I)

Definition of a Cluster:

For the purpose of MSECDP, a cluster may be defined as a group of enterprises located within an identifiable and as far as practicable, contiguous area and producing same/similar products/services.  The geographical bounds of a cluster may constitute a mohalla, village, block etc.  A combination of villages, towns or blocks and even a smaller district/union territory, if easily administered under the programme, may also qualify as a cluster.

The essential characteristics of enterprises in a cluster are as follows:

Quite often, we receive Proposals/Diagnostic Reports which mention the total number of artisan units in the cluster in the range of 3000-4000.  While, this could really be the total number of members in that cluster, the numbers which really matter for cluster based interventions are smaller numbers that are located in a compact lot (in the identified area) so that our cluster becomes a pilot with in the overall locality.  Questions are often asked regarding the minimum economic size of a cluster for making soft interventions in a cluster and if this is not clear, the Diagnostic Study and the subsequent Soft Interventions will be wrongly planned.  We have been insisting on a minimum numbers of 100 members per cluster and depending on the density of population and other factors, even 200-300 could be a good target group for undertaking Diagnostic Study and the subsequent Soft Interventions in a cluster.  However, in difficult and backward regions the target numbers could come down to 50 or less but it should not be too small as a lot of Government expenditure is made per cluster.

II)

Selection of Clusters:

We have certain practical principles/criteria in the selection of clusters (even though the first step is only a Diagnostic Study) for which we require the following information for each proposed cluster, viz:

III)

Intervention Officials:

IV)

Diagnostic Study:

The Cluster Development Programme (CDP) envisages a Diagnostic Study to be made for each identified Cluster to identify appropriate interventions and technologies as well as their providers and phases.  The Diagnostic Study should keep in mind that Cluster Development aims at enhanced competitiveness, technology improvement, adoption of best manufacturing practices, marketing of products, employment generation etc.

Normally, when a Cluster is taken up for development by the Central Government i.e. Development Institutes formerly known as SISIs) a provision of Rs.50,000 is made for each such study - as out DIs have many in-house resources and their expenditure is borne from our funds.  When the State Government or any agency proposes that a Cluster be taken up for intervention / Diagnostic Study, a maximum of Rs.2.5 lakh is permissible per Report.  But it should be ensured that the Institute or Organisation which is to carry out this study has adequate experience, wherewithal and a ground level / technical knowledge of the Cluster, its products, its process and its problems.  It is also felt that the National Level Institutes supported by the MSME Ministry like NIMSME at Hyderabad, National Institute for Small Business Development (NISBUD) at Delhi, Indian Institute of Entrepreneurship (IIE) at Guwahati, Entrepreneurship Development Institute (EDI), Ahmedabad and other EDIs are competent to carry out these studies.

A check list of the six points are under preparation, which would clarify what exactly is required through a Diagnostic Study.  Part of this is, of course, obvious: i.e. a definite action plan with timeliness, schedules, costings, cost benefits, cost sharing and deliverables.  Unless these are spelt out and Annual Action Plans drawn up, there is no meaning in having vague suggestions emanating from a Diagnostic Study.  It is essential to have a study conducted by a technical expert who is well conversant with the trade / product of cluster without this suggestions carry little meaning.  It has been observed, that many diagnostic study reports do not come out with definitive action plans - though it is a different matter whether all of them are accepted or not.  It has also been observed that critical activities like environmental impact assessment (EIAs) are absolutely mandatory for certain products find no mention in the DSRs.

After the Diagnostic Study and Action Plan is presented, the national level Steering Committee has to decide whether to go ahead with other interventions in the Cluster namely Soft, Hard and Infrastructure.

V)

Soft Interventions:

In the past, assistance available for Soft Interventions has varied in the range of Rs.25 - 35 lakh per Cluster depending upon the type.  Currently we have an internal ceiling of Rs.10 lakh for Soft intervention under this Scheme, which we are trying to bring upwards.  Clusters of women's enterprises are entitled up to 90% assistance for Soft Interventions, while other Clusters may receive lesser percentages, depending on case to case.

While reviewing the progress of cluster development, it has been observed that in many of the cases, CDEs have restricted their activities to only Soft Interventions for 2-3 years and thereafter closed the programme without ensuring the formation of democratic successor body in the form of an SPV, or at least a user's association that could thereafter move for a proper Hard Intervention or a Common Facility Centre.  The attitude appears to be of carrying out a governmental programme in the name of Soft Intervention, whereas the spirit of cluster development is democratic participation and organisation formation.  While in the initial phase, cluster based interventions starts with Diagnostic Studies followed by Soft Interventions, the long term objective is to undertake Hard Interventions in form of setting up of common facility in the cluster, wherever feasible.  Accordingly, one of the objectives of Soft Interventions should be to make cluster stakeholders realise the importance of common cluster based approach as an important strategy for making them globally competitive.  It is our experience that this level of maturity in a cluster is achieved mainly when there is some kind of Hard Intervention by the time Soft Interventions are either over or under progress.

VI)

Hard Interventions:

As mentioned, for Hard Interventions, it is necessary to form a Special Purpose Vehicle (SPV) prior to setting up of and running the proposed Common Facility Centre.  When an SPV proposes Hard Intervention, the Government of India commitments run into several lakh and often crosses crore of rupees.  While the average range of Expenditure for Hard Interventions under MSE-CDP so far is somewhere between Rs.50 lakh to Rs.260 lakh, the average expenditure comes out to approx. Rs.200 lakh.  It is quite obvious that such a large amount should not be used for small groups of beneficiaries and prior estimates should be made regarsding the cost per beneficiary while submitting proposals for Hard Interventions.

VII)

Composition of SPV:

While under the MSE-CDP guidelines, a minimum of 20 members is required to form an SPV, we normally insist on 50 axctive members to join the proposed SPV so as to diffuse and enlarge the benefits of the Common Facility Centre.  The SPV could be constituted in the form of a Registered or a Co-operative Society, a Trust or even in the form of a Company.  We have been surprised to note that even in the most backward region, MSME-DI and other agencies are insisting on formation of 'Companies', whereas a Registered Cooperative Societies could very well have been set-up to act a SPV.

In addition to the contributing members of the SPV, the organisers should obtain written commitments from as many 'users' of the proposed facility so that its benefits can be further enlarged.  The SPV should have a democratic constitution with an inbuilt scope for increasing the membership in future. This will ensure that a 'coterie' does not run a government aided programme and the benefits of the scheme reaches out to the maximum number of entrepreneurs.

VIII)

Assistance for Hard Interventions:

The Common Facility Centre that is set up by the SPV as a Hard Intervention is entitled to the different levels of assistance (as a proportion of the total project cost) from the MSME Ministry i.e:

This covers the cost of machinery, plant, equipment, laboratory, other tangible assets, pre-operative / preliminary expenses etc.  The balance of the project cost, including the entire cost of land and building, would have to be contributed by the SPV or by the State Government or the Local Government or by some other agency.

IX)

Infrastructure Assistance:

This Ministry implemented the IID Scheme to provide developed sites with infrastructural facilities like power distribution network, water, telecommunications, drainage and pollution control facilities, roads, exhibition / display centres, raw materials, storage and marketing outlets, common service fcilities and technological back-up services etc.  This scheme has been subsumed in the MSME-Cluster Development Programme.  All the features of IID Scheme have been retained.

To create physical infrastructure in Clusters central grant upto 40% of the Project Cost, subject to a maximum of Rs.2 crore, is available.  The Ministry of MSME is making efforts to enhance the quantum of grant.

Only one element of Infrastructure Assistance i.e. Display or Exhibition Centres (which could consist of show-rooms with attached stores) are entitled to a higher level of assistance in so far as Women's Clusters are concerned i.e. 90%.  This Display / Exhibition Centre could be built by the SPV of Women's Clusters within the Cluster, or near the Cluster, or even in adjoining markets of towns - as long as they exhibit and market the products manufactured by the Women's Clusters.