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Benefits of Cluster based modern Industry

Benefits of Cluster based modern Industry

Tag: GS 3 || Economy || Industries || Industrial Policy

Why in news?

  • There are a few large firms, many tiny ones and nothing in between, causing joblessness. Factory clusters can create a balance.

Status of manufacturing

  • GDP – 16% (2017): The contribution of manufacturing to GDP in 2017 was only about 16%, stagnating since the economic reforms began in 1991.
  • Only exception during 2nd & 3rd FYPs: In India, manufacturing has never been the leading sector in the economy other than during the Second and Third Plan periods.
  • Huge significance: But no major country managed to reduce poverty or sustain growth without manufacturing driving economic growth. India needs an Industrial Policy, which it has not had since 1991.

Missing middle

  • India’s manufacturing sector has been characterised by the missing middle:-
    • a concentration of small/micro firms at one end of the spectrum, and
    • some large firms in each sector at the other.
  • Manufacturing policy: One purpose of an industrial policy is for the government to encourage scale economies, by encouraging growth of small firms into bigger ones — to fill the missing middle.
  • Clusters: India has almost 5,000 clusters spread across the country — where most unorganised segment manufacturing employment is concentrated. It accounts for 40% of manufacturing GDP and over 50% of exports.
  • Job creation: If India is to create manufacturing jobs for the 5-7 million joining the labour force each year, there will be very few in large capital-intensive sectors, and most of them will be in the micro, small and medium enterprises.
    • But for that to happen, India needs a serious policy for modern industry clusters, with a focus on brownfield (not just greenfield) sites.

Policy fragmentation

  • Administered by several ministries: Cluster programmes are administered by several ministries (Textiles, Leather, Food, MSME, Heavy Industry (auto)) under different terms and conditions.
    • This fragmentation of policy must end.
  • Industrial planning is needed: Serious planning for clusters requires industrial planning, both at the Central and State levels.
  • Requirements: There are at least four sets of actions required for cluster programmes by the Centre —
    • technology upgradation,
    • skill development,
    • market information facilitation, and
    • design improvement.

Stimulation cell

  • Recommended in the 12th FYP: For this purpose, the Planning Commission (2013), in the 12th Plan, made an excellent recommendation to set up a Cluster Stimulation Cell at the apex level in the MSME Ministry that will work to promote cluster associations.
    • But this kind of cell will need replication at the State level, and mechanisms to make them operationally effective at the district level.
  • Lack of funds: This requires funds.
  • China’s industrial development: Effective cluster development has been very important to China’s industrial development (as well as in late-industrialiser Italy).
    • There are as many as 100 clusters in China only producing socks.

Way ahead

  • Infrastructure: About 1,234 manufacturing clusters are in urban locations mostly, and as unorganised segment enterprises.
    • In addition, there are others: handicrafts and other manufactures — 3,110; handloom — 573, thus a total of 4,917.
    • They are mostly in small towns (< 0.5 million population) or in small (0.5-1 million) and medium cities (1-4 million).
    • So poor infrastructure in these urban locations has to be addressed.
  • AMRUT funds: In other words, focus AMRUT funds to towns with manufacturing clusters.
    • This should include digital infrastructure, which can help small firms eliminate intermediaries, thus raising firms’ revenues.
  • Institutional sources of credit: The modern industry clusters will need much greater access to institutional sources of credit.
    • The limited resources of the Small Industries Development Bank of India (SIDBI) cannot suffice.
  • Budgetary support: India’s Cluster Development programme, which took off only in 2005, will need much more than the 1,000 crore per annum, the budget of the Ministry of Micro, Small and Medium Enterprises, for the 5,000 clusters in India.
  • Skill development: Raising cluster productivity requires skills.
    • At local cluster level there are few vocational or training centres available.
    • If new vocational education/training were focussed at cluster level, newly educated youth will get employment at cluster level, close to their homes.
    • With rising education levels, the government should promote other opportunities.
  • Online trade: These brownfield clusters could benefit hugely from the spread of internet and online sales to utilise the educated youth in rural/semi-urban areas.
    • Online trade is an example of how technology shapes the geography of jobs. Technology can enable clusters of business to form in under-developed and rural areas.

Mains question

  • What are cluster-based modern industries? Enumerate their benefits and challenges.