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Learning and Way Forward

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1 Learning and Way Forward
CLUSTER DEVELOPMENT Learning and Way Forward Dr A K Krishna Kumar Executive Director

2 Manufacturing set to be the key driver of India's growth strategy over the next decade…
Manufacturing and manufacturing alone can absorb all those who need better livelihood opportunities… Dr Manmohan Singh Hon’ble Prime Minister of India It is proven that manufacturing creates long-term sustainable economic growth and also drives the growth of the services sector…

3 SMEs form the backbone of Indian manufacturing industry
8-9% of GDP 36% of India's total exports 45% of total manufacturing output 80 million jobs in 36 million enterprises “In order to achieve 10% share as envisioned and enhance contribution in exports, manufacturing output or GDP, there is an urgent need to address the challenges faced and empower MSMEs to avail of new opportunities in global value chain” ~ FICCI, Manufacturing Mandate

4 Lack of access to technology
Several Challenges faced by SMEs hinder their growth and prospects of availing the global value chain… Lack of access to technology Lack of access to markets and global supply chain Low level of innovation Lack of Infrastructure Large number of MSMEs in the unorganised sector Need to be mainstreamed Difficulty in securing finance Lack of skilled work force

5 Research Institutions
Clusters, as a concept has been employed globally to address the challenges faced by SMEs Clusters are agglomerations of firms, institutions and their inter-linkages in a location Central Government State Government Academic Institutions Clusters Financial Institutions Research Institutions Universities/Universities of Applied Science Research Institutions subordinated to Central Government MSMEs, large enterprises, Industry Associations, Chamber of Commerce & Industry Framework Conditions- policies, infrastructure, skills, technology, markets

6 Why Clusters ? Offers critical mass and Economies of scale in operation Better access to technology, information Greater access to customers, channels Cheaper access to inputs, raw materials MSMEs in clusters 4 times more likely to enter into R&D Collaboration Probability that firms innovate : 4.5 times in clusters

7 Clusters also face Challenges affecting their sustainability..
Lack of skilled work force An appropriate institutional frame work yet to evolve Lack of definite policy on clusters in many countries Generally working in isolation Effective cluster development needs support of many Ministries and organisations : Achieving convergence is a big challenge Competency in management of cluster initiatives Weak net working-Need for internationalization of clusters twinning

8 Need for a holistic solution for cluster development with greater focus on innovation
Physical and Cluster Infrastructure Plant & Machinery Social infrastructure & social security Capacity Building Skill Development Marketing (Brand) Innovation of products and Processes QA/QC standards Linkages and Gateways Current focus has largely been towards providing infrastructure solutions Need greater focus required for cluster effects

9 Critical Infrastructure
Approach has undergone a shift from traditional to commercially sustainable interventions Not for profit Commercial Critical Infrastructure Soft Inputs Marketing, Credit Association SPV

10 Role : Networking Agency
Support Institutions Programme Management Agency Government MSMEs Comprehensive role-play and ability to bring key stakeholders together

11 Cluster development in India: Some Best Practices

12 Promoting induced clusters in vicinity of existing clusters Scheme for Integrated Textile Parks(SITP) – 23 Parks having commenced commercial operations Induced clusters in the vicinity of natural clusters Supply chain based with state of the art infrastructure Addresses infrastructure constraints of textile industry on cluster basis Sectoral and cluster approach Critical mass of entrepreneurs Drawn from the custer SPV led by entrepreneurs to own, develop & manage park Sustainability Improving viability GoI as facilitator – 40% of project cost as grant Handholding support from “concept to commissioning”-proactive project development Professional Programme Manager No of Parks Aggregate Investment Employment (No of Persons) Annual Production Weaving Capacity (No of shuttle less looms) Annual Processing Capacity (Million meters) Annual Garmenting Capacity (Million Pieces) 40 USD 3.5 bn 908,118 USD5.5 bn 20,000 3,000 2,000

13 Palladam Hitech Weaving Park

14 Tripura Bamboo Mission – outsourcing the implementation to develop unorganised artisan cluster
Total Coverage: 33 clusters in 4 districts Turnover Generated: USD19.6 Million from USD 5 Million in 5 years Livelihoods generated: 15,000 incremental livelihoods No of Persons trained: 33,000 Total Resources Mobilized: USD 8.4 Million Market Linkage: linkages with leading retailers like ITC, Cycle, Pantaloons, Fabindia, etc Number of Producer Institutions established: 25 societies and 1 state level SPV Number of Common Facilities Established: 16 Government of Tripura initiative for Integrated Development of Bamboo Sector Professional Project Implementation Agency Objective: Scale up the turnover from Rs 280 Mn to Rs 760 Mn in 4 years and Double livelihoods Address entire value chain - “Farm to Market” Provide infrastructure, skill training, design support, market linkages, O&M support

15 Production Infrastructure
TBM Interventions Technology Induction Production Infrastructure Market Development Skill Training Capacity Building Institution Building

16 Programme was piloted in seven clusters
National Innovation Council Cluster ecosystem strengthening for innovations to happen National Innovation Council promoted establishment of Cluster Innovation Centres (CICs) Programme was piloted in seven clusters NInC (Government) acted as facilitator and provided part funding for capacity building and strengthening of existing collectives CSIR (technical institution) committing specialised resources for working on live projects Professional agency being appointed as programme manager to handhold execution Convergence with existing programmes and schemes of other Ministries for funding of pilot initiatives Ownership of the initiatives remain with industry and focus on sustainability of the CIC after exit 21 new products, 15 new processes, 2 technology transfers, 10 new partners introduced to clusters

17 Cluster development: Learning

18 Learnings from successful initiatives Relevant for replication and scale up
Interventions have to be Flexible- clusters to be categorised – interventions to be category specific Focus on cluster ecosystem as a whole is the key to sustainability-need for better coordination-role for Programme Manager Create a culture of Innovation- need ‘superior capital ‘ Professional hand holding for Incubation of projects- R&D Institutions to be proactive Intervention has to form a business case with robust institutional frameworks

19 The next level of cluster development Building on the foundations
Cluster of clusters- an area development approach (PURA, Growth Pole etc) Increased adoption of PPP Institutions as business development service providers and prime drivers of cluster development ( WB- MSME- Technology Centre Systems Programme) Focus on value chains Extending cluster approach in sectors beyond manufacturing- agriculture, natural resource management, healthcare, education

20 The Growth Pole Concept
Eco - System For Sustainable Employment and Incomes Existing Enterprises & Clusters Promotion of Potential Clusters Attracting New Investments Capacity Building Market Skills Business Dev Services Technology Prod. Infrastructure PPCP Institutional Framework Infrastructure and Linkages - Factor Conditions Policy Initiatives 20

21 PURA Provision of Urban Amenities in Rural Areas
Integrated development of compact areas around a Panchayat ( local body) or a Group of Panchayats covering a population of about through Public Private Partnership by providing livelihood opportunities and urban amenities to improve the quality of life in rural areas Salient Features of the Scheme Implementation through PPP between Gram Panchayat (village local body) and Private sector partner Core funding from the central sector PURA scheme A Capital Grant of 35% of the Project Cost (not exceeding Rs 1200 million), as an equivalent of a viability gap funding Additional support through convergence of Central Govt Schemes Private partner to bring in investment and operational expertise Project based and risk sharing among stakeholders

22 ……..a Financial Institution
IL&FS : An Overview Infrastructure Leasing & Financial Services Ltd. (IL&FS) Promoted by the CBI, HDFC and UTI Shareholding pattern ……..a Financial Institution

23 IL&FS spreading its expertise across a variety of sectors,
IL&FS :Sectoral exposure IL&FS spreading its expertise across a variety of sectors, nationwide Transpor-tation Area Development Cluster Development Finance Power Ports Water & Waste Water Urban Infrastructure Environment Education Tourism Infrastructure Leasing & Financial Services Ltd. (IL&FS) Evolved along routes perfectly configured to business requirements Technical support and service groups provide specialized expertise Project development and sectoral companies house the ability to seed initiatives and carry them through to completion Strong core skills - key to successful project development and project financing across sectors - have been developed within the Group

24 Footprints across 128 clusters covering more than 8000 MSMEs
IL&FS Clusters Objective: To provide sustainable solutions for enterprises that would enable them to become competitive Strategy: MSME focus; Facilitating Policy formulation; Concept to commercialisation; multi-stakeholder partnerships to evolve innovative development models Range of sectors: Textiles, Agri/ food processing, leather, pharmaceuticals, rural non farm, electronics, engineering…. Holistic service offering: project development-project implementation-project financing-policy advisory-capacity building Footprints across 128 clusters covering more than 8000 MSMEs

25 THANK YOU


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