Cluster development needs more focussed attention

Representative image: Reuters

Looking at the devastation to small businesses and livelihoods of millions of labour amidst the continued uncertainty from the pandemic, the Small Industries and Development Bank of India (SIDBI) tasked Grant Thornton Bharat LLP for a rapid profiling exercise on migrant workers in 11 states, accounting for more than half the MSMEs in India. The report released recently has made an excellent recommendation for a cluster-based skill development approach in each district.

Cluster development has been a part of Indian policy push for small businesses for more than two decades now. In 1997, the Report of the Expert Committee on Small Enterprises, chaired by Abid Hussain, highlighted the role of clusters in promoting both production and productivity of the MSMEs. The report also recommended the need for government intervention in promoting the synergies within a cluster.

In 2005, cluster development was once again emphasised in the government’s policy package to strengthen MSME competitiveness. Clusters boost the productivity of small firms, through external economies of scale from collaboration and from competition. Some of the well-known clusters in India today are Tirupur’s textile cluster, Kochi’s seafood cluster, Bhilai and Jamshedpur’s steel cluster, Surat’s diamond cluster, Ludhiana’s apparel cluster and Pune’s auto cluster. The main support schemes available by the ministry of MSME currently are the Scheme of Fund for Regeneration of Traditional Industries (SFURTI) and the Scheme for Micro & Small Enterprises Cluster Development Programme (MSE-CDP) which includes setting up Common Facility Centres (CFC) and infrastructure development.

India has come a long way since the Abid Hussain Committee report. However, given our place on the industrial maturity curve, there is some distance to travel. Though cluster development has been in place for long, there are six measures that should be implemented to maximise their potential for small businesses.

First, there must be a continuous mapping of clusters to identify the evolving business and labour landscape. There is no recent official data on the exact number of clusters, estimates have put the number at more than 6,000. With pervasive digitisation now, the MSME ministry should develop a mechanism that is either departmental or through an association/think-tank that continuously maps clusters with metadata on size, shape and progress since inception.

Second, regional balance can be brought in by focusing on districts with inadequate number of clusters. The mapping would highlight the districts that lack formal clusters supported by the government or multilateral agencies. Priority should be given to districts with zero or a low number of clusters with more than average incentives.

Third, there should be a formal collaboration towards enhancing cluster-to-cluster linkages. Every cluster does not have to reinvent the wheel. A structured approach for knowledge-sharing between clusters, supported by the government would help create the 'India Cluster' of clusters. Once again, leveraging web technologies would make this activity imminently doable.

Fourth, the government should provide non-core revenue support to clusters. The CFC clusters have limitations in increasing the fees they charge for their core services as their MSME members cannot afford to pay high prices. Hence to be financially sustainable, the CFCs should have additional revenue streams like rentals from leasing out premises for exhibitions, etc. The government should keep this in mind while the clusters are being built and ensure that additional space is allocated to the CFCs which can later be rented out to provide an additional source of revenue.

Fifth, cluster development implementation should be front loaded this year. Given the pandemic, the cluster implementation has been far less than planned last year 2020-21. The gap is highlighted through the performance of schemes such as the MSE-CDP (see table below). The budget on cluster developments must be front-loaded and expedited this financial year to have immediate impact.

Sixth, and finally, it is time to bring in a gender-lens for cluster development as well, and cater to the special needs of women entrepreneurs and employees. For instance, as we pointed out in our earlier article, women-led businesses need specific space reserved within a cluster, with all facilities such as crèche and help desks to assist with applications for government schemes.

India can look forward to higher productivity and balanced regional growth through systematic implementation of the cluster policy for the MSMEs. All six measures suggested above call for no additional load on the exchequer, and, hence, one would hope to see them in action sooner than later.

Views are personal and do not represent the stand of this publication.