India needs to promote clusters of excellence to push manufacturing exports

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Manufacturing sector contributes around 16 per cent of India’s GDP and is targeted to rise to 25 per cent of the GDP by 2022. It is also an employment intensive sector. However, on the export front, some of our employment generating manufacturing sectors are not doing well of late. For example, the export growth rate of textiles  and apparel, leather and leather products, food processing and gems and jewellery, has been, on an average, marginally negative over the past four to five years. 

While various sectoral and macro-economic issues definitely need to be— or are being — addressed to resolve this problem, the question is this: Can we have a simultaneous strategy to try to convert such marginal growths into robust growths  in the medium to long run? A means for doing so is to promote and upscale cluster-based unbalanced growth strategy. 

India is a land of industrial clusters. According to an Indian Cluster Observatory, there are an estimated 90 textiles and apparels, 70 leather and leather products, 73 food processing and 30 gems and jewellery clusters in India. A study also guesstimates that 70 per cent of India’s manufacturing micro, small and medium enterprises (MSMEs) are situated in clusters. However, not all our clusters are equally resourceful. Broadly, we can group the clusters into two categories: lead clusters and follower clusters. The lead clusters can be identified based on various factors like presence of large and medium industries, brands, turnover, exports, etc. For example, intuitively and broadly speaking, Pune is a lead cluster in food processing, while Chennai, Kanpur and Kolkata in leather and leather products, Ludhiana and Tirupur lead in bucycles and knitwear, respectovely and Bangaluru in machine tools, etc.

Interestingly, countries that boast of global lead clusters are also global leaders in those products. For example, Italy’s lead in ceramics comes from Sassualo or for that matter in fashion products through Prato. Similarly, Tuttlingen in Germany makes up for 50 per cent of global surgical instruments production and Germany is Europe’s largest medical technology producer. In bicycles, Taichung City cluster of Taiwan is the leader and Taiwan is the global leader in bicycles and is known for its supremacy in R&D and manufacturing. Such examples galore.

What is also of interest is the fact that while an industry excels in a cluster, so does its support industry —that is, its forward and backward linkage providers, technical and financial institutions as also the industry association in the cluster. For example, Minnesota is a lead cluster of medical equipment. It houses global leaders in medical equipment like United Health Group, Medtronic, Boston Scientific, 3M, Bayer, etc. Crucially, R&D, which helps excel, is led by University of Minnesota, Mayo Clinic, etc. The industry association, Life Sciences Alley, also played a proactive role in shaping the cluster.

As a country we must also create some global lead clusters. This brand of the lead cluster will pull the follower clusters, thereby the sector as a whole. We can take some measured steps for the same. Firstly, while sectoral level programmes are fine and should continue, long-term programme of creating smart clusters/clusters of excellence may be initiated simultaneously. Here one or two lead clusters may be picked up in four/five sectors of highest importance based on turnover, employment, export and other indices of comparative advantages and a model of “unbalanced growth” of making these lead clusters as role model can be initiated. These are the Indian Lead Clusters (ILCs) whose development will pull the follower clusters and promote the sector as a whole.

The stepping stone for success will be a learning process of the select ILCs from Global Lead Clusters (GLC) by supporting an intensive programme of planned linkage to global knowledge repository and creating a strong supply chain within the ILC. These can come through (a) investment by firms of GLC in ILC, (b) intensive collaboration between lead knowledge institutes of the GLC and ILC, (c) investment by backward linkage providers of GLCs with cluster firms and backward linkage providers in ILC, (d) heavy investment in national R&D and collaboration among technical institutions of the GLC and ILC along with firms in ILC and (e) creating technically sound office of industry associations of ILC in GLC to promote such linkages. However, such developments also need to look into the issues of responsible production as per SDG8 (decent work) and SDG12 (responsible consumption and production). Thus, the model ILCs will promote circularity and responsible practices and get branded as Smart GLCs from India in due course of time and be a knowledge generator in that sector globally. Even while this position is being attained and definitely when this position will get attained, these Indian GLCs will pull the follower clusters through supply chain initiatives and knowledge percolation that happens naturally in and among clusters.
The writer  is Executive Director of the Foundation for MSME Clusters. Views are personal.