Leather Goods Cluster G.P. Agarwal MSME 48 Diploma in 27 4
Agra Footwear
Technology
4 Leather Goods Cluster Debashish Ghosh MSME 48 B.Sc. (Tech) 27 3
Shantiniketan
5 Plywood Cluster Chandan T.S. Kerala 43 M.A. 18 6
Perambavoor Industries (Economics) Months
Department
6 Rice Milling Cluster B.N. Kapoor MSME 49 M.A., Master of 27 4
Karnal Marketing
Management
7 Rice Flakes Cluster P.N. Solanki MSME 42 Diploma in 23 1.4
Ahmedabad Metallurgy
8 Rice Milling Cluster B. Sivaprasad Kerala 51 M.A. 19 1
Kalady Industries
Department
9 Rubber Cluster Sathyaraj N Kerala 48 B. Tech. 18 5
Chengnacherry Industries
Department
10 Ball bearing Cluster Ajay Sharma MSME 44 B.E. 12 2.5
Jaipur
11 Bell metal Cluster B.B. Panigrahi MSME 41 M.A. 17 2
Khurda
12 Bell metal Cluster Hazo S. Deka MSME 44 B. Tech. 23 3
13 Brass Utensil Cluster D.K Singh MSME 55 M. Tech. 30 1.5
Pareo
14 Cotton Hosiery Cluster B.C. Singh Bisht MSME 54 Diploma in 27 3
Kanpur Footwear
Technology
15 Diesel Engine Cluster R.S. Nirwan IIE 31 B.Com. 6 3
Rajkot
16 Fan Industry Cluster Arvind Patwari MSME 50 M. Tech. 17 3
Hyderabad
17 Foundry Cluster NO CDE was
Ahmedabad appointed
18 Plastic Cluster Aluva Neelambaran K.V. Kerala 47 B.A., Diploma 24 1
Industries in Cooperation
Department
19 Sewing Machine S.S. Bedi MSME 52 B.A. (3 yr. 30 6
Cluster Ludhiana Diploma)
20 Surgical Instruments S.K. Roy MSME 59 Diploma in 37 4
Cluster Baruipur Metallurgy
21 Wet Grinder Cluster V. Ramakrishanan SIDO 40 B.E., MBA 20 5
Coimbatore
22 White ware Cluster K.C. Singh Govt of India 47 B. Tech. 25 3
Khurza (Ministry of
Science &
Technology)
65
Such a wide variation in the educational background of the CDEs indicates that they are
not selected on the basis of a defined set of qualifications required for the assignment,
but have been recruited and deployed on the basis of their availability. The large
number of CDEs with technical qualifications is also not always useful as the specific job
of the CDE requires organizational and managerial skills rather than technical skills. The
required day-to-day functional technical or scientific inputs are normally available among
experienced cluster actors and the specialized inputs required can be accessed from the
appropriate technology and science institutions or advisors outside the cluster. It may
be concluded that the profile of qualifications for our CDEs in the sampled clusters does
not conform to the core competencies required for the job.
Turning our attention to age and experience are finds that as many as 14 of the 21 CDEs
(66 percent), are in the late 40s and 50s age group, not ideally suited for an active field
assignment. These CDEs have also put in several years of service, however their
experience as CDEs in most cases is quite limited. It is also seen that a fairly large
number of CDEs have been drawn from the MSME-DIs, and there are 12 out of the 21
CDEs covered who belong to these regional establishments of the MSME. There are also
4 CDEs that have been drawn from the state industries departments/organization while
the remaining three belong to other institutions. This also leads to a high degree of
inbreeding which is not always desirable. There is thus a need to break out of the
confines of a narrow set of institutions and draw the required talent and expertise from a
wider arena consisting of technical NGOs and the corporate private sector. There should
also be an attempt to recruit younger persons, who may have the requisite educational
background or experience more suited to the tasks at hand.
Apart from revamping the recruitment system for CDEs, adequate efforts are needed for
the proper identification and incorporation or Mentors and Mentor Institutions in the
programme. These Mentors and Mentor Institutions are required to guide and advise the
CDEs in their tasks. The CDEs too are required to be assisted in his day-to-day work, by
a Local Network Agent. It is also necessary to ensure that the CDE is allowed to carry
out his well-defined tasks and is not burdened with responsibilities that are not directly
related to the Cluster Development Programme. It is often noticed that the agencies
that control the CDEs assign additional responsibilities that distract the CDE from his
focused task.
Another factor seriously affecting the work of the CDEs is frequent transfers. The CDE
should thus be appointed for a cluster specific tenure, which should normally be long
enough for him to see the cluster through its various stages of development. This is all
the more important as the CDE develops his competencies considerably while being
posted in a specific cluster. This on the job cluster specific expertise is likely to turn out
to be exceedingly useful in the subsequent development of other similar clusters.
3.5 Awareness of Current Job Responsibilities
Having highlighted the current profile of the CDEs we now proceed to evaluate the level
of awareness that the CDEs have regarding specific job responsibilities. We have also
tabulated the responses of the CDEs regarding their confidence levels in carrying out the
assigned tasks. This helps us to identify the specific tasks where awareness and
66
confidence levels are low. The effective functioning of the CDE to catalyze cluster
development depends on the extent to which he understands his job responsibilities and
has the necessary level of confidence to carry out these tasks.
In Table 3.2, there are 12 specific job responsibilities that each CDE is required to
shoulder. These are normally functions and responsibilities that arise in the context of
soft Interventions under the Cluster Development Programme of the MSME. These soft
interventions once successfully carried out, prepares the cluster to collectively attempt
the Hard Interventions. There are 3 specific job responsibilities related to the hard
interventions where in the CDE has an important role to play. The CDE along with
cluster members who agree to form an SPV have to work hard in the formulation of the
articles of association and rules of the SPV and assist the members forming the SPV to
formally register the body. The CDE along with experts, also has to assist in the proper
formulation of the DPR and related estimates, and take all the necessary follow up action
to get the DPR approved by the concerned authorities. Once the DPR is formally
approved the Common Facility Centre (CFC) has to be set up, tested and commissioned.
At this last stage of the hard intervention, the CDE can be relieved from the cluster and
can take up a fresh assignment.
Table No.-3.2: AWARENESS AND CONFIDENCE LEVELS AMONG CDES REGARDING

CURRENT JOB RESPONSIBILITIES
Sl. Job Responsibilities Responses (numbers)
No.
SOFT INTERVENTIONS Awareness Confidence Level
1. To Prepare a Diagnostic Study. 14 5
2. Trust Building among Units and Strengthening of 14 7

Associational activities in the Cluster.
3. To Increase Awareness about CDP and its Benefits. 16 8
4. Organizing Exposure Visit. 18 18
5. Conduct of Training Programmes /Seminars on Capacity 15 5
Building.
6. Development of Information Bank and Common 8 2
Website for Cluster.
7. Development of Product Brochures and Information CDs 5 1
for Cluster Products and Prices.
8. Organizing Industrial Promotion Activities and 12 6
Participation in Industrial Fairs.
9. Organizing Financial Assistance/Credit Facilities. 10 2
10. Awareness Creation and Introduction of New 10 5
Technology and Technology up gradation.
11. Development of New Products, Market tie-ups and tie 5 1
ups with Technical Institutions and BDS providers.
12. Creation of Raw Material Bank and Spares through 4 2
Collective Procurement.
HARD INTERVENTIONS Awareness Confidence Level
1. Formation of Special Purpose Vehicle/Consortia. 5 2
2. Preparation of Detailed Project Report (for developing 5 1
CFC) and following up on its timely approval by
concerned authorities.
3. Setting up of the CFC and its testing and 5 2
Commissioning.
67
It is seen that awareness regarding the job responsibilities are quite high in the case of 8
of the 12 specific functions related to soft interventions while it is fairly low in the case of
4 of the 12 specific functions. Awareness regarding the role and responsibilities related
to the development of an information bank and portal, the development of new product
brochures and information CDs, the development of new products and market and
institutional tie-ups, and the creation of raw material banks and spares through collective
procurement are areas where the CDEs have a very low awareness as reflected in their
responses. Moreover the confidence levels for shouldering these responsibilities
effectively are found to be uniformly low among the CDEs. This reflects the deficiencies
in the proper grounding and training required to effectively carry out these functions.
Most soft interventions require the CDEs to have the required expertise in the
behavioural, organizational and managerial skills and it is not surprising to observe such
low levels of confidence considering the educational and experiential background of the
CDEs as seen in our earlier section.
The functions and responsibilities pertaining to hard interventions also require additional
hard skills such as project formulation and monitoring. Here even the awareness
regarding functional responsibilities are very low leave alone the level of confidence to
effectively carry out the tasks involved.
3.6 Tenure and Stage of Deployment of CDE
As seen in the earlier chapter the Cluster Development Programme passes through 5
distinct stages, the first stage involves the conduct of a diagnostic study and the
identification and selection of the cluster for subsequent interventions, the last stage in
the setting up of the Common Facilities Centre and the commissioning of the CFC. The
CDEs should be assigned or deployed in a cluster from the very first stage, and should
continue to catalyze and assist in the completion of all the stages over the time cycle of
the programme in each selected cluster.
Ideally speaking, the CDE should be assigned to or deployed in a cluster from the very
first stage and must continue to carry out his functions till the last stage is successfully
completed. This enables him to thoroughly familiarize himself with his cluster, gain the
confidence of individual cluster actors, develop the necessary network with other cluster
partners and stakeholders such as BDS providers, technical consultants, and regulating
and monitoring agencies. It is therefore essential that his tenure as the CDE in a specific
cluster conform to the expected programme cycle for that cluster. This continuous and
uninterrupted deployment makes him accountable to the stakeholders and programme
managers.
It is also observed that CDEs are constantly and frequently transferred from one cluster
to another not allowing them the time to gain the confidence of cluster actors and
stakeholders, and not giving him the required stability of tenure to thoroughly familiarize
himself with any specific cluster. He would, like the proverbial rolling stone gather no
moss. However this does not mean that the CDE should be permanently deployed in a
cluster and not assessed for his performance of successfully completing the stages within
defined segments of the programme cycle. We have seen in the last chapter that there
are many sampled clusters that have lingered on in the 1st stage for many years and
68
soft interventions seem to continue in perpetuity. Such a situation can lead to a

serious loss of credibility not only for the CDP as a whole, but also the CDE in particular.
In such situations cluster actors seem to be the ultimate losers and often fail to realize
the potential for improving their lot through collective action. They often loose their
livelihoods falling prey to predatory competitors, and becoming increasingly dependent
and exploited.
It is therefore essential to assess the performance of CDEs regularly, adequately

rewarding them for good performance while also penalizing them for failures. Such
safeguards can only be ensured through a complete review of the terms of appointment
and tenure of the CDEs. Failure to perform according to the standards set, should in the
case of CDEs who are on deputation from parent organization, lead to a reversion to the
parent cadre. In the case of CDEs directly recruited, failure to perform as per standards
of assessment should lead to a termination of the contract. In other words no
permanent appointments should be made in the case of CDEs.
On the basis of information canvassed through the CDE schedule we have compiled
Table 3.3 wherein the stage at which the CDEs were assigned to or deployed in the
sampled clusters is highlighted. It is encouraging to note that as many as 10 CDEs out
of a total of 21 CDEs, (47.62 percent) joined the specific cluster at the first stage and
continue to work in these assigned clusters. They have thus enjoyed a fairly stable
tenure and have not been shunted about Table 3.3 also indicates that 5 of the 21 CDEs
(23.81 percent) joined their respective clusters after the diagnostic study was completed
by their predecessors and after the cluster had been identified. They were assigned their
clusters at the time when the soft interventions were initiated. These 5 CDEs have also
continued to work in their respective clusters undisturbed by transfers and have also
enjoyed an uninterrupted tenure. It must be emphasized that these figures do not
necessarily mean that these clusters have progressively graduated to the higher stages
of intervention, on the contrary, a fairly large number of clusters continue to linger in the
1st stage itself as was seen in the earlier chapter.
Table No.-3.3: STAGES AT WHICH CDEs WERE DEPLOYED IN SAMPLED CLUSTERS

Stage at which CDEs Deployed Number of CDEs % Distribution
Stage I (A): Diagnostic Study / Cluster 10 47.62

Identification
Stage I (B): Starting of Soft Interventions 5 23.81
Stage I (C): Middle of Soft Interventions 1 4.76

Stage II & III: Formation of SPV / 1 4.76
Preparation and Approval of DPR
Stage IV & V: Setting up of CFC/ testing and 4 19.05
Commissioning of CFC
Total 21 100.00
It is also seen that 1 of the 21 CDEs (4.76 percent) was deployed in the middle of soft
interventions. Another CDE was assigned the cluster during Stage II while as many as 4
of the 21 CDEs were assigned their clusters during Stage IV. These figures indicate that
as many as 6 out of the 21 CDEs (28.57 percent) have joined the cluster during the later
69
stages, and have not had stable tenures. Most of them do not have much credibility
among cluster actors and do not command much respect, their near redundancy and
limited usefulness is obvious among SPV members and this has seriously affected their
self esteem, self confidence, morale and motivation. There is also a tendency on the
part of the parent organization to assign them tasks, which are strictly not related to the
CDP.
3.7 The Training of CDEs
Training and the sustained development of skills is a continuous and ongoing process
and should form a recognized and integral part of any long term strategy and policy
design for cluster based industrial development. The key field functionary of this
programme, namely the CDE, learns a great deal from his actual work situation and
experience. However like any other professional, he has to keep abreast with functional
skills through well designed training programmes that particularly focus on the functional
competencies that are required to achieve the objectives of the CDP. The CDP thus
needs to evolve a training strategy based on the specific objectives of the CDP wherein
unlike general management training certain management and administrative disciplines
need to be focused on.
At present training is not being accorded the priority that it deserves. Though adequate
physical infrastructure exists within the MSME-DIs these facilities need to be properly
maintained and optimally utilized. Very limited training opportunities are currently
available for key functionaries of the CDP. Apart form a general training programme for
CDEs, a few refresher course are also being offered. However the design, content, and
pedagogy of these training programmes appear to be grossly deficient and have hardly
had the desired impact.
Detailed discussion with CDEs currently posted in the sample clusters lead us to believe
that a major constraint in the area of training arises from the fact that once a CDE is
deployed in a specific cluster, work pressures and time lines prevent them from
attending training programmes particularly those that are of a long duration. At present
the absence of a Mentor or a local Network Agent provides no effective substitute to
manage the important day-to-day functions of the CDE even for short periods while he is
away on a training assignment.
It is therefore suggested that the training needs of the CDP should be effectively
addressed through the proper design and conduct of two types of training programmes.
The first should be a long-term programme of 12 to 14 week duration. This programme
should be the Foundation/Orientation Training Programme for CDEs. This programme
must be strictly targeted at the fresh CDEs that are newly recruited. This programme
must be carefully designed on the basis of a training needs analysis and an expert
training institution should be required to design and conduct the programme in one of
the Regional MSME-DIs. The second type of training programme should be a short term
refresher programme. Under this programme four specific thematic modules should be
designed. Each module should be of a 10-day duration and comprehensively cover the
four thematic areas, which are as follows:
Behavioural and Organizational Skills for CDEs.
Presentation and Articulation Skills for CDEs.
70
Project Formulation, Management, and Monitoring Skills for CDEs.

Financial Management and Accounting Skills for CDEs.
It is essential for each of these modules to be designed and conducted by expert

institutions, which specialize in each of the thematic areas. Though it is necessary to
conduct these programmes at the Regional MSME-DIs in order to ensure that the
facilities available are properly maintained and utilized. It is also necessary to earmark
adequate funds for training. Additional resources will be required for the design and
regular conduct of these programmes in the 11th Plan Period.
It is important to emphasize that these refresher programmes should be sequenced to

conform to the project cycle of about 3 years with modules (a) and (b) being offered to
those CDEs who are involved in soft interventions. The (c) and (d) modules should be
targeted at those CDEs who are involved with hard interventions. It may also be noted
that these refresher programmes cater to the needs of all the existing as well as the
newly recruited CDEs. Attending these programmes should be made statutory and all
further increments and promotions should be subject he regular attendance and
successful completion of these programmes.
Turning now to the present status of training provided to CDEs in the sampled clusters,
we see in Table 3.4 that of the 21 CDEs covered during this study as many as 19 claims
to have attended the training programme for CDEs. It is to be further noted that most of
them have attended only one such programme after being appointed as CDEs. Moreover
there are 2 CDEs that have not attended any training programme related to Cluster
Development. It may also be mentioned that only one CDE has attended a refresher
programme in addition to the general programme for CDEs.
Table No.-3.4: STATUS OF TRAINING AMONG CDEs

Total CDEs Participation in Adequacy of Inadequacy of Training
Interviewed Training * Training
Yes No Yes No N.R. Due to Due to
Deficiency in Deficiency in
Content and Pedagogy
Design
21 19 2 10 9 2 7 9
Note: * Most CDEs who report to have participated in training have attended only one
programme during their present tenure, while one CDE has attended an additional
refresher course.
N.R: No Response
Table 3.4 also highlights the responses of CDEs regarding the inadequacy of the training
they have attended. It is seen that of the 19 CDEs who participated in training as many
as 9 reports that the training provided was inadequate while 7 out of the 9 respondents
report that the deficiencies in training were on account of content, and design, all the 9
respondents report that the pedagogy adopted was also deficient. Discussions have
revealed a distinct preference for focused training in the relevant functional areas, the
use of the case study method, and field visits and interaction with projects that have
adopted a set of best practices, and also projects that have failed to deliver.
71
3.8 Functional Resource Requirement of CDEs
Having discussed the role and functions of the CDEs, the functional competencies and
training needs of the CDEs, and also the tennurial conditions of CDEs, we must now
discuss the resources and facilities that are required by the CDE especially in the context
of the varied functions and responsibilities that are expected of him.
The functions and responsibilities of the CDE are extremely challenging and requires him
to be in close and constant touch with all the individual cluster units at all times. This
often requires him to functions from an independent field office located at a close
proximity to, if not in, the cluster area itself. To ensure his availability he must also
reside close to the cluster. In this regard the ideal arrangement would be that he is
provided with a residence cum field office facility along with adequate office
infrastructure and some office assistance.
The CDEs functions also involve networking with a large number of other stakeholders,
BDS providers, S & T Institutions, Equipment Suppliers, Market Promotion Agencies and
the like. His job thus requires frequent travel and communication both within and
outside the cluster area. He thus needs to be provided Communication and Transport
facilities/allowances. The frequent work related travel outside the cluster area and long
hours of work, entails daily allowances and other special field allowances. These are
often provided as perks and through generous reimbursements in the corporate world
(which includes public sector firms) for executives with far lesser functions and
responsibilities as compared to the CDE.
The CDE also requires the support of a Mentor/Mentor Institution which can guide and
assist him in carrying out his functions effectively. The effectiveness of the CDE is
considerably enhanced if a Local Network Agent who resides within the cluster area and
is well versed in the local language and culture assists him. The Mentor/Mentor
Institution, the CDE, and the Network Agent form a core team that can function far more
effectively as compared to a lone CDE. The provision of this additional field assistance
seems necessary considering the varied functions and responsibilities expected of a CDE.
Finally the CDE also requires regular training for updating and keeping abreast with the
functional skills essential for effectively carrying out his tasks.
In Table 3.5 we have recorded the responses of the CDEs regarding the adequacy of
resources as well as the additional assistance required. It is seen that 10 of the 21 CDEs
contacted during this study report that the resources provided to effectively carry out
their functions and responsibilities are adequate. However there are 11 CDEs that
consider the resources inadequate. As for the specific type of additional facilities and
assistance required the number of responses is uniformly large in the case of all 5
categories of assistance. This issue needs to be looked into and all attempts made to
allocate additional resources for the purpose during the 11th plan period.
72
Table No.-3.5: RESPONSES ON THE ADEQUACY OF RESOURCES AND ADDITIONAL

ASSISTANCE REQUIRED
Numbers of CDEs Responding
Adequacy of Resources
Adequate 10
Not Adequate 11
Additional Assistance Required Numbers of CDEs Responding
Independent Field Office cum Residence, Office

9
Infrastructure and Office Assistance
Communication and Transport Facilities /
11
Allowances
Additional Field Allowances 10
Additional Field Assistance, Mentor or Mentor
11
Institution
Access to Regular Training for improving /
9
updating functional skills
3.9 Perception of CDEs on Factors Enabling Cluster Development
The close association and experience of CDEs in Cluster Development enable them to
clearly perceive the prime factors that enable such development. Their involvement in
catalyzing a strong consensus among individual cluster actors and effectively removing
the constraints that hinder collective initiatives in their respective clusters also enables
them to rank the importance of these prime factors. Systematically canvassing these
perceptions of key functionaries helps in strengthening and prioritizing the policy frame
for effective interventions. This information is particularly useful in developing proper
guidelines for the conduct of the diagnostic study, which helps in the identification of
clusters while also highlighting the probability of success of the programme in the
identified cluster.
We have observed that a very large number of clusters have been identified, most often
without a proper diagnostic study and also due to various political pressures. We feel
that the number of clusters identified are also far in excess of the financial,
administrative, and human resources available for the Cluster Development Programme.
It is expected that a clearer perception on the prime factors that enable cluster
development and the relative importance of these factors will help in evolving a more
scientific method of identification of clusters and help in selecting only those clusters that
have a high probability of success in terms of achieving the basic objectives of the
Cluster Development Programme. It must be emphasized that these factors should be
taken into consideration in order to ensure both a proper selection of clusters, and their
viability, as well as sustainability. On the basis of our study and the related discussions
we have had with key functionaries it is felt that the programme has been over extended
too quickly thereby seriously diluting its impact.
We now turn to Table 3.6, which incorporates the perceptions of CDEs in our sampled
clusters regarding the prime factors as well as their relative importance for enabling
73
cluster development. It should be noted that the number of CDEs responding on these
issue is fairly low. To some extent this reflects a lack of awareness regarding the CDP
itself. The identification and ranking of factors enabling cluster development depends on
how comprehensively the CDE understands and perceives the various issues involved.
Table No.-3.6: RESPONSES OF CDES ON PRIME FACTORS ENABLING CLUSTER

DEVELOPMENT
Sl. PRIME FACTORS NUMBER OF RANKING
CDES OF PRIME
RESPONDING FACTORS
1. Clusters that are less dispersed 13 4
2. High Skill based Clusters 4 12
3. High Product range clusters 7 10
4. Clusters with greater access to R&D institutions 12 5
5. Labour intensive clusters 5 11
6. High Density Clusters 8 9
7. Highly Homogeneous Clusters 14 3
8. Clusters facing threats from competitors 9 8
9. Cluster with well established and active 16 1
associations
10. Clusters with common facilities (for testing, 10 7
quality control, and standardization)
11. Clusters with clarity of Vision and Mission 15 2
12. Clusters with greater access to Information 11 6
13. Clusters endowed with an abundance of locally 11 6
available raw materials.
It is seen that the largest number of responses pertains to seven of the 13 prime factors
listed in the table namely:
Clusters with well-established and active associations.

Clusters with clarity of Vision and Mission.
Highly homogeneous clusters.
Clusters that are less dispersed.
Clusters with greater access to Research and Development.
Clusters with greater access to information.
Clusters endowed with an abundance of locally available raw materials.
It is seen that these seven factors are also ranked highly. The remaining factors are
perceived to be relatively less important and ranked accordingly. However this does not
mean that they should not be considered, in the identification of potentially viable and
sustainable clusters.
It also needs to be mentioned that the seven prime factors are fairly quantifiable and if
correctly measured or assessed at the diagnostic or even pre-diagnostic stage preferably
by a competent agency or an expert appointed to carry out such pre-diagnostic studies,
they may further be developed into a viability and sustainability index which should
enable the choice and prioritization of intervention.
74
All the 13 prime factors enabling cluster development are important and need to be very
carefully studied before a cluster is finally selected for intervention.
In addition there are some more issues that need to be considered which have a wider
national policy connotation. It is noticed that clusters are being identified across a very
wide range of sectors and many of the cluster based initiatives/industrial activities are
being actively taken up by leading banks, and other ministries. The MSME should avoid
duplication and unhealthy competition by staying away from clusters that are being
supported by other ministries and State Industrial Agencies.
75
Chapter No: 4 Soft Interventions in Sampled Clusters
CHAPTER SOFT INTERVENTIONS IN THE
4
SAMPLED CLUSTERS
4.1 Introduc
tion
Soft Interventions, as they are most inappropriately termed are not soft at all as the
term may imply. They are vital trust building measures undertaken to promote
cooperation among individual cluster units. These measures are intended to bring
cluster units together on a common platform by making them realise their collective
strengths as compared to their strengths as individuals units.
These measures are aimed at providing a spark or a critical inducement, to catalyze

collective action and to unravel the enormous latent power of cooperation that can lead
to concrete individual benefits. The measures cement the bonds between individual units
and bring them on to a common platform, strengthening their resolve to act together,
and to unleash their collective strength. As such they are the basic and preparatory
steps which are most essential to create the conditions for the successful implementation
of the Cluster Development Programme. These measures are aimed at building a strong
consensus around a feasible and well-designed action plan to strengthen the cluster, with
the support of the state.
The nature of the clusters differs widely in terms of their input requirements, outputs,
production processes, as well as developmental stages. In some cases they may be
already evolved and active while in other cases they may be less evolved, passive, and
inert. The size and scale of activities and the degree of development are important
differentiators and as such the problems that they confront may be substantially different
in each case. Moreover, first generation small entrepreneurs in new businesses who are
likely to be more educated and progressive in their outlook, would require to be
mobilised and motivated for collective action. A different approach would have to be
followed, and a different support system would have to be provided to them, as
compared to others who have evolved in the activity over many generations.
Similarly, existing MSEs require different services at different stages of their growth,
especially those that relate to modernisation and up-gradation of production processes,
additional financing, new markets, etc. Additionally, MSEs are likely to have sector
specific requirements. The soft interventions have to take into account all these
parameters while designing the action plan for such interventions.
The Cluster Development Executive acts as a guiding force in the planning and
implementation of soft interventions. The roadmap for soft interventions is laid during
the preparation of the diagnostic study itself. The diagnostic study must also identify
the needs of the cluster actors, as well as their common aspirations. The
comprehensiveness of the diagnostic exercise helps in correctly identifying the common
needs, that when articulated through an action plan, assists in building trust and
cohesiveness.
76
The CDE catalyses frequent interaction among the cluster members and also with other
important stakeholders in the CDP. Awareness programmes, training sessions and visits
to existing clusters within the country, and outside are, arranged to aid the process of
increasing awareness of the power of collective interventions that strengthen the cluster
as a dynamic entity with immense inert potential for development through cooperation.
Soft interventions can be divided into three specific categories that need to be
sequenced in the following order:
4.1.1 Awareness Creation

The first task is to create a high-level awareness and interest of the cluster actors about
the various benefits of the Cluster Development Programme. The actors should be
exposed to the objectives, the guidelines and norms designed to strengthen collective
benefits and the effective exploitation of the economies of scale.
At this stage, the CDE organises meetings with the actors through their associations and
at the individual level. This effectively increases self-confidence and self esteem and
removes various apprehensions and doubts regarding the viability and sustainability of
the action plan by exposing them to the experiences of other successful cluster initiatives
at home.
4.1.2 Confidence Building
Having created awareness, the Cluster actors need to be exposed to the external
situation and technological advancements to make them understand the benefits of the
adoption of these for the development of their own cluster. The actors need to be told of
the benefits of coming together through the formation of an SPV. Exposure visits to other
clusters within the country training programmes to enhance the horizon of the actors are
some of the programmes that are undertaken at the second stage. Experts from these
institutions also facilitate linkages with the financial, technology and marketing
institutions, through these visits and through presentations.
4.1.3 Capacity Building
Having understood the concept of cluster development and need for collective
functioning, the cluster actors can then be motivated to form a Special Purpose Vehicle,
identify and evaluate the options for setting up the Common Facility Centre, while also
democratically choosing the most suitable form of a legally recognised organisation to
initiate common facilities most needed by the cluster. Achieving the highest level of
consensus about these facilities is most important to harness all the latent collective
energy of the cluster.
4.2 Soft Interventions under the CDP
All the clusters have carried out activities and programmes related to the creation of
awareness about the Cluster Development Programme. Most of the clusters have
undertaken exposure visits also. The Programmes related to energy efficiency, which has
an important role in improving the productivity of units, particularly so in the secondary
goods based clusters, have been undertaken only in two primary goods based clusters.
77
Developing financial linkages is important for strengthening the artisan-based clusters. It

has been observed that only two clusters have undertaken initiatives in this direction.
The following Table 4.1 highlights the soft interventions recommended on the basis of
Diagnostic Study, and those actually carried out in the sample clusters. As the table is
very detailed and incorporates a wide range of interventions it has been appended at the
end of this chapter.
4.2.1 Allocation and Utilization of Funds for Soft Interventions
The fund allocation for soft interventions varies widely across different sampled clusters.
The absence of any uniformity across different clusters indicates the discriminatory
nature of these allocations. They are devoid of any rationality and reflect ad-hoc
decisions on the part of authorities. As seen in Table 4.2, the Rice Flakes Cluster
Ahmedabad, has the lowest fund allocation of Rs. 13.64 Lakhs for three years while
White ware Cluster Khurza had the highest allocation of Rs 67 Lakhs. All clusters, except
Diesel Engine Cluster, Rajkot could not make 100% utilisation of the allocated funds. The
range of utilisation of funds varies between 24% in case of the Rice Flakes Cluster
Ahmedabad to 91% in the case of Bamboo Cluster Dimapur.
The two clusters having the highest rate of utilisation of the allocated funds are Diesel
Engine Cluster Rajkot and Bamboo Cluster Dimapur. Both these clusters have CDEs from
EDI and IIE respectively. The clusters directly handled by the field offices of MSME have
a low utilisation of funds allocated for the soft interventions.
78
Table No.-4.2: ALLOCATION OF FUNDS FOR SOFT INTERVENTIONS

Sl Cluster Date Amount Total Amount %
Received Utilised Utilised
(In (In Lakhs)
Lakhs)
1. Rice Milling Cluster 2004-05 8.40 1.90
Karnal April 2005 4.70 1.48
July 2007 12.67 7.67
Total 25.77 11.05 42.8
2. Rice Flakes Cluster April 2004 6.95 1.94
Ahmedabad July 2005 3.70 .70
July 2006 2.99 .68
Total 13.64 3.32 24.3
3. Rice Milling Cluster No funds allocated by MSME.
Kalady
4. Food Processing Information not made available
Cluster Muzffarpur
5. Rubber Cluster No funds allocated by MSME.
Chenganacherry
6. Bamboo Cluster Dec 2004 4.30 00
Dimapur Sept 2005 13.82 11.50
August 2006 17.00 14.8
July 2007 9.88 14.90
Total 45 41.2 91.5
7. Plywood Cluster No funds allocated by MSME.
Perambavoor
8. Leather Goods July 2005 5.55
Cluster Agra June 2006 9.69
Oct 2007 7.76
Total 23
9. Leather Goods July 2005 16.45
Cluster Shantiniketan June 2006 14.85
Oct 2007 21.54
Total 52.84
10. Cotton Hosiery Information not made available
Cluster Kanpur
11. Plastic Cluster Aluva No funds allocated by MSME
12. White ware Cluster 2005-06 45 45

Khurza 2006-07 22.5 12.0
Total 67.5 57.0 84.4
13. Brass Utensil Cluster April 2004 8.90 5.70

Pareo Jan 2005 9.75 4.33
July 2006 12.30 3.09
Total 30.95 13.12 42.3
79
Table No. 4.2- (Contd.)

Sl Cluster Date Amount Total % Utilised
Received Amount
(In Utilised
Lakhs) (In Lakhs)
14. Bell metal Cluster 11.2005 6.40 5.22
Khurda 07.2006 10.52 9.92
11.2007 19.52 11.43
Total 36.44 26.57 72.9
15. Bell metal Cluster August 2004 8.10 4.12
Hazo June 2005 5.25 3.72
July 2006 15.65 14.23
Total 29 22.07 76.1
16. Foundry Cluster Soft Interventions not undertaken
Ahmedabad
17. Ball bearing Cluster July 2005 5.15 00
Jaipur July 2006 10.30 7.72
Oct 2007 19.00 7.25
Total 34.45 14.97 43.4
18. Surgical Instruments 2004-05 8.4 5.56
Cluster Baruipur 2005-06 9.5 7.52
2006-07 21.75 8.98
Total 39.65 22.06 55.6
19. Sewing Machine April 2004 15.20 3.08
Cluster Ludhiana July 2005 16.45 12.17
July 2006 18.80 7.72
Total 50.45 22.97 45.5
20. Wet Grinder Cluster June 2004 11.55 6.15
Coimbatore July 2005 12.15 3.45
July 2006 16.10 11.46
Total 39.8 21.06 52.9
21. Fan Industry Cluster May 2004 12.45 2.60
Hyderabad August 2005 19.75 9.87
July 2006 11.08 1.84
Total 43.28 14.31 33
22. Diesel Engine Cluster August 2003 15.00
Rajkot Dec 2004 7.5
March 2006 7.5
Total 30.0
80
4.2.2 Beneficiary Responses on Awareness of Soft interventions
As seen in Table 4.3, the programmes/seminars to enhance awareness have the highest
level of responses among the cluster actors. This is followed by the response related to
participation in the exhibitions and tours to model clusters/institutions and technology
demonstrations. Awareness regarding participation in international fairs was relatively
low indicating that these activities were either confined to limited participation or not
undertaken at all. The responses related to other soft initiatives such as common
website, development of common marketing brochure/news letters, export meet, craft
shows, food melas, loan schemes and other interventions have a very low response
regarding awareness indicating that these activities were either not carried out or
confined to a very few cluster actors.
Table No.-4.3: RESPONSES ON THE AWARENESS OF ACTIVITIES UNDERTAKEN UNDER

SOFT INTERVENTIONS
Activity/ Programme Units Responding % Distribution
Training Programme / Workshop / Seminar 246 85
Participation in Exhibitions 161 56
Tour to Model Cluster / Institution
/Technology Demo 101 35
Participation in Foreign Fairs 41 14
Common Website 60 19
Brochure /News letter for Cluster 44 14
Export Meet 32 11
Craft Show 10 3
Food mela 6 2
Loan scheme 2 1
Others 16 5
Base: All Respondents 323 100
4.2.3 Beneficiary Responses on Participation in Soft

Interventions
As seen in Table 4.4, the participation of beneficiaries in soft interventions has been
substantial in only three activities namely training programmes/workshops /seminars,
exhibitions/fairs, and exposure visits. The participation in other activities has been very
low indicating the choice of soft interventions among cluster actors.
81
Table No.-4.4: RESPONSES ON THE PARTICIPATION IN THE ACTIVITIES UNDER SOFT

INTERVENTIONS
Activity/ Programme Units %
Responding Distribution
Training Programme / Workshop / Seminar 202 78
Participation in Exhibitions 106 41
Tour to Model Cluster/Institution/ Technology 69 27
Demonstration
Meeting on Exports 27 9
Participation in Foreign Fairs 17 7
Craft Show 7 3
Food Mela/ Exhibition 6 2
Dev of Newsletter for Cluster 3 1
Common Website 3 1
Common Purchase of Raw Materials 2 1
Loan Scheme 1 0
None 32 12
Total No. of Units Sampled 323 100
4.2.4 Responses on the Benefits Derived from Soft

Interventions
The sampled beneficiaries were asked to indicate the extent of benefits that they had
derived form soft interventions carried out in their cluster. As seen in Table 4.5, only
27% of the sampled beneficiaries indicated that they had substantially benefited from
soft interventions, while 35% indicated that they had benefited to a limited extent. The
cluster actors indicating that they had not benefited were 11% while the respondents not
offering any opinion was as high as 27%. The responses obtained on this issue reflect
that the soft interventions have not been as effective as they are designed to be.
Table No.-4.5: RESPONSES ON EXTENT OF BENEFITS RECEIVED BY THE UNITS FROM

SOFT INTERVENTION ACTIVITIES
Responses Units Responding Percentage Distribution
Benefited substantially 86 27
Benefited to a limited extent 113 35
Did not benefit 37 11
No opinion/ No response 87 27
Total 323 100
4.2.5 Impact of Soft Interventions

The impact of soft interventions on the sampled cluster actors was assessed on the basis
of responses related to several important indicators such as feeling of togetherness,
better competitiveness, higher awareness regarding new technologies, trends in
marketing, awareness regarding reduction of waste/increase in productivity/quality,
improved skills, improved techniques, modern trends and demands, and better
manufacturing practices.
Having discussed these responses we may state that soft interventions are extremely
important initial steps that lay the basic foundation for the Cluster Development
82
Programme, and if carefully planned, selected, and sequentially implemented according

to the specific characteristics and related needs of a cluster, can have a lasting impact.
However it has been observed on the basis of our study that these soft interventions
have not been implemented scientifically and rigorously and that both the content and
efforts related to these interventions have been rather ineffective and diffused. As such
soft interventions have not had the desired impact. The present level of ineffectiveness
of these important interventions is likely to be on account of several important factors.
The major reasons however seem to be that the required competencies among the CDEs
is quite low. This can only be improved through proper recruitment, tennural conditions,
and the training of CDEs, issues that have been discussed in some detail in the earlier
chapters.
The second reason, we feel is due to the extended period of three years over which soft
interventions have been carried out, this is likely to cause slackness which in turn could
lead to a loss of interest among cluster actors who are always keen of quick and concrete
results.
The third major reason seems to be the use of the term soft which is likely to give the
impression that these interventions need not be taken too seriously. This does not mean
that soft interventions are ineffective and thus unnecessary. These interventions are
extremely important and need to be effectively implemented through the adoption of a
more focused and professional approach.
4.3 Earmarking of Funds for Soft Interventions
There are four major components that constitute enabling interventions. These are as
follows:
The conduct of a comprehensive diagnostic study and its proper evaluation. It is

desirable that the diagnostic study, be undertaken by a competent institution in detailed
consultation with the CDE and the Local Network Agent (LNA), and this important task
not be carried out by the CDE alone as is the practice at present. Moreover there is a
need to further evaluate this diagnostic study before it is finally accepted. This final
evaluation should also be undertaken by a competent agency having adequate expertise
on the subject.
Group and individual contact and interaction meetings between the Mentor /CDE and
LNA and the individual cluster actors. These meetings provide the opportunity to
familiarize the cluster actors with the objectives and related advantages of the Cluster
Development Programme. These meetings also lead to building trust and confidence
among cluster actors and induce the necessary attitudinal changes for joint and mutually
beneficial initiatives. This activity involves frequent travel by the key functionaries within
the cluster and also the dissemination of the collective plan of action and other related
information.
Demonstration visits to successful Clusters, Scientific and Research Institutions,

Industrial Fairs and Exhibitions enabling cluster actors to observe, interact and explore
the possibilities and potential of cluster development.
83
Lectures by Expert/ Seminars/Training enabling individual cluster actors to improve

perceptions and develop the confidence required for collective action.
The above mention activities should be carried out over a period of 6 quarters or 18
months, but not earlier than 4 quarters or 12 months providing a shorter and more
focused time frame in order to maintain the tempo of such interventions. The present
practice of extending these activities over a period of 3 years tends to dilute and defuse
the impact of these basic interventions.
It is also felt that the present funding for basic/enabling interventions is grossly
inadequate and needs to be considerably enhanced. Moreover there should be clear
earmarking of funds for each activity that constitutes basic/enabling interventions. It is
also important to ensure that these activities are regularly monitored on a quarterly
basis and funds are released in instalments only on the basis of satisfactory progress and
proper utilization of funds for each activity.
We are tabulating below the amount of funds likely to be required for effectively carrying
out the various activities as a part of basic /enabling interventions.
SNo. Expenditure Heads Amount(In Rs.)

1. Diagnostic Study and Evaluation Rs 8,00,000
2. Group and Individual contact/interaction meetings 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 14,00,000
Research Institutions, Industrial Fairs and Exhibitions (at
least 30 individual cluster actors should undertake each
visit and there should be at least 8 such visits during the
intervention period)
4. Lectures by Experts/ Seminars/Training Rs 6,00,000
5. Quarterly Monitoring and Evaluation of basic/enabling Rs 12,00,000

interventions
6. Contingency Fund (to be used for designing and Rs 2,00,000
maintaining web site, printing of information brochures
and other common advertising materials)
Total Expenditure on basic/enabling interventions Rs. 50,00,000
It may further be noted that the funds required for each activity has been worked out on
the basis of a costing exercise worked out on current prices and may be further refined.
It is also important to mention here that the cluster functionaries must be required to
maintain the proper accounts for all items of expenditure incurred so that these may be
inspected and scrutinized by the monitoring and evaluation agency.
4.3.1 Detailed Features of the Diagnostic Study

The diagnostic study constitutes an extremely important component for identifying and
systematically initiating various important interventions for the sustainable development
84
of clusters. This diagnostic study should thus be undertaken by an extremely competent

professional agency/institution and adequate funding needs to be earmarked for the
purpose. The diagnostic study should contain some basic features, which are as follows:
Detailed Profile of the Potential Cluster

The brief history of the cluster and its evolution.
The cluster location, density, and geographical dispersion.
Number, size and scale of individual cluster operators/ actors.
Product range and diversification in the cluster.
Present production operation and markets.
Present value of production and exports.
Present demand profile and major clients.
Core Cluster Actors (Typical Units)
Average size of investment in typical units.
Average annual turnover in typical units.
Value chain and its analysis.
Profits and profitability in typical units.
Size of the workforce and levels of skills in the typical units.
Sources and availability of infrastructure (transportation, power and water supply)
raw materials and labour (in the short, medium and long run).
Other facilitating Government Agencies/Institutions
Industrial support and promotional agencies.
Scientific and industrialist research organizations (specifically catering to the needs of
the cluster).
Environmental agencies and regulatory bodies.
Financial institutions (that can potentially cater to the cluster).
Cluster Development Projects
Other similar cluster development projects (in the vicinity).
How this potential cluster can usefully tap these other cluster development projects.
Business Development Service Providers
Business Development Service needs of the cluster and their clear articulation.
BDS providers that can assist the cluster.
The type of services that can be utilized.
Producer or Merchant Associations
Details relating to the association (full address and telephone number).
Services that they provide at present to the cluster actors.
Their future plans of the development of the cluster (in brief).
Obstacles perceived as hindrances to these plans.
SWOT Analysis for the Cluster
List of the perceived strength of the cluster.
List of the perceived weaknesses of the cluster.
List of the perceived opportunities of the cluster.
List of the perceived threats to the cluster.
Cluster Mapping
Cluster Mapping of the present linkages (pre-interventions).
Cluster Mapping of expected linkages (post-intervention).
85
The essential features of the Diagnostic Study listed above not only reflects the contents
of the study to be undertaken but also reflects some essential features that are
necessary for the Cluster Development Programme to be sustainable.
4.4 The Way Ahead (Actionable Issues)
The measures that are immediately required to induce the strong and long lasting impact
of such interventions are as follows:
Planning and selecting soft interventions according to the characteristics and needs of
the cluster identified and studied during the diagnostic study. These interventions also
need to be properly sequenced.
The period of implementation of these soft interventions, which currently extends over a
period of three years causes the diffusion and slackness of effort and thus needs to be
shortened to a period of 12-18 months.
The funds allocated for these interventions are at present inadequate and needs to be
enhanced and a portion of these funds earmarked for the concurrent monitoring and
assessment of these interventions, specially during the 11th Five Year Plan which
specifically aims at inclusiveness. The funds allocated should be released in a timely
manner and in accordance with the monitoring reports. They should be released for
specific well-sequenced interventions in instalments.
The training and focused skill development of the cluster development executive and the
necessary facilities for his or her effective functioning is a prime ingredient for the
successful implementation of soft interventions.
The term soft interventions should be avoided and replaced by a more appropriate
term such as Basic, or Preparatory or Primary or Enabling or Catalytic interventions.
86
ANNEXURE 4.1 Table pertaining to major soft interventions carried out in various clusters
Table No.-4.1 (a): MAJOR SOFT INTERVENTIONS CARRIED OUT IN THE SAMPLED CLUSTERS
(I) Primary Goods Based Clusters
Cluster Bamboo Food Leather Leather Goods Plywood Rice Milling Rice Flakes Rice Rubber
Activity Cluster Processing Goods Cluster Cluster Cluster Cluster Cluster Milling Cluster
Dimappur Cluster Agra Shantiniketan Peramb Karnal Ahmedabad Cluster Chengana
Muzffarpur avoor Kalady cherry
Stipula Condu Stipula Condu Stipula Condu Stipula Condu Stipula Condu Stipula Condu Stipula Condu Stipula Conduc Stipula Cond
ted cted ted cted ted cted ted cted ted cted ted cted ted cted ted ted ted ucted
Diagnostic Study

Awareness
creation and

Interactions with
Cluster Actors
Exposure visits

Skill Development
Programme

Technology
Up gradation

Programme for
energy efficiency

Market
Development

Participation in
trade fairs/

Exhibitions
Creation of
Marketing

Brochure/ Website
Development of
Financial Linkages

Development of
BDS Data bank

87
Table No.-4.1 (a) (Contd.)

(II) Secondary Goods Based Clusters (I)
Cluster Ball Bearing Bell Metal Bell metal Brass Utensil Cotton Hosiery Diesel Fan Industry
Activity Cluster Cluster Cluster Hazo Cluster Pareo Cluster Kanpur Engine Cluster
Jaipur Khurda Cluster Hyderabad
Rajkot
Stipul Cond Stipul Cond Stipul Cond Stipul Cond Stipul Cond Stipul Cond Stipul Conduc
ated ucted ated ucted ated ucted ated ucted ated ucted ated ucted ated ted
Diagnostic Study

Awareness creation
and Interactions
with Cluster Actors
Exposure visits

Skill Development
Programme
Technology
Up gradation
Programme for
energy efficiency
Market
Development
Participation in
trade fairs/
Exhibitions
Creation of
Marketing
Brochure/ Website
Development of
Financial Linkages
Development of
BDS
88
Table No.-4.1 (a) (Contd.)

(II) Secondary Goods Based Clusters (II)
Cluster Foundry Plastic Cluster Sewing Machine Surgical Wet Grinder White ware
Activity Cluster Aluva Cluster Ludhiana Instruments Cluster Cluster
Ahmedabad Cluster Baruipur Coimbatore Khurza
Stipul Condu Stipul Condu Stipul Condu Stipul Condu Stipul Condu Stipul Condu
ated cted ated cted ated cted ated cted ated cted ated cted
Diagnostic
Study
Awareness
creation and
Interactions
with Cluster
Actors
Exposure visits
Skill
Development
Programme
Technology
Up gradation
Programme for
energy
efficiency
Market
Development
Participation in
trade fairs/
Exhibitions
Creation of
Marketing
Brochure/
Website
Development of
BDS Data bank
89
Chapter No: 5 The Special Purpose Vehcile
CHAPTER
THE SPECIAL PURPOSE VEHICLE
5
5.1 Introduction
The Industrial Cluster occupies the role of a prime mover in the overall policy
framework of the Ministry of Micro, Small and Medium Enterprises (MSME). The
development and strengthening of clusters thus forms the central and most important
part of the strategy for supporting micro and small enterprises in India. The Small
Industry Cluster Development Programme (SICDP) which is the flag ship programme of
the MSME launched in August 2003 is a broad based holistic programme incorporating
important features that enable the promotion of marketing, exports, skill development,
and technology up-gradation. Since its inception this programme had been
predominantly assisting clusters through soft interventions such as diagnostic studies,
trust building, counselling, training and capacity building, exposure visits, credit
facilitation, market research/development, and information systems. With the advent of
economic reforms and the opening up of the economy it became very essential to
strengthen the support systems particularly for small enterprises and enable them to
face the increasing competition from the larger entities both at home and abroad. It was
felt that soft interventions alone were not enough to protect a very large and politically
sensitive sector involving many million lives and livelihoods in India.
Considering the fast changing industrial scenario and some of its adverse consequences
particularly for the developing countries, it was felt necessary to introduce hard
interventions in the SICDP. These hard interventions directed towards assisting
technology improvements, quality control and standardization and testing involving
additional financial support for the creation of Common Facility Centers, was initiated.
The programme guidelines and norms were also revised in March 2006. These common
facilities normally unaffordable by individual small units, were considered necessary for
technology up-gradation, and maintaining quality standards. These facilities were
expected to ensure the collective exploitation of externalities and harnessing benefits of
the economies of scale. These hard interventions were planned to be implemented
thorough the Special Purpose Vehicle (SPV) in each of the identified clusters. In this
chapter we analyze various important aspects of the Special Purpose Vehicle such as the
need and rationale for the SPV, its organizational and legally recognized institutional
form, the general profile of SPVs in the sampled clusters, the present composition and
participation in SPVs, the reasons for participation or the lack of participation among
individual cluster units, the major challenges faced in SPV formation and other important
aspects. Our analyses is based on the information, both primary and secondary
gathered by our field team during the study. Most of this information was collected
through a specially designed field schedule or questionnaire, and also on the basis of
structured interviews and discussions with important programme functionaries of the
SICDP, the sampled SPVs, and the individual cluster units.
90
5.2 The Scope and Functions of the Special Purpose Vehicle

The revised guidelines of the SICDP framed in March 2006, emphases the need for
creating a collective institution called the Special Purpose Vehicle, its very name or
nomenclature reflects that it is a body specially setup for effectively undertaking certain
special collective tasks on behalf of the individual cluster units. The guidelines state in
Para 3.2 (please see Annexure 1 to Chapter I of this report) that there is a need for
creating an implementation agency which is A clear legal entity with evidence of prior
experience of positive collaboration among its members, whether formally or other wise,
as the applicant of the proposed cluster development initiative assures sound
management ideally, therefore, all proposals for cluster development seeking assistance
under the SICDP must emanate from special purpose vehicles (SPV), consisting of the
actual/likely cluster beneficiaries/enterprises organized in any legally recognized form
like a cooperative society, registered society, trust, company, etc.
The revised guidelines in Para 3.2.1 goes on to emphasize that It will, however be
necessary to constitute the SPV at the earliest possible, with clear indication of the time
frame for completion of this essential requirement while submitting the proposal for
Government assistance.
It may be emphasized that the official definition of the SPV provided in the guidelines
can be interpreted and utilized in a manner that may dilute the sound intentions of the
move as well as the very objectives of the SICDP. Nevertheless the intentions being
clear the definition of the SPV can be considerably improved to effectively optimize the
intent.
The formation of the SPV as stipulated in the present guidelines is justified as it enables
the following:
Collective and democratic decision making and management

Accountability to funding and financing institutions.
Transfer of funds, procurement of credit and other financial assistance.
Equitable participation and the sharing of benefits, responsibilities, and risks.
This legal/legitimate entity is then required to be registered with the appropriate

regulatory and controlling agencies of the state, allowing it to function within the
bounds/limits legally prescribed and stipulated.
The SPV thus formed and registered enables the selection of projects that serve the
common needs and requirements of the cluster as a whole, formulate the detailed
project report DPR, and obtain the required approvals and clearances, set up, manage,
and operate the common facility for the mutual benefit of the concerned cluster and all
its constituent units.
91
5.3 The Most Suitable Organizational and Legally Recognized

Form of the Special Purpose Vehicle
As mentioned in the revised guidelines the SPV can be organized in several legally
recognized forms such as a Cooperative Society, a Registered Society, a Trust, or a
Company. It is therefore essential to evolve a strong consensus among the cluster
actors as to the organizational form most suitable for the specific cluster in conformity
with the nature and characteristics of the cluster. There is a fairly wide variation in the
nature and characteristics of clusters. The varying nature of the clusters in terms of
products, scale of operations, technology and processes, as well as markets determine
the needs and priorities of commonly shared facilities. It is therefore extremely
important to arrive at a common consensus on the organizational form that should be
adopted to serve these needs most effectively. The nature of the common facilities
required may also vary from cluster to cluster. Some may require a developmental
facility, or quasi-developmental common facility, while others may need a common
processing, or testing facility that can best be developed and sustained on purely
commercial lines to ensure viability and profitability.
Cooperatives and Registered Societies appear to be more suitable for clusters, which
have a large number of small and micro enterprises with a limited scale of operations, a
limited product range and limited financial capacities. These units are likely to be more
labour intensive predominantly employing family labour and requiring common facilities
that ensure quality and standardization, marketing support, and the collective
procurement of raw materials and other inputs.
On the other hand there are clusters where both the scale of operations and the product
range is large and diverse. The units may be relatively larger with higher financial
capacities. These units are also likely to be more capital intensive requiring common
testing and processing facilities. These common facilities may have to be run on purely
commercial lines and run like any other normal enterprise involving sharing of profits and
reinvestment in expanding these facilities. The SPV in the case of such clusters may be
best organized as private limited companies though in these cases the number of share
holders/enterprises would be statutorily limited. However it may be emphasized that in
the case of an SPV being registered as a private limited company the extent of benefits
and collective participation by cluster actors in general is likely to be limited and the
tendency of monopolizing the facility for the benefit of a few dominant cluster members
is most likely. However even in this case wider participation and sharing of benefits is
possible if shares are held by a group of individual cluster members/enterprises, in the
form of a holding company.
In principle as the objectives of Cluster Development aims to promote inclusiveness of

all cluster actors and the effective sharing of the benefits by the largest possible number
of cluster actors it is desirable to ensure that the organizational form adopted is
conducive to the maximum participation. The size and capacity of the common facility is
normally proposed on the basis of the number of cluster members who are likely to
utilize the facility, however if the organizational form adopted restricts the participation
in the SPV and furthermore discriminates against the utilization of the common facility by
the non SPV members of the cluster, then the facility created for the cluster may be
92
utilized by larger firms who are not a part of the cluster. At present there seem to be no
effective checks and balances to control such tendencies. The guidelines of the
programme must seriously take this into consideration such checks and balances,
especially when a substantial proportion of the funding for such CFCs comes through the
provision of public funding. It must be realized that requiring an SPV to be a clear
legal entity is not enough and may legitimize the use of public funds for private gain.
5.4 The General Profile of Sampled SPVs

It is encouraging to note that there are 11 clusters among our 22 sampled clusters
where a special purpose vehicle has been successfully formed and registered. This
implies that they have completed the earlier stage of the programme cycle involving soft
interventions and are now at a relatively more advanced stage of the programme cycle.
Of these 11 SPVs, are in Stage II and have only completed their formation and
registration.
Yet another SPV has achieved Stage III of the programme cycle, having prepared the
DPR for its common facility and obtained its approval. As many as 7 of the 11 SPVs
formed have successfully taken their clusters to Stage IV, and are in the process of
construction or setting up of their common facilities. There are 2 SPVs namely the SPV
for the Rubber Cluster in Chenganacherry, Kerala and the SPV for the Foundry Cluster,
Ahmedabad, Gujarat who have propelled their respective clusters to Stage V by setting
up and commissioning their common facilities.
The SVPs formed and registered in 5 of the 11 cases belong to relatively smaller clusters
with a lower number of constituent individual units. The SPVs formed and registered in
the remaining 6 cases belong to relatively larger clusters. In the case of smaller
clusters, two SPVs have been registered as societies while the remaining three have
been registered as Private Limited Companies.
Likewise in the SPVs formed and registered in the remaining 6 large clusters, as many as
5 have been registered as societies and only one as a Private Limited Company. It is
seen that in the case of large clusters the preference in organizational form of the SPV
seems to be of a Registered Society, though there is one exception that of the Rubber
Cluster, Chenganacherry which is relatively large with about 315 individual cluster units.
In the case of smaller clusters the preferred choice of the organizational form of the SPVs
is seen to be the Private Limited Company here too there are two exceptions namely the
SPV of the Foundry Cluster, Ahmedabad, and the Leather Cluster, Shantiniketan, which
have been registered as societies. It may be also emphasized that the remaining three
small clusters are all located in Kerala and have uniformly preferred to register their
SPVs as Private Limited Companies. This preference arises mainly on account of labour
market conditions, and a chronic fear of political interference in the functioning of
registered societies. It is seen that for the two small clusters located in Gujarat and
West Bengal, the SPVs have been registered as a societies and not a private limited
company. The state of Gujarat has a long and illustrious history of cooperation and
Gandhian traditions and so does Shantiniketan is West Bengal. The organizational form
of the SPVs does not necessarily have any strong correlation with size if one takes into
account specific regional factors and traditions. However the preferred organization
93
most suitable for democratic collective action seems to be Societies rather than Private
Limited Companies.
It is also important to emphasize here that, while the effectiveness of soft interventions
are expected to enable clusters in the formation of SPVs, in several cases the SPVs have
been formed and registered while soft interventions may have continued to linger on. In
such cases as we shall see subsequently the larger involvement and participation of
cluster members in the formation and membership of the SPVs have been limited and
the inclusiveness of cluster actors in hard interventions has been low.
Table No.-5.1: SPECIAL PURPOSE VEHICLES REGISTERED IN SAMPLED CLUSTERS

Sl Cluster Name Total Organizati Year of SPV Stage of Viability Initial Present Involvement
No of onal form Registration Operation and Member Member and
Units in of SPV Ranking ship ship Inclusivenes
Cluster s
1. Leather Goods 80 Society 2006 III MVS 10 87 H

Cluster (12)
Shantiniketan
2. Plywood Cluster 85 Pvt. Ltd. 2003 IV VDS 5 24 L
Perambavoor Company (16)
3. Rice Milling 70 Pvt. Ltd. 2004 IV VDS 28 41 H

Cluster Kalady Company (15)
4. Rubber Cluster 315 Pvt. Ltd. 2003 V MVS 18 49 L**

Chengnacherry Company (9)
5. Bell Metal 200 Society 2007 IV MVS 346* NA H

Cluster Hazo (13)
6. Brass Utensil 500 Society 2004 IV MVS 100 124 H

Cluster Pareo (8)
7. Foundry Cluster 76 Society 2006 V VDS 41 41 L

Ahmadabad (18)
8. Plastic Cluster 108 Pvt. Ltd. 2006 IV MVS 24 24 L

Aluva Company (1)
9. Surgical 600 Society 2007 IV MVS 180 180 H

Instruments (7)
Cluster Baruipur
1 Wet Grinder 700 Society 2005 IV MVS 30 30 L
0. Cluster (6)
Coimbatore
1 White Ware 494 Society 2007 II MVS 10 10 L
1. Cluster Khurza (4)
Note: *Multiple memberships from same household allowed.

**Low in account of statutory limits on shareholders (individual) however holding company
options are available.
MVS- Most Viable and Sustainable VDS Viable but Difficult to Sustain
L Low H - High
Yet another interesting observation based on Table 5.1 is that of the 11 SPVs formed
and registered as many as 8 (73 percent) belong to clusters, which are categorized as
most viable and sustainable (MVS). This clearly indicates that there is a definite positive
correlation between SPV formations and the Viability and sustainability of the cluster
based on its specific cluster configuration. It is therefore necessary to evolve very
comprehensive guidelines for the conduct of the diagnostic study which must incorporate
proper measures of cluster density, scale of operations, measures of homogeneity and
heterogeneity and other critical measures that can then be weighed against the desired
and clearly stipulated norms for the initial and critical selection of the clusters for
94
intervention. This process of selection must be devoid of subjective and political

considerations that lead to the improper selection of the cluster and the subsequent
failure or lack of impact of the SICDP. This clearly highlights the importance of the
diagnostic study and the proper selection and training of CDEs. These issues have been
more elaborately treated in earlier chapters.
The level of involvement or inclusiveness of the individual cluster actors in the SPVs is
also indicated and classified into two simple categories H and L. This has been compiled
using figures related to initial membership at the time of registration, present
membership, the percentage change in membership, as well as the total number of
individual cluster units in each of the clusters covered during the study.
The involvement of cluster members depends on how keen and motivated they are on
being a part of the SPV. There keenness will also depend on how aware they are of the
benefits of common facilities as compared to the risks and financial commitments
involved. Initially there may be only a few who are willing to join however as the
common facility project gets approved and starts to unfold more persons may be
attracted to join the SPV. These late applicants may or may not be encouraged to join
as SPV members by the existing incumbents, even if such late admission involves a
substantially higher financial commitment in terms of share money. Moreover there may
be statutory upper limit on the number of shareholders permitted depending on the
organizational form adopted. In the case of a private limited company for instance this
limit is fixed at 49 members. However even this statutory limit can be extended to cover
all cluster actors by allowing shares to be collectively held by holding companies
formed by a group of individual cluster actors.
The degree of involvement and inclusiveness will be high if a large numbers if not all the
individual members are shareholders in the SPV formed and registered. The degree of
inclusiveness would be high if the existing members of the SPV encourage more
members to join even at a later stage and constantly encourage enhanced involvement
and participation by those who initially prefer to stay out but later do not want to miss
the boat.
In Table 5.1 we see that the level of involvement and inclusiveness varies among the 11
SPVs covered during the study. In the case of 5 SPVs the involvement and inclusiveness
is observed to be high. Four of these 5 SPVs are registered as societies while only one of
them is registered as a private limited company. Not all these clusters that these SPVs
represent are large, indicating that democratic participation, involvement and
inclusiveness in a SPV does not really depend on whether the cluster is large or small but
is certainly determined by the organizational form adopted by the SPV representing the
cluster. In the case of 6 SPVs, the involvement and inclusiveness is low, among these 3
are registered as private limited companies while the remaining three are registered
societies. Here again these SPVs represent, both large and small clusters, and so the
size of the cluster does not have much to do with explaining involvement and
inclusiveness. However take the case of the Wet Grinder Cluster in Coimbatore having
as many as 700 individual units and thus a large and dense cluster making it most viable
and sustainable yet surprisingly at the time of registration of its SPV as a society, as far
back as 2005, it had only 30 members. To make matters worse, in 2008 March, when
95
our field team visited this cluster and the SPV, the membership of the latter was still 30.
The case of the SPV in the White Ware Cluster in Khurza is very similar. Valid
explanations of such low involvement and inclusiveness do not lie in just the
organizational form adopted by the SPV but other factors as well.
One important factor is the heterogeneity in these clusters, with very large units
operating along with very small ones. The second factor, which is related to the first, is
that large units in these clusters subcontract work to smaller units and also act as
intermediaries in both the market for inputs and finished goods. There is a fairly well
established system of dependence and dominance within the cluster that would be
seriously threatened by wider involvement and inclusiveness. The responses of cluster
units who are not members of the SPV would throw more light on this critical issue.
5.5 The Social and Ethnic Composition of and Participation in

SPVs
One of the major non-economic features of homogeneity within clusters is the social and
ethnic composition of individual units owners in the cluster. Since the SPV is a sub set of
the larger cluster that it represents, the social and ethnic composition of the cluster is
most likely to be reflected in the membership of the SPV representing the cluster.
Moreover participation in the SPV may be on the one hand, confined to and monopolized
by the larger and more dominant players, while on the other units of different sizes may
participate equally in the SPV.
As seen in Table 5.2 all but one single SPV that we have covered, is dominated by single
caste or community, this most probably provides a strong cementing force in each of the
clusters. This homogeneity that has evolved over a long period of time is a major
characteristic of clusters in India. We thus need to recognize this and work within it
without attempting to assign it with any racial or communal connotations. In fact this
rich and diverse collage of communities reflects the talent expertise and contribution of
different castes and communications in industrial development.
Turning to the participation by units of different sizes in each SPV, it seen that in 4 of the
11 SPVs the participation is confined to large units only. These SPVs belong to clusters
that are relatively more heterogeneous in terms of size and scale of operation. However
in the case of as many as 7 of the 11 SPVs the participation is by units of all sizes which
often include very small units as well. These are clusters with a higher degree of
homogeneity in terms of size and scale of operations.
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Table No.-5.2: COMPOSITION OF, AND PARTICIPATION IN SPVs

Sl Cluster Composition Participation
Dominance Mixed Castes/ Participatio Participatio
of One Communities/ n by large n by Units
Caste/ Religion units only of all Sizes
Community/
Religion
1. Leather Goods
Cluster
Shantiniketan
2. Plywood Cluster
Perambavoor
3. Rice Milling
Cluster Kalady
4. Rubber Cluster
Chengnacherry
5. Bell Metal
Cluster Hazo
6. Brass Utensil
Cluster Pareo
7. Foundry Cluster
Ahmadabad
8. Plastic Cluster
Aluva
9. Surgical
Instruments
Cluster
Baruipur
10. Wet Grinder
Cluster
Coimbatore
11. White Ware
Cluster Khurza
5.6 Perceptions Regarding Reasons for Non-Participation in SPVs

In order to enhance our understanding and clarity on various issues, and to design our
field instruments for canvassing the relevant data we organized a few pilot field visit to
some clusters. One of the important issues that emerged from our observations and
discussions with SPV functionaries and individual cluster unit owners/managers was the
lack of involvement and participation in the SPV while the SPV functionaries had their
own perceptions regarding the matter, so did many individual cluster units. While there
were common perceptions among these different respondents there were also
perceptions that were contradictory and at variance with each other. It may be
mentioned that the field instruments were canvassed among the functionaries of the 11
SPVs that had been formed, and also among the units in these 11 clusters where SPVs
had been formed. The individual units owners/managers were those that were aware of
the scope and functions of the SPV but were not SPV members, these were often those
that consisted of the more peripheral and dissident units usually quite small in their
scale of operations. We covered 31 such units across the 11 clusters, which had
registered SPVs and were at various stages in the implementation of hard interventions.
97
As seen in Table 5.3, we have carefully identified eight major factors that affect
participation and involvement and compiled the responses obtained on these factors.
These factors include risk aversion, financial constraints, awareness regarding the
benefits, lack of contact, skepticism regarding the viability and sustainability of the CFC,
fear of the monopoly and dominance of strong and more influential players, the free rider
problem, and the appropriateness of the CFC.
Table No.-5.3: PARTICIPATION AND INVOLVEMENT IN SPVs

Sl. Factors Affecting Respons % Distribution Responses % Distribution
Participation es of of Responses of Cluster of Responses
SPVs Actors
1. High Risk Aversion 10 90.90 29 93.54
2. Financial Constraints 9 81.81 26 83.87
3. Lack of Awareness 7 63.63 23 74.19

regarding Benefits
4. Lack of Contact 5 45.45 15 48.38
5. Skepticism and 11 100.00 28 90.32

Doubts regarding
Viability
6. Fear of the Monopoly 3 27.27 25 80.65
and Dominance of a
few
7. Free Rider Syndrome 8 72.72 14 45.16
(or benefitting by
the effort of others)
8. Common Facility Not 2 18.18 23 74.19
Appropriate (not
evolved on the basis
of concerns)
As seen in the table there is a fairly high degree of agreement among the two sets of
respondents on some factors such as risk aversion, financial constraints, lack of
awareness, skepticism regarding viability, and the free rider problem. The highest
degree of agreement on the above issues is on factors such as skepticism regarding
viability, risk aversion, the free rider problem, and the lack of awareness regarding
benefits. The highest degree of disagreement is seen to exist on factors such as the
appropriateness of the CFC and the fear of monopoly and dominance of a few strong
players. The identification of these factors should enable the policy makers to
specifically direct efforts that will effectively lower the impact of such factors, if not
remove them altogether. The most feasible policy strategy to effectively solve some of
these rather intractable problems would be to permit and support the formation of sub
clusters and SPVs in order to lower the effects of homogeneity based on size and scale of
individual units. However this would only apply to large and dense clusters with a high
degree of viability and sustainability. It should also be emphasized that the guidelines
and norms related to the SICDP and particularly those related to the role and functions
of the SPV in the creation, management and sustenance of the CFC should be
98
comprehensively reviewed and revised before the implementation of the programme

during the 11th Five Year Plan.
5.7 Suggested Methods of Removing Constraints faced by SPVs
However while obtaining the responses of SPV functionaries on the constraining factors
affecting the formation and effective functioning of SPVs, we also obtained their
responses on measures to handle these constraints and challenges. Various useful
measures were suggested by the SPV functionaries that they considered to be important
and which they initiated in order to overcome constraints. These are classified in two
broad groups, the first consisting of Trust Building Initiatives/Measures required to be
undertaken by the SPVs themselves, and the second consisting of Facilitative
Initiatives/Measures that are required to be taken up by the Government and Public
Agencies.
There are 11 specific initiatives or measures on which the responses of the SPVs were
canvassed, while we have received a very high level of affirmative responses in the case
of each of the eleven measures highlighted it is clearly evident from Table 5.4, the
affirmative responses on seven of these 11 issues are relatively higher. The highest
affirmative response is seen for three trust building measures. The first is the clear
articulation of the concrete benefits and advantages of working together. The second is
the clear articulation of the concrete benefits of the CFC and its viability. The third
measure is the obtaining of clarification on guidelines and procedures and effectively
disseminating them among cluster actors to clear doubts and ambiguities that give rise
to skepticism. It may be mentioned here that the other measures listed in some detail in
this self-explanatory table 5.4 are equally important and there is considerable unanimity
in the need for, and effectiveness of these measures among most SPVs covered by us.
The table also highlights the measures actually undertaken by the responding SPVs.
Here it can be observed that at the level of actually implementing or undertaking these
initiatives most SPVs have not acted and the responses are few and far between.
Turning now to the facilitating initiatives/measures that should be taken by the

Government, it is observed that the affirmative responses of the SPVs are very high, with
all the responding SPVs unanimously endorsing the need for as many as four out of the
six measures listed in Table 5.4. Here the most important measures seem to be support
of the State Governments in the proper and timely enforcement of regulations, the
provision of infrastructure and assistance in land acquisition, provision of appropriate tax
concessions and other development incentives as well as the streamlining and
simplification of procedures. The second important measure that is desired from the
government is the support of the MSME to dovetail the relevant programmes and
schemes offered by other ministries and agencies including the financial institutions. The
third important initiatives is the proper selection and training of CDEs, and providing
these key catalytic functionaries with the resources and facilities to carry out their tasks
effectively. Last but not the least is the importance assigned to the revision and
elaboration of the programme guidelines and norms to remove all the present
ambiguities and lack of clarity. It is also seen that at the level of actual implementation
these measures are perceived to be deficient and far from satisfactory.
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Table No.-5.4: RESPONSES ON INITIATIVES AND MEASURES REQUIRED FOR

EFFECTIVELY MEETING CHALLANGES
Sl . Required Initiatives/Measures Affirmative Responses on
Response Measures
Undertaken
(A) Trust Building Initiatives by SPV
1. Frequent personal meetings with diffident cluster actors. 7 4
2. Articulation of the concrete benefits and advantages of 10 3
working together
3. Articulation of the concrete benefits of the CFC and its 10 2
viability
4. Closely monitoring and supporting the work of the CDE 8 5
5. Obtaining detailed clarifications on guidelines and 10 4
procedures and effectively disseminating this among
cluster actors to remove ambiguities and skepticism
6. Keeping membership options open for late entrants 9 7
7. Maintaining transparency through circulation of accounts 9 8
and annual report
8. Open access to MOAs and Rules framed at the time of 8 6
registration
9. Collectively removing elements that impede grater 9 2
participation by cluster members
10. Involving existing Associations in the cluster and 8 5
leveraging on their influence.
11. Arranging Facilitating visits to exhibitions /industrial fairs 9 7
both at home and abroad and also demonstration visits to
other successful cluster development projects and
common facilities created there in.
(B) Facilitative Initiatives by Government
1. Support of State Governments in regulations, 11 3
infrastructure and land acquisition and tax
concessions/incentives, streamlining and simplifying
procedures
2. Support of MSME-DIs 8 7
3. Support of Department of Science & Technology 9 1
4. Support of MSME to dovetail the relevant programmes of 11 1
other ministries
5. Proper selection/Training and resources for CDEs 11 2
6. Revision and Elaboration of Programme Guidelines and 11 1
norms to remove ambiguities and lack of clarity.
It is also important to stress that some of these initiatives require the provision of
additional resources through project funding for soft and hard interventions as also to
the MSME-DIs during the 11th FYP. Implementation of these measures will considerably
improve the effectiveness and impact of the SICDP.
100
5.8 Perceptions Regarding the Role of the CDE and Effectiveness

of Soft Interventions
The cluster Development Executive (CDE) is a key functionary in the SICDP as seen in
an earlier chapter. Among his important functions there is the conduct of diagnostic
study, the building of trust and confidence among cluster units, spreading of awareness
and advocacy for collective action and several other motivational and mobilization
measures that constitute what are broadly classified as soft interventions.
These soft interventions prepare the cluster for the hard interventions and their
effectiveness and usefulness enables the SICDP to steadily progress and be successfully
completed. The role of the CDP does not end with the completion of soft interventions,
as he continues to carry out key functions during the phase of hard interventions as well.
It is therefore important to obtain the perceptions of the SPVs regarding both the role of
the CDE, as well as regarding the effectiveness or ineffectiveness of various soft
interventions.
In Table 5.5 we have presented the perceptions of the SPVs regarding the CDE assigned
to the cluster.
Table No.-5.5: PERCEPTIONS OF THE SPVs REGARDING THE ASSIGNED CDEs

Perception of SPVs Regarding the CDE Numbers of
Responses
Very Effective and Helpful but could do better with training 6
Fairly Effective and helpful but could do better with training and 4
necessary resources and facilities
Not Effective due to lack of training and the burden of other tasks 1
Extremely Indifferent and Ineffective 0
It is seen that in the case of 6 SPVs, the assigned CDE is perceived to be very effective
and useful, but could do much better if adequately trained and provided with additional
facilities to function effectively. In the case of 4 SPVs the perceptions regarding the CDE
are that they are fairly effective and helpful, but require proper training and necessary
skills along with additional resources and facilities to function effectively. However in the
case of one SPV the perceptions regarding the effectiveness of the CDE is rather
negative, in this case it is perceived that not only does he lack training but is also
burdened with tasks by his parent department that are not related to the CDP
programme. Fortunately none of the SPVs find the assigned CDE to be extremely
indifferent and ineffective.
The perceptions of the SPVs regarding various soft interventions are presented in Table
5.6. It is seen, that there are as many as 8 different types of activities that constitute
these soft interventions. A careful scrutiny of the responses recorded regarding these
interventions shows that, the first among the most effective soft interventions are group
meetings that enhance mutual trust and confidence among members and help in the
evolution of a consensual business or strategic plan. The second effective soft
intervention appears to be exposure visits to other clusters and CFCs. The third effective
soft intervention is the participation in exhibitions and trade fairs.
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Table No.-5.6: RESPONSES ON THE EFFECTIVENESS OF SOFT INTERVENTIONS

Soft Interventions Responses
Effective Not No
Effective Response
Group Meetings (to evolve a consensus 9 2 0
on a business plan)
Personal visits and interaction with 4 3 4
Cluster Members
Exposure visits to other Clusters or 8 2 1
CFCs
Common Website/ Information Portal 0 0 11
Participation in Exhibitions/ Trade Fairs 6 4 1
Training Programmes and Seminars 5 5 1
Marketing Visit 2 5 4
Medical Conferences 4 2 5
It is also quite revealing to find that marketing visits, and the conduct of training and
seminars are perceived as being ineffective. Furthermore the number of No Responses is
quite high indicating a fairly high degree of cynicism regarding soft interventions and the
casual manner in which these activities are treated. At the SPV level one cannot take
this indifference lightly as it is the SPV that benefits most from these interventions.
It is therefore necessary to comprehensively revamp these soft interventions, by

adopting the required professional approach through the involvement of behavioral and
organizational experts, and expert agencies. It would be worthwhile to commission a
special study that puts together the best and most effective practices required to
mobilize and motivate collective action, resolve conflicts and interpersonal differences,
and effectively learn to cooperate.
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Chapter No: 6 Hard Interventions in Sampled Clusters
CHAPTER HARD INTERVENTIONS IN THE

SAMPLED CLUSTERS
6
6.1 Introduction
Hard Interventions are so termed in any cluster development industrial strategy because
they unlike soft interventions are expected to produce concrete results by way of
collectively reducing costs, improve productivity, maintain quality and standards of
individual units. Hard interventions thereby enhance competitiveness in globalised
markets and create a level playing field, especially for a large cluster or group of small
and micro-enterprises who in their individual capacities are unable to undertake the large
investments required for the purpose.
One of the main objectives of our evaluation study was to study the status and impact of
hard interventions in the sample clusters that are being assisted under the MSE-CDP.
Hard interventions involve a series of distinct processes arranged in pre-determined
stages. Each stage has to be successfully implemented before the next stage is taken
up. The end result of the successful implementation of these essential stages is the
setting up of a common facility that can be utilized by all cluster actors while they pursue
their individual enterprise activities. This common facility should be operated, managed,
sustained, and even expanded independently and needs to adopt a legitimate
organizational form like any industrial enterprise or firm. It thus needs a regular and
professional management structure, and a work force to run and maintain its facilities.
While the status of hard interventions can be judged by the specific stage that has been
achieved in each case, the impact of hard interventions emerge and can only be
assessed after each of these essential stages has been successfully completed and the
common facility built, tested and commissioned.
As seen in the previous chapter there are only eleven clusters out of the 22 clusters
sampled for this study that have started to implement hard interventions each of these
clusters are at different stages of implementing hard interventions and only two of these
eleven clusters have been able to successfully set up and commission common facilities.
Even in these two cases the common facility has been commissioned recently and have
only functioned for a limited period. In such a situation the impact is limited and unless
these facilities stabilize and overcome various teething problems a full assessment of
their impact may not be possible at this early stage. Nevertheless their present
functioning provides early and useful indicators that help in streamlining policies and
procedures and thereby incorporating corrective features to strengthen and sustain the
MSE-CDP programme in the days to come.
In this chapter we shall therefore emphasize the justification for hard interventions, the
rationale and objectives of hard interventions, the necessary stages that have to be
successfully negotiated and the specific constraints that emerge in each of these stages
103
that need to be removed, the current status of hard interventions in the sampled
clusters, and the impact of these hard interventions which are reflected in the functioning
of the CFCs.
6.2 The Justification for Hard Interventions

Hard interventions are those measures implemented by legally constituted group or
organizations called SPVs that are involved in different common functional areas
collectively serving a cluster or agglomeration of small and micro enterprises involved in
the processing and manufacture of largely similar goods or services.
These Special Purpose Vehicles or Hard Networks are constituted for the following
reasons:
To enable individual cluster actors to access markets for goods and required inputs,
often with the intention of eliminating intermediaries along the supply chain.
To enable the exploitation of the economies of scale in functional areas such as
purchase of essential and common inputs, procuring finance, production and
marketing.
To increase bargaining strength vis--vis input suppliers or customers or distributors.
To collectively bear the risks and costs involved in undertaking large projects
involving high investments and possible risks.
To avail the benefits of support schemes and special assistance by the state, financial
institutions, and development agencies, which often requires the benefits to be
transferred to legally constituted and accountable entities that function under specific
regulatory statutes and rules.
To effectively demonstrate the power and concrete benefits of collective action and
cooperation and also to provide a safety net in a highly predatory and aggressively
competitive industrial system dominated by large national and multinational
enterprises.
Hard interventions can be implemented on a Public-Private Partnership basis, and the

benefits derived from these initiatives in such a context may have greater justification as
a long-term strategic measure rather than for short term commercial gain. It is also
seen that some of these hard networks are created entirely on the basis of private
initiatives, while others may be led by the State and State Agencies.
It should be emphasized that with the advent of liberalization and reforms, the
protection and support provided to small and micro enterprises have undergone a great
deal of change. The very definition of small enterprises has been considerably altered by
de-reservation and increasing the limits of investments and turnover that were earlier
used for defining a small enterprise. Many fear and have been often proved right about
the adverse effects of opening up the manufacturing sector in response to the call for
free multilateral trade. These adverse effects impact the developing countries more
seriously than they do, in the case of developed nations. The need for safety nets is
now universally justified perhaps fearing a major economic disaster that may have its
own political consequences. The Cluster Development Programme can also be visualized
as an effective industrial safety net in this era liberalization and reforms.
104
6.3 The Rationale and Objectives of Hard Interventions
There are several benefits that have accrued to SMEs who have collectively formed a
consortium in the form of a SPV, which is a legally constituted entity. These benefits
have been exploited in one or more ways and have helped in the improvement of
margins, and thus their individual incomes as well as competitiveness, we feel it is
essential to briefly describe these collective initiatives and highlight some of the cases
across clusters in India.
These hard interventions have been as follow:
SPVs to exploit Supplier/Market Access- The SPVs in this case directly access
suppliers and customers without individually having to interact with their clients through
distributors and other intermediaries. The margins that they surrender to
intermediaries, who are often large, and affecting their own margins are thus effectively
controlled and internalized. The foundry cluster units in Hyderabad have directly
approached the Steel Mills as against their suppliers who were basically steel distributors
and traders. The Wet Grinder Cluster in Coimbatore has been able to procure copper
wire for their individual cluster units directly from manufacturers rather than depending
on local traders. The cases of many small coir units in Alleppey have similarly organized
themselves to avoid middlemen and coir depots to collectively access finance and
markets. These are all real instances of collectively organizing in the form of a legal
entity and accessing markets directly to improve individual incomes and margins.
Individual cluster units can collectively take up harnessing Economies of Scale- common
manufacturing processes on a large scale and of uniform quality and standards.
Common components procured from outside the cluster can be manufactured in a
common facility. The cost of manufacture of these individually by the cluster units
though possible would be prohibitively expensive. A common process can also be
collectively organized and the necessary investments (usually large) mobilized to
effectively exploit the economies of scales. The Wet Grinder Cluster in Coimbatore has
planned a common facility to produce certain common components that were being
outsourced from firms outside the cluster, this would not only reduce costs but also help
in controlling quality and standards. The export clusters producing home furnishings and
textiles in Kannur, Kerala, and Tirupur, Tamil Nadu respectively, have established their
own spinning mills to reduce units costs. Yet another example is of the Rubber Cluster in
Chenganacherry which has set up a mixing mill to reap the economies of scale, and
improve the quality and standards of the products manufactured and exported by the
individual units in the cluster.
Improving Bargaining Power- Common bulk procurement of raw materials is yet

another initiative that can benefit individual units considerably and improve the collective
bargaining power as compared to the low bargaining strength that small and micro units
would have. The Tery Towel Cluster in Sholapur, Maharashtra, has directly negotiated
with spinning mills and traders for bulk purchases and common procurement of yarn.
Harnessing of common energy options and use of by products and waste. There is an
increasing need for new and renewable energy sources that help in the progressive use
of cleaner fuels and effectively supplement the energy needs of small and micro
enterprises. Common initiatives for harnessing wind energy, biogas, and even micro
105
hydel power apart from viable solar energy applications can be collectively pursued
through hard interventions. Moreover the recycling of waste, the use of valuable by
products, and also the treatment of toxic effluents and wastes open up many useful
collective options for both lowering unit costs and protecting the environment. With
increasing environmental concerns come severe regulation and restrictions that are likely
to affect small and micro enterprises in particular as they can hardly take up these
initiatives individually. The only way out seems to be collective action through hard
interventions. The Rice Milling Cluster in Kalady, and the Rubber Cluster in
Chenganacherry are examples of some such hard initiatives.
Spreading or Collectively Sharing, Risks- Though it may be possible for an individual

unit to set up a facility that he himself can use and also hire out to others, he would have
to be sure that the others use the facility so that the capacity which is created is fully
utilized. These are however risks involved in such a venture. It is therefore preferred to
undertake such a project collectively so as to share the risks by spreading them over the
members of the SPV. The solvent extraction project taken up in the Rice Milling Cluster
in Kallady was viable even at the level of an individual unit, as long as there was
adequate demand for this facility by millers other than the unit setting up the facility on
an individual basis. The investment involved in plant and machinery was large but the
returns were also equally attractive, however considering the long-term viability of rice
milling in the state of Kerala, and also the uncertainty regarding the demand for the
services of this facility, the risks involved were substantial. The project was thus
commissioned in 2005 entirely as a privately led collective intervention in order to spread
the risks as well as share the benefits among the private consortia/SPV that was formed
for the purpose. No support except for soft interventions was provided for this project
under the MSE-CDP programme, clearly demonstrating that the logic of the programme
and its impact are very robust and more importantly that hard interventions can be
successfully carried out even without much support from the government.The Coir
Cluster at Alleppey is yet another example of the effective sharing of risks and
responsibilities as well as the benefits among SPV members. Yet another interesting
case is that of several SPVs belonging to the Handloom Cluster, in Kannur, Kerala joining
hands to invest in a common retailing outlet for products. This outlet was located in the
expensive up market locality in the city and involved large investments as well as risks
that were shared.
Availing Benefits of State Support State and State promotional agencies make
support conditional to the formation of a legally constituted and accountable SPV. The
State often expects the equitable and widespread participation of cluster units and at
times clearly defines the minimum number of cluster units that are required to be
members of the SPV formed for the proper channelization of State funds. Though hard
networks/ SPVs can be based entirely on the basis of private involvement with no state
support, it is seen that most Cluster Development Initiatives adopt the PPP mode. The
State is the hand holder in the earlier stages of cluster development but progressively
takes a back seat as the cluster matures and becomes a self sustaining collective.
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6.4 The Role of the State in Supporting Hard Interventions

Though State support is required to play a supportive role in the setting up of SPVs and
common facilities there is a need to carefully target this support for the equitable benefit
of the entire cluster. The MSE-CDP is designed to support these initiatives but it appears
weak in regard to the targeting of this support. What is being stressed here is that
unless it is carefully directed at clusters that are genuinely composed of small and micro
enterprises there may be a tendency to treat the programme as a convenient mode of
utilizing public funds for the private ends of a few influential and powerful cluster actors.
In such a case State support only leads to the strengthening of the dominance of a few.
Ideally the State should support large and densely constituted clusters wherein the
individual units are predominantly small. The identification and selection of these
clusters should specifically incorporate criteria that lead to the selection of such clusters
only.
The second issue related to State support is that it becomes most essential for the state
to progressively decrease its financial commitment and play only a handholding role.
The third issue related to the State support is the organizational form of the SPV that the
state should encourage. The form, which is most conducive to the most widespread
collective participation by cluster units, should be preferred.
The fourth issue related to state support for hard interventions is the size and bankability
of the project. If the project is bankable then the funding burden of the State can be
reduced to support a larger number of cluster initiatives with the resources available,
and the accountability and responsibility of the beneficiaries considerably enhanced. The
policy framework specially relating to hard interventions need to explicitly incorporate
these issues in order to avoid the dangers of unhealthy privatization. The State must
partner the private sector by strongly targeting its support towards measures that
strengthen and support small and micro enterprises, measures that build the strong
roots of democratic collective strength among those who need to be supported the most.
6.5 Hard Interventions in Sampled Clusters

In what follows we will be analyzing the various hard interventions that have been
initiated in the sampled cluster that were covered during this study. As seen in earlier
chapters (Chapter 2), hard interventions are implemented in stages and culminate with
the commissioning and functioning of the CFC. Each stage of hard intervention is
important in itself and is necessary for enabling the next stage. We shall first highlight
the status of hard interventions by examining the various stages that have been
achieved. The profile of hard interventions will then be briefly analyzed to throw some
light on the implementation of the hard interventions and the problems thereof. We
shall then finally look at the functioning of the CFC and comment on what could be
considered the early indications of the impact of the MSE-CDP.
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6.6 Stages of Intervention under MSE-CDP

At the time this evaluation study was conducted it was observed that of the 22 sampled
clusters as many as 11 were still at the 1st stage of soft interventions, as indicated in
Table 6.1. This by itself is a fairly disturbing revelation and indicates the need to
catalyze soft interventions with added vigour during the 11th plan period. This
stagnation also reflects the ineffectiveness of soft interventions and requires the
immediate attention of programme functionaries.
Table No.-6.1: SUMMARY TABLE ON STATUS OF INTERVENTIONS

Sl. Coverage and Stages of Stage of Number of %
Progress Programme Sampled Distribution
Implementation Clusters
1. Total Number of Clusters NA 22 100.00
Covered (during Study)
2. Clusters Implementing Soft I 11 50.00

Interventions (as on date)
3. Number of Clusters where in II 11 50.00

SPVs have been formed and
Registered
4. Number of Clusters where in III 2 9.09
SPVs are formulating DPRs for
Approval
5. Number of Clusters where in IV 7 31.82
Construction and Installation of
CFC is in Progress
6. Number of Clusters where in V 2 9.09
CFCs have been Commissioned &
are Functional
It is however encouraging to note that the remaining 11 sampled clusters have

successfully negotiated the IInd stage of the formation and registration of SPVs.
However Table 6.1 also indicates that in the case of 2 SPVs the DPR is either yet to be
formulated or has been formulated but not approved. They are thus stuck in the IIIrd
stage and have not progressed beyond it. There are as many as 7 SPVs who have now
progressed to the IVth stage and where the CFC is in the process of being constructed.
It may be mentioned that there have been delays in the construction process mainly on
account of the release of funds and disbursement of payments to equipment suppliers.
In some cases as we shall see later, the conditions of sale have not been enforced and
suppliers have defaulted on the timely delivery and installation of equipment. It is only in
the case of two clusters that the respective SPVs have commissioned the CFC and these
are functional.
It may be mentioned here that the timely implementation of various stages of the MSE-
CDP depends to a great extent on the clarity and lack of ambiguity in the programme
guidelines and though it is claimed that these guidelines and norms were
comprehensively revised in March 2006, it is felt that immediate efforts are necessary to
review and reformulate the detailed guidelines of the programme to remove existing
ambiguities and lack of clarity.
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6.7 Implementation Profile of Hard Interventions in the Sampled

Clusters
We have various important indicators related to hard interventions in Table 6.2. These
indicators provide us with a convenient tabulation of the profile of the implementation of
hard interventions in the concerned clusters. First of all it is seen that only in 3 of the 11
cases have the SPVs been formed and registered after the revised guidelines for the
MSE-CDP were issued by the MSME. In the 9 other clusters the SPVs were formed much
earlier so it is clear that the concept of hard interventions and the SPV predates the
MSE-CDP. In some cases it predates even the earlier version of the programme that was
called the SICDP. This indicates that programme is still in its infancy and in the process
of being structured. It is also therefore obvious that the development of clusters under it
have only started to bear an impact.
It is also seen that a larger number of SPVs have preferred to be organized as registered
societies while only four are registered as Private Limited Companies. All the four SPVs
adopting the company format are located in Kerala.
It needs to be mentioned that since a lot of information particularly that related to the
date of DPR submission, the date of DPR approval and the date of receipt of funds were
not made available, we were unable to judge the pace of implementation in many of the
cases. However wherever this information was provided we were on a case-by-case
basis, able to comment on the pace of implementation.
It may also be stressed that the information provided are partial and incomplete in many
cases and so we have not attempted any interpretation. We have however attempted to
assess the pace of implementation in the case of 9 clusters for which some information
has been provided and needs to be confirmed. So as a word of caution it may be stated
that the interpretation may not be entirely correct.
There are five distinct processes involved during the different stages of implementation
and these processes may take varying periods of time. The five distinct processes are
the formulation of DPR, the approval of DPR, the release of funds, the period of
construction, and the period of Functioning of the CFC.
As seen in Table 6.2 the time taken for the formulation of the DPR has varied in the
range of 3 to 24 month in the different cases. While in the case of 4 SPVs namely those
of the Bell Metal Hazo, Foundry, Ahmadabad, Surgical Instruments, Baruipur, and the
Wet Grinder, Coimbatore the process of DPR formulation has been completed within 6
months. In the case of the SPV of the Rice Milling Cluster Kalady the Formulation of DPR
has taken 9 months, while in the case of the Plywood and Leather Clusters SPVs in
Perimbavorr and Shantiniketan it has taken up about 22 to 24 months. While in most
cases the time taken has been reasonable in two cases it has taken very long.
The time taken for the approval has in general taken up to 6 months in the case of 4 of
the 6 SPVs providing data while in the case of surgical Instruments SPV it has been
delayed over a period of 21 months. Overall the time taken by the authorities to
109
approve the DPR has been quite reasonable but their seems to be scope for improving
and speeding up this process and completing it within a period of 3 month at the most.
Table No.-6.2: PROFILE OF IMPLEMENTATION OF HARD INTERVENTIONS
Sl Cluster Date of SPV Type of DPR DPR Date of Stage of CFC
Registration SPV Submission Approval Receipt of
Date Date funds from
MSME
1. Rice Milling Cluster 27.11.2004 Pvt. Ltd. 09.08.2005 07.02.2007 21.03.2007 Under
Kalady Company Construction
2. Rubber Cluster 2001 Pvt. Ltd. 2003 2003 NA CFC Functional
Chenganacherry Company
3. Plywood Cluster 14.10.2003 Pvt. Ltd. 04.08.2005 07.02.2007 15.03.2007 Under
Perambavoor Company Construction
4. Leather Goods Jan 2006 Society Feb .2008 Yet to be NA DPR
Cluster Approved submitted
Shantiniketan
5. Plastic Cluster 2.12.2006 Pvt. Ltd. NA 22.12.2006 20.03.2007 Under
Aluva Company Construction
6. White Ware 27.07.2007 Society Not Yet to be NA No progress
Cluster Khurza Submitted Approved
7. Brass Utensil 23.12.2004 Society NA NA NA Under
Cluster Pareo Construction
8. Bell Metal Cluster 17.06.2007 Society 02.11.2007 15.02.2008 15.03.2008 Under
Hazo Construction
9. Foundry Cluster 02.01.2006 Society 15.05.2006 26.03.2007 26.04.2007 CFC Functional
Ahmadabad
10. Surgical Nov 2005 Society 02.02.2006 Nov 2007 NA Under
Instruments Construction
Cluster Baruipur
11. Wet Grinder Cluster 19.08.2004 Society 28.01.2005 28.02.2005 15.03.2008 Under
Coimbatore Construction
Note- NA- Information not made available as yet.
to be confirmed
The third important process is the release of project funds (the first installment, the
subsequent releases depending on the utilization of funds and the submission of
utilization certificates). It is seen in Table 6.2 that in nearly all the cases for which data
was provided, the release of funds look a period of 1 to 3 months. Only in one case that
of the Wet Grinder SPV in Coimbatore was the fund reported to be released after a lapse
of 37 months. This is an exceptional delay and needs to be probed further to unravel the
reasons behind such a delay.
The period of construction of the CFC has also varied considerably and since it has not
been completed and is in progress, it is difficult to judge the time taken. Moreover since
projects vary considerably in nature and complexity it is possible to expect such
variation. However it is expected that the SPVs would make all efforts to complete
construction at the earliest so that themselves and the cluster actors can obtain the
actual benefits of the project. The pace of construction should be also speeded up in
order to avoid the escalation in cost that would have to be met by the SPV.
6.8 The Functioning and Impact of the CFC

As seen earlier there are only two clusters in the entire sample of 22 clusters covered by
this study where the CFC has been commissioned and has started functioning. The first
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case is that of the CFC at the Rubber Cluster in Chenganacherry, Kerala, here a large
automated rubber mixing plant has been constructed. This common facility is reported
to enable the uniform mixing of raw rubber with various other chemicals and agents to
produce treated rubber which is further processed into various products. The quality of
the mixing determines the final quality and finesse of the goods produced by the
individual SMEs in the cluster and also substantially reduces the rejection rate.
As seen in Table 6.3 this common facility has been functioning since February 2007, and
at the time of our visit to Chenganacherry in early March 2008 it had completed 13
months of operations providing us a glimpse its monthly revenue, expenditure and
operating surplus/deficits.
Table No.-6.3: REVENUES, EXPENDITURE AND OPERATING SURPLUS/DEFICIT OF CFC

(RUBBER CLUSTER CHENGANACHERRY)
All figures in this table are in Rs. unless specified otherwise)
Month User Wages Acces Consu Lubrica AMC & Electricity Rubber Total Operating
Charges sories mables nts Renew Charges Oil for Surplus/
als Pumps Deficit
Feb 07 2310 4800 181 200 591 5772 -3462
Mar 07 93008 37552 27433 4555 3700 67659 23810 164709 -71701
Apr 07 145524 37800 2737 3100 2703 157715 37254 241309 -95785
May 07 181458 31035 3116 11426 103937 46454 195968 -14510
June 07 180888 41615 2103 3740 3300 109988 46307 207053 -26165
July 07 226341 40695 2695 1185 700 110447 57943 213665 12676
Aug 07 239790 42985 2140 3525 3150 10450 136594 61386 260230 -20440
Sept 07 171358 40310 825 2123 4760 300 129298 43868 221484 -50126
Oct 07 221990 44944 3990 4552 1040 1200 105579 56829 218134 3856
Nov 07 240544 41784 377 4887 5990 20522 140367 61285 275212 -34668
Dec 07 264697 50684 5267 1040 11876 140762 28358 237987 26710
Jan 08 306579 56645 861 2342 5946 146058 32883 244735 61844
Total 2274487 470849 35626 38083 24205 72123 1348404 496968 2486258 -211771
It is encouraging to see that the revenues earned by way of monthly user charges has
steadily risen over the 12 month period while the monthly expenditure on various items
have remained largely stable. This has resulted in operating deficits mainly in the initial
months but also moderate operating surplus as the functioning of the facility has
progressed. While there have been operating deficits during 5 of the initial six months
and only one month during which there has been an operating surplus the working
results seem to have improved in the last 6 months with only three months of operating
deficit and three months of operating surplus. While electricity charges account for the
largest single component of total expenditure (54.23%), the second largest component
of expenditure is that incurred for the Rubber Oil for Pumps (19.99%), these two
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expenditure items account for as much as 75 percent of the total expenditure. Labour
costs account for the third largest component of expenditure (18.94%). The entire
process is energy intensive and with no immediate supplementary energy sources in
sight this will continue to remain a major challenge. This facility is also reported to be
working at a fairly low level of capacity utilization at present. The facility was reported to
be working on a single shift and at a capacity utilization of 33 percent. It is also reported
by SPV functionaries that a majority of the individual cluster units are making low end
rubber products which do not require high quality rubber, and thus the utilization of this
facility is low. However this scenario is likely to change once the cluster starts moving
up the value chain. The increasing competitiveness, and quality consciousness is also
likely to force this movement up the value chain.
Moreover the strong demonstration effects that the CFC has already induced, is expected
to improve its capacity utilization quite significantly in the near future. Some large firms
from outside the cluster are reported to be using this facility and if the spare capacity
continues to persist the SPV is likely to continue allowing the use of this facility to non-
cluster members. However in such a situation a higher differential tariff for non-cluster
member needs to be introduced in order to attract cluster members, who are not yet
attracted sufficiently to use this common facility.
The Second case is that of the CFC built to serve the Foundry Cluster in Ahmedabad,
Gujarat. The common facility that has been created here is a testing laboratory and a
fairly large conference hall. It is important to recollect that this cluster is highly
dispersed with units located far apart. One is hard pressed to find an adequate number
of users from within the cluster. The cluster is also reported to have only a limited
number of individual units raising doubts regarding the full utilization of this facility on
the basis of its use by cluster members alone. It is most likely that in an attempt to
generate additional revenue to meet the operating costs this facility will have to be
thrown open to non cluster users. The size of the auditorium is also disproportionate to
the actual needs of the cluster members and is likely to be hired out for users unrelated
to the common needs of cluster actors. Turing to the working results complied in Table
6.4 for period of seven months, one finds that the figures on revenues as compared to
expenditures incurred are not very encouraging with fairly large operating deficits in 6
out of the seven months during which this facility has functioned.
Table No.-6.4: REVENUES, EXPENDITURE AND OPERATING SURPLUS/DEFICIT OF CFC

(FOUNDRY CLUSTER AHMADABAD)
(All figures in this table are in Rs. unless specified otherwise)
Month User Labour Electricity Raw Other Total Profit/
Charges expenses Materials Exp Expenses Loss
Oct-07 17150 32002 4416 34730 71148 -53998
Nov-07 27675 41295 3984 14100 59379 -31704
Dec-07 29850 41770 3325 34536 79631 -49781
Jan-08 43800 41623 4232 28310 74165 -30365
Feb-08 81825 41723 3770 30812 76305 5520
Mar-08 134688 52261 7282 137178 196721 -62033
Apr-08 31600 48360 2151 5669 56180 -24580
Total 366588 299034 29160 285335 613529 246941
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Unlike the common processing facility seen in the first case this facility is a
developmental facility and the very nature of this facility makes it difficult to sustain
specially when the size of the cluster and thus the cluster users are limited.
On the basis of detailed discussions with cluster actors in both clusters the following
perceptions emerge regarding the impact of these common facilities.
In the case of the CFC in the Rubber Cluster the following responses were recorded:
The CFC has improved the quality of products considerably.
The CFC has opened up the possibilities of diversification and moving up the value
chain.
The CFC has had a positive demonstration effect.
The CFC has to some extent led to greater trust and cohesiveness.
The CFC needs to enforce a differential tariff structure for cluster and non-cluster
members.
Larger units as compared to smaller units would better use the facility.
Considering the responses above, the overall impact of the CFC on the cluster actors
whether they be users or non users has been significantly positive.
In the case of the CFC in the Foundry Cluster in Ahemdabad the following responses
were recorded:
The CFC has improved the quality of products to some extent.
The CFC is likely to open up possibilities for diversification into very high-end
markets.
There are serious doubts regarding the full utilization of the facilities by cluster
members thus viability is in doubt.
The CFC has not had any significant demonstration effect as yet.
The CFC has not brought about any trust or cohesiveness.
The CFC is the captive facility of a very few and does not benefit the cluster as a
whole to any significant extent, as access is difficult and involves high transactions
cost.
Considering the responses above the overall impact of the CFC on individual cluster
actors has been rather mixed if not insignificant.
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Chapter No: 7 Conclusions nd Recommendations
CHAPTER CONCLUSIONS AND
7 RECOMMENDATIONS
Before listing the specific conclusions and recommendations of our study it is important
to clearly stress that, at the overall level, our assessment of the CDP leads us to the
definite conclusion, that the programme is most essential, and can be extremely
effective.
It should also be emphasized that it provides the much-needed support for the SME
sector at a time when we are opening up the economy and exposing our small industry
to fierce global competition. This programme in fact provides the only safety net for
small and micro enterprises in the country. It is therefore recommended that the efforts
of the MSME should be fully supported through the provision of additional resources
during the 11th Plan Period. Since the plan document clearly states its intentions
regarding inclusiveness, further support for this programme is certainly justified. In
what follows we highlight the specific conclusions and recommendations of this study.
7.1 Need for a Scientific Definition of a Cluster
A clear definition of a cluster is conspicuously absent in the present guidelines of the CDP
programme. This may have led to the identification of a very large number of clusters
far beyond those which can be taken up considering the present capabilities of the
institutions and functionaries involved. A more focused, feasible and prioritized set of
clusters needs to be identified for effective interventions. The basic criteria for the
selection of clusters require the consideration of the following issues:
The need to clearly focus on goods producing clusters.
The need to identify those sectors wherein the contribution of SMEs are predominant
and where traditional skills combined with an abundance of locally available inputs
which enables the production of goods which can compete nationally and
internationally because of their uniqueness and high quality.
Clusters, which are already organized and assisted, by strong associations, unions
and lobbies should be preferred.
The need for determining a critical mass of viable and functional individual and strictly
independent units, which have sustained their activities profitably over the last 5 years.
This critical mass should reflect low dispersion and high density ensuring its effective
management. Moreover a high degree of homogeneity (in terms of size / turnover /
product range and other social characteristics) needs to be seriously considered to
ensure cooperation and collective action between the constituent units.
Experts or institutions that have the requisite capabilities, and are capable of carrying
out this task in a definite time frame, should undertake the identification and
prioritization of clusters for effective interventions. These institutions should also be
required to conduct the diagnostic study for which standard guidelines should be
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carefully evolved and framed. (some suggestions in the regard have been made in
Chapter IV of this report)
The choice of persons or institutions selected for the identification of clusters and the
conduct of the diagnostic study should be from among those persons or institutions that
are independent, autonomous and strictly devoid of vested interests of any kind.
While identifying clusters and preparing a diagnostic study these persons or institutions
may consult and be assisted by the State governments, Scientific Institutions and the
MSME-DIs covering specific regions. The assigned Mentor, CDE and the LNA should be
closely associated with the institution conducting the diagnostic study.
7.2 A Clearer Articulation of the Objectives and Scope of the CDP
The objectives and scope of the cluster development programme needs to be more
clearly articulated. It should be focused and avoid the objectives and scope which are
not feasible in the context of the present administrative and financial resources available
for the programme. The general objectives and scope of the CDP should be to enhance
the productivity and competitiveness of the cluster actors through the exploitation of
existing economies of scale and helping these cluster actors to help themselves. This
general objective should be based on the following principles:
Ensuring access to appropriate technologies and their adoption.
Ensuring market development and prospecting for new markets.
Diversifying the range of products and improving their quality.
Facilitating skill formation and upgradation.
Facilitating the formation of appropriate types of organizations to enhance collective
action.
The specific objectives and scope of the CDP should be clearly focused on the following:
To assist in the setting up common facilities for the cluster, such as
Processing and standardization of common inputs.
Testing and certification.
Procurement of common inputs and spare parts / machine accessories.
Common repair and maintenance facilities.
Common information systems on technologies, R&D institutions, products and
markets, and information on fiscal incentives, concessions and regulations.
To assist in the setting up of Common Infrastructure for the cluster, such as
Development of Industrial Estates/ Plots.
Common power and water supply arrangements.
Common drainage and effluent treatment.
Common Display Facilities/ Centers.
Common Canteens, basic first aid centres and crches for workers.
To assist in addressing environmental concerns related to the cluster, such as
Energy audit and conservation.
Development of new and renewable energy sources to supplement existing energy
needs.
Pollution control and self-regulation.
To assist in addressing Common Social Responsibilities of the cluster such as
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Safety and accident insurance.

Proper working conditions.
Health and sanitation facilities.
7.3 Facilitating Agencies and Functionaries:
The success of the cluster development programme depends on a large number of

facilitating agencies and functionaries. The concerned Central Ministry/ Department, the
concerned State Government and its line department, the regional offices and
developmental institutions of the MSME, the scientific establishments of the MSME,
specialized technical and research institutions dealing with small industries,
entrepreneurship and industrial research and several technical NGOs are involved directly
or indirectly in the cluster development programme. The functionaries particularly those
dealing with the programme in the central and state governments and those who are
employed in the regional institutions of the MSME require to be specially trained and
equipped to manage the programme effectively. The areas that need to be specifically
considered in this regard are:
The programme specific training of functionaries.

The strengthening of the regional offices and developmental institutions of the MSME,
the proper deployment of staff therein and the fuller utilization of the existing
facilities.
Enhancing the involvement of the relevant scientific institutions through specially
funded programmes.
The earmarking of additional funds for the study of training and other institutional
needs, as well as for the specific initiatives mentioned above, would require additional
funds for the CDP during the 11th plan period.
7.4 The Role and Functioning of Cluster Development Executives

(CDE):
The CDEs are an extremely important set of functionaries under the cluster development
programme. They carry out several vital functions and act not only as essential
intermediaries between cluster participants but also between the cluster participants and
the various state bodies. There are several important issues that concern them which
need to be addressed.
Presently most CDEs are drawn from different departments and are inadequately trained
to carry out the specialized functions related to cluster development. A majority of them
are drawn from the field offices of the MSME or from the state industries department and
have a very diverse educational background not necessarily related to the tasks that
they are required to carry out. Most of them are fairly advanced in age and near
retirement with little motivation to be trained and deployed in their present position. It
is therefore necessary to select younger persons with the necessary background in
disciplines such as management, economics, finance and engineering. The post of CDEs
should also be opened up to the private sector so that young and qualified persons are
116
provided an opportunity to carry out these challenging tasks. A campus recruitment

programme can also be launched for the purpose.
In the present situation the CDEs are not adequately trained and familiarized with cluster
development. There is a need to provide a comprehensive long-term foundation course
to freshly appointed CDEs. There is also the need to strengthen their skills and abilities
through regular refresher courses specially designed on subjects such as financial
management, project management, organizational behaviour, team work, and
cooperation.
At present the facilities and allowances provided to the CDEs are extremely deficient.
Matters are made worse by assigning them with additional responsibilities not directly
related to the CDP, and also the responsibility of managing more than one cluster at a
time. The tenure conditions of the CDEs are very unstable and they are frequently
transferred from one place to another. It is also important to mention here that the
success of a CDE largely depends on the goodwill and rapport that he develops over a
sufficiently long tenure. His frequent transfer from one cluster to another does not really
allow him to settle down to serious work de-motivating him, as well as the cluster actors.
The appointment of a Mentor for a set of contiguous clusters would also go a long way
in guiding and assisting the work of the CDE. This Mentor could either be a retired
officer/executive with the necessary competence and experience or could also be an
institution, which assists and guides the CDE in his day-to-day functions. It is also very
essential to appoint a Network Development Agent (NDA) or Local Organizer to assist the
CDE in his work. This Local Organizer should be appointed from within each cluster,
knowing the local language, and acting as a constant link between the CDE and
individual units.
Additional funding and support is urgently required for the purposes highlighted above
during the 11th FYP.
7.5 Soft Interventions, their Content, Scheduling, Evaluation,

and Validation:
Soft interventions are important measures designed to spread the necessary awareness
regarding the benefits of the cluster development programme. These interventions are
normally targeted at individual cluster actors. These interventions are meant to bring
the individual constituents of the cluster on a common platform and provide an
opportunity for the democratic firming up of common objectives and to collectively meet
the common challenges faced by the cluster. Soft interventions also provide
opportunities for visiting and learning from the experiences of other successful clusters
thereby effectively bringing about a conducive mindset for cooperation. Based on our
study the following issues have emerged and require attention:
The funds presently allocated for soft interventions needs review and revision. They
should be increased from the present level of Rs 10 lacs to Rs 50 lacs of which Rs 10 lacs
should be specifically earmarked to meet the cost of monitoring these interventions.
117
These enhanced funds should be released without delays in order to provide adequate
time for the full utilization of these funds over a stipulated period of time.
The present provision of 3 years to carry out these interventions is far too long and the
pace of intervention far too slack to have any significant impact. Cluster actors tend to
loose interest in the programme in such a situation. Therefore all soft interventions
should be carried out within a period of 12 to 18 months at the most.
In the event of the cluster actors not being able to form and register an SPV within the
period provided for soft interventions, further interventions in the cluster should be
terminated.
In order to ensure that the soft interventions are effectively implemented they should be
closely monitored by a suitable monitoring agency appointed for the purpose. The
agency should be required to submit a detailed quarterly report on the progress of soft
interventions and the utilization of funds. The soft interventions should be suspended in
the event of an adverse report. The funds allocated for soft interventions may be
released in two or three installments subject to the proper utilization of funds as reported
by the monitoring agency.
If the cluster succeeds in forming and registering the SPV during the period in which soft
interventions are in progress, the hard intervention may be simultaneously initiated.
The term Soft is inappropriate and sends out undesirable signals to most implementers.
A more appropriate term such as Basic, Primary, Enabling, or Catalytic should
replace the term soft, which is currently used.
7.6 Special Purpose Vehicles (SPV):
The Special Purpose Vehicle is an important institution that enables the delegation of
specific responsibilities and the transfer of funds for the creation of a common facility
centre catering to the needs of the individual units in the cluster. Our study of sampled
clusters indicates the following:
Institutional Form of the Organization: SPVs can be established in the form of

Cooperative Societies or Private Ltd. Companies. In the case of dense clusters with a
large number of individual units the formation of a registered Cooperative Society is
more suitable. In the case of clusters with a limited number of individual units the
formation of the SPV as a Private Ltd. Company seems more suitable. However one
must be warned that the upper limits normally stipulated on the number of persons
forming the company often restricts participation and leads to the domination of the SPV
by those who are members of the board. Constituent units combining to jointly own the
controlling shares in the SPV however can overcome this problem.
Democratic Participation and Inclusiveness: In order to sustain and equitably share

the benefits of hard interventions it is most essential to maintain democratic participation
and inclusiveness. It is therefore necessary to ensure that all willing cluster actors who
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desire to join as members of SPV even at a later stage are allowed to do so by

purchasing controlling share at a higher price.
A Clear Statement of its Strategic Intentions: It is observed that few SPVs that
have been formed from among the sampled clusters do not have a clear mission or
strategy document which will avoid its deviation from the strategic goals of the cluster.
It is essential to require the SPVs to formulate this mission and strategic statement and
commit itself to following the stipulated strategy prior to the release of central
assistance.
Clear Definition of its Objectives and Scope: It is equally important for the SPV to
clearly articulate its objectives and scope in order to avoid attempting more than what is
viable and feasible or subsequently diluting its objectives and scope.
Democratic and Representative Choice of Common Facilities: The common

facilities are the basis of the creation of the SPVs and the large expenses incurred to
create these facilities can only be justified if allowances are made to arrive at a proper
consensus on the type of common facilities that are needed by the cluster at large. The
future viability and proper capacity utilization of these facilities will only be sustained if
such facilities are selected and created with the active participation of all the potential
users. Arrangements therefore should be made to consider the opinions of cluster actors
under the close supervision of the CDE/CDA. It is noticed that at present, common
facilities are being selected by a set of influential office bearers and dominant
personalities in the SPV Board of Directors.
The Proper and Time Bound Formulation of a DPR: The DPR is a critical document,
which guides the creation of common facilities. It should therefore be very carefully
formulated as the planned project it often involves the use of fairly advanced technology
and procurement of expensive equipment. The DPR should be formulated on the basis of
detailed consultations with technical experts and should be a time bound exercise.
Adequate provisions should be made for consulting experts and expert institutions, and
the costs related to consultancy should be factored into the estimates submitted for
approval. The careful formulation of a DPR and its time bound approval is most essential
in order to avoid subsequent revisions and modifications. These are likely to be not only
time consuming but also lead to cost escalations. Costs escalations arising from
subsequent modifications are not likely to be sanctioned by the sponsors. In many cases
it has been observed that the sponsor has insisted that the escalations or additional costs
be born by the SPV or alternatively a revised proposal resubmitted and considered
afresh.
7.7 Hard Interventions,heir Contents, Scheduling, Evaluation and

Validation
The entire CDP programme ultimately works towards the implementation of hard
interventions in the form of a common facility centre. It is only with the completion and
commissioning of the CFC that the real benefits of cluster development are
demonstrated. The successful implementation of these hard interventions provides
substantial gains in productivity thereby helping the cluster to sustain itself and grow.
119
The SPV is enabled to generate its own resources and expands its activities
independently without further handholding by the state. Our study of hard interventions
reveals the following:
Hard interventions have been successfully initiated in only a few sampled clusters while
in seven clusters the common facilities are being presently constructed they have yet to
be commissioned. It is only in the case of two clusters that the hard interventions by
way of common facility centers have been commissioned and have started to function.
The setting up of Common Facility Centers in nine other clusters is at different stages of
development. Therefore the impact of hard interventions is limited.
Though SPVs have been formed in a fairly large number of clusters, long delays in the
formulation of the DPR has brought the entire programme to a grinding halt with hardly
any forward movement. The SPVs in many cases require immediate assistance in the
formulation of DPRs. Therefore efforts are immediately required to provide additional
assistance for these SPVs in the formulation of DPRs. The MSME and the concerned
state government should identify competent professional agencies to assist the SPV in
this critical task.
The flow of funds and its utilization for implementing hard interventions involves many
cumbersome procedures. These procedures need to be carefully studied and
streamlined. A special study should be commissioned in this regard to carefully look into
the various procedural delays and constraints and recommend the elimination of a
multiplicity of agencies through which the flow of funds are presently being cleared and
canalized. A proper assessment of the need and justification for such agencies should
also be included in the terms of reference for the study.
It is also noticed that the common facilities created are not being fully utilized. This low
level of utilization is affecting the profitability of SPVs. At present many cluster actors
are not using the facilities. This is being compensated by allowing these facilities to be
used by other large private firms, which negates the objectives of cluster development.
Attempts should be made to price the services of the common facilities in such a manner
as to attract the individual units in the cluster who are not using this facility. This may
mean that the SPV only covers the cost of operating the facility for the moment.
However fuller utilization of the capacities is likely to lead to substantial profits in the
long run. The equitable use of common facilities is also an issue that needs to be looked
into as there is a tendency for the larger units to monopolize the use of common facility
as they are located closer to the common facility as compared to the smaller units who
are inevitably located in the outlying area, or periphery of the cluster.
The MSME should also seriously consider implementing a second phase of hard
interventions wherein the financial commitments of the State is substantially lowered.
This will go a long way in sustaining the further strengthening and development of the
cluster, till a stage is reached when the cluster is self sufficient, and does not require any
further state assistance.
120
7.8 Ensuring the Involvement of Prominent Scientific and

Research Institutions through Dedicated Grants
There are a large number of scientific institutions in the country supported and funded
by the Government of India. Some of these are involved in research and development
pertaining to many relevant areas such as food processing, aromatic herbs, leather,
rubber, plastics, metallurgy and metals, wood and wood based products, and ceramics.
They normally have a large number of young scientists and technologists who are
carrying out commendable work in their fields. It is very paradoxical to observe, that
while such vast scientific talent and resource exists in this country, the numerous
clusters are often starved for scientific guidance and support. It is therefore suggested
that the MSME make a very special effort to solicit the active cooperation of these
scientific institutions through the provision of dedicated grants to establish projects or
cells in these institutions, in order to enable an active linkage between science and small
industries. The active involvement of the MSME in The Innovation Project recently
initiated by TIFAC with the support of the World Bank would help in realizing this
important linkage. We strongly recommend that additional resources be earmarked in
the XIth Plan for this purpose.
121

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TABLE OF CONTENTS

CHAPTER DESCRIPTION PAGE

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

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

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

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

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

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

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

Table No.- 1.1: CLUSTER COVERED IN THE STUDY................................................................................... 7

Table No.-3.4: STATUS OF TRAINING AMONG CDEs ................................................................................61

(ANIL CHANDY ITTYERAH)

COMMONLY USED ABBREVIATIONS

BDS Business Development Services

SNo. Name Designation Qualifications Research

6. Mr. O.S. Dwivedi Field Associate M.A. 20

7. Mr. Subarna Pyne Field Associate M.Com. 16

8. Mr. Arjun Singh Field Associate MCA 4

9. Mr. Inderjit Singh Field Assistant B.A. 19

11. Ms. Kavita Project Assistant B.A. 1

LIST OF PERSONS MET DURING EVALUATION STUDY ON MSE-CDP

Sl Name Designation Department/ Institution

CLUSTER DEVELOPMENT EXECUTIVES:

Sl Name Designation Cluster

1.1 Cluster Development: Concepts & Issues

The proximity to sources of raw materials and other inputs,

A cl u ster may, therefore, be defined as the agglomeration of SMEs producing

1.2 The SME Sector in India

1.3 Need for a Cluster Development Approach

However, underachieving clusters are characterized by environments where information

1.4 Cluster Development in India

1.5 Approach to Cluster Development

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

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

Following are the main steps:

1.6 Evaluation Study: Objectives and Methodology

1.6.1 Rationale For The Evaluation Study

1.6.2 Scope and Objectives of the Study

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

1.6.3 Study Methodology and Process

1.6.4 Target Groups

Cluster Development Executive

Other Cluster Actors

1.6.5 Selection of Sample Clusters

Table No. - 1.1 CLUSTERS COVERED IN THE STUDY

Table No. - 1.1 (contd.)

1.6.6 Sample Size covered

Table No. - 1.2 SAMPLE SIZE

1.6.7 Field Instruments Used

As mentioned earlier apart from conducting detailed discussions with various

1.7 Chapterisation of this Report

Chapter II :The General Profile of Sampled Clusters

Chapter III : The Cluster Development Executive/Agent

Chapter IV:Soft Interventions in the Sampled Clusters

Chapter V: The Special Purpose Vehicle

Chapter VI:Hard Interventions in the Sampled Clusters

Chapter VII:Conclusions and Recommendations

ANNEXURE 1.1 Guidelines for Cluster Development Programme

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

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

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

State Governments and their autonomous/public sector organisations.

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