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Recognizing the importance of clusters, the Governments of various countries are involved in the process of scheming and implementing policies and support for growth and development of the industrial cluster. These policies aim at strengthening existing clusters and helps in formation of new clusters (Porter, 1998). Cluster policies reveals where a country or state wishes to position itself in global competition, building upon existing strengths and mobilizing the necessary commitment from all stakeholders to move into right direction (Bail, 2008). These policies are dominating by the objective to increase growth and development of the cluster and to overcome various constraints faced by the cluster (Oxera, 2006). Industrial policy is back on the agenda. It is now widely accepted that those countries that managed to catch up with the old industrialised, high-income countries are the ones whose governments proactively promoted structural change, encouraging the search for new business models and markets and channeling resources into promising and socially desirable new activities (Altenburg, 2011). The policies aim in improving the general business conditions for all the firms in the cluster as well as providing benefits to improve the competitiveness of individual firms (Porter, 2007). The Micro, Small and Medium Enterprises (MSME) Development Act 2006, Tenth Five Year Plan and Eleventh Five year plan focuses much on Industrial Cluster Development of MSMEs and there is more scope for future researcher to study on the remaining cluster identified by UNIDO (Sivalingam and Bhaskaran). There is an ample evidence that small and medium enterprises (SMEs) operating in the same or in the related industries tend to cluster close to one another. This tendency to group in well defined areas has been observed in different environments in both developed and developing countries, and in different historical periods. There are sound economic reasons for this phenomenon. SMEs operating in such clusters derive a clear competitive advantage from: The closeness of sources of raw material, the availability of suitably customized industrial development services, and the abundance of customers attracted by the cluster tradition in that industry, and the presence of a skilled labour force (Vij, 2005). SME clustering is common in many countries; there is evidence of their existence in Italy and other developed countries such as Germany, the USA, and Japan. Evidence on clusters in Latin America, Asia and to a lesser extent in Africa, is also available (Berry, 1997). This paper studies in detail the agencies; industrial polices and their schemes that are involved in the promotion of cluster development programmed in India. And, detailed discussion is made on all the industrial policies of Punjab. It also gives a brief overview of the success of cluster development programme. In the present paper, an attempt has been made to review various government policies for textile cluster Ludhiana, Hi-Tech Metal Cluster Mohali and sports goods cluster of Jalandhar. This paper is divided into four parts or sections. The first section deals with various industrial policies in Punjab. Second section deals with various government schemes for cluster development and the third section deals with the role of five year plans. The fourth or last section deals with the empirical evidence. The entrepreneurs of these firms were asked to provide information on the policies issued by Central Government and Punjab Government for the development of cluster. Apart from it, office bearers of local associations and support institutions were also contacted to get detailed information on the support provided by Government to the cluster. The post-war period has seen an evolution in thinking about the rationale for industrial policy. A number of authors have reviewed the development of industrial policy thinking over time and cast light on the evolution of rationales (Sharp, 2001; Peres and Primi, 2009; Naudé, 2010a; Owen, 2012; Pryce, 2012).

Drawing on this literature, the phases of development of post-war thinking about industrial policy can be characterised as a period of traditional hands-on industrial policy, followed by a retreat to something closer to a market-driven, laissez-faire outlook, and widened role of government in promoting the development of capabilities and, most recently, an emphasis on the role of government in fostering systems, building institutions and facilitating co-ordination. Some of the evolution of thinking is illustrated in Table 1 (Naudé, 2010a).

Table no: 1 Evolution of theory and practice of industrial policy

Phase	Key points
1940s to late 1960s	Industrialisation is necessary for development Industrial policy is needed, particularly infant industry protection, state ownership and state co-ordination
1970s to 1990s	Practical obstacles to industrial policy are considered significant Government failure is worse than market failure. Industrial policy is an invitation to waste and rent-seeking Trade liberalisation (exports), privatisation and attracting FDI together with macroeconomic stability and minimum government interference are the basic requirements for growth and industrialisation The era of the Washington consensus, especially after the debt crisis of the early 1980s and the ubiquity of structural adjustment programmes
1990s to present	Market and government failures are present The ‘how’ rather than the ‘why’ of industrial policy is important Institutional setting matters but design difficult Flexibility in the practice of industrial policy is important Differences exist with respect to the extent to which comparative advantage needs to be defied, not the principle Innovation and technological upgrading should be a central objective of industrial policy Promoting national innovation systems should be an important objective of industrial policy

Source- Naudé (2010a)

Industrial policy plays a crucial role in the industrial development of an economy (Gupta and Bawa, 2006). Industry policy is as a discover process- one where firms and government learn about cost and opportunities and engage in coordination (Rodrik, 2004).   It focuses on framing rules, regulations and principles by the Government that supported the process of industrialisation in the state or country. Industrial policies are announced both at the state as well as at the centre level. In Punjab, industrial policy is announced by the Directorate of Industries, Chandigarh,  Punjab (Sawhney, 2012). The industrial policy at central level, on the other hand, is announced by the Department of Industrial Policy and Promotion which is under the Ministry of Commerce and Industry, Government of India (www.mygov.in). In 1991, with the introduction of liberalization in India, the economy transferred from controlled to the liberalized one. This change provided an opportunity to multinational companies to enter into the Indian market. The entrance of these firms forced players in the domestic market to adopt various strategies to face competition and enhance their competitiveness. Clusters help in improving the competitiveness of the firms located therein.

The process of clustering contributes to the competitiveness and growth of the participating firms (Basant, 2006). Porter (2000) defined that companies located in clusters tend to be more competitive, export more and generally are involved more in international trade. The evidence explained that firms within the cluster are more productive than firms outside it (Baptista, 2000). If the competitiveness of the cluster is improved, it will lead to improvement in the competitiveness of the firms located within it.

Till now, eight industrial policies as under have been framed and announced in Punjab.

1. Industrial Policy of 1978

2. Industrial Policy of 1987

3. Industrial Policy of 1989

4. Industrial Policy of 1992

5. Industrial Policy of 1996

6. Industrial Policy of 2003

7. Industrial Policy of 2009

8. Industrial Policy of 2013

The industrial policies of 1978, 1987, 1989, 1992, 1996 and 2013 concentrated mainly on providing incentives/ concessions and subsidies to the new firms so as to encourage industrial investment in Punjab. In these industrial policies, nothing much was done to upgrade the existing industrial firms. But the industrial policies of 2003 and 2009 concentrated on measures for attracting new investments in infrastructure development and to increase competitiveness among existing firms. Development of industrial parks following incentives provided under the Industrial Policy of 2003. Special economic zones (SEZs) or industrial parks can be an effective instrument to promote industrialization and structural transformation (Zeng, 2016).

The Industrial Policy 1978- It emphasized the need for formulating an integrated industrial policy and “laying down the principles and considerations which would guide the process of industrialisation in the state” (Industrial Policy Statement, Government of Punjab, 1978).

The Industrial Policy 1987- This policy aimed at strengthening the gains in the industrial field which were acquired in the last 10 years. Further, it endeavored to boost the development of industrial ventures by providing better opportunities to the entrepreneurs. ‘It also intended to overcome the serious structural imbalances which had hindered the growth of Punjab economy and believed that planned accelerated industrial development can alone solve the issue’.

Industrial Policy 1989 was announced by the Government of Punjab on February 19th, 1989 which became effective from April 1st, 1989. Incentives in this policy were designed to attract “fresh investment in the new thrust areas like high technology and agro based sectors”. This policy aimed at upgrading the existing technology, to develop need based skills, and to encourage youth to enter into business. ‘Further, it intended to strengthen the extension services for interface between industry and the government on a continuing basis’. Thus, the Industrial Policy of 1989 encouraged the establishment of new industrial units by providing a set of incentives to the fresh investors at different locations in Punjab.

Further, this policy also put emphasis on technological upgradation, manpower development, strengthening infrastructure, etc. This industrial policy was modified in 1992 and a new ‘Package of Incentives’ was announced.

The ‘Industrial Policy 1992’ aimed at boosting the industrial growth by encouraging new investments in industrial sector of Punjab. Further, this policy emphasised the growth of border districts by providing more incentives and more job opportunities for the youth in these districts. This policy mainly concentrated on two incentives i.e. ‘Investment Incentives’ and ‘Sales tax Concessions’. With a view to further promote industry in the state, the Industrial Policy 1992 was reviewed and the government announced a set of rules known as ‘Punjab Industrial Incentive Code under the Industrial Policy 1996’ on 20th March, 1996.

The Industrial Policy 1996 aimed at promoting industrialisation by encouraging the new industrial investments. This policy placed special emphasis on the development of tourism industry, export oriented industries, agro-based industries and village industries.

The Industrial Policy 2013 aimed at encouraging new investments in Punjab’s industrial sector by providing liberal package of fiscal incentives for manufacturing sector. The whole of Punjab area is divided into two zones i.e. Zone-I and Zone-II with former including less industrialised areas while latter including highly industrialised areas. Besides, it provides special set of fiscal incentives for promoting integrated textile units, agro and food processing sector, electronics hardware and information technology sector.

The state governments have acquired a very important role in the new environment in attracting private investment through creating competitive conditions for investment in their states. This includes facilitating infrastructure development and skill development as well as enhancing the case of doing business by ensuring good governance, administrative efficiency and maintaining law and order (Ahluwalia et al., 2008).

Indian Government policies or schemes for cluster development

The Government of India has been following a policy of promoting and encouraging handloom sector through a number of policies and programmes. Most of the schematic interventions of the Government of India in the Ninth and Tenth Plan period have been through subsidies and grants. Due to various policy initiatives and scheme interventions like cluster approach, aggressive marketing initiative and social welfare measures, the handloom sector has shown positive growth and the income level of weavers has improved. The handloom fabric production has been very impressive and growth has been at the rate of 6% to 7% in the beginning of the 11th Plan (Vyshanavi and Nair, 2017).

The objective of the 11^th Plan for the handlooms sector was to develop a strong, competitive and vibrant sector that would provide sustainable employment leading to economic development, particularly of rural areas. Accordingly, during the 11th Plan, the Government of India implemented the Integrated Handlooms Development Scheme (IHDS). The scheme is an attempt to facilitate the sustainable development of handloom weavers located in and outside identified handloom clusters into a cohesive, self-managing and competitive socio-economic unit.

Porter (1990) explained that in order to increase the export earnings and innovative capacity of a region, its Government should interact to develop a sustainable array of internationally competitive industry clusters. Government, through its policies helps in creation of new clusters or strengthening the existing cluster. Government can help the cluster to limit or eliminate barriers to the growth. Porter (1998) defined that both national and local Governments have an important role in the promotion of a cluster.

Besides, creating the framework conditions, rules for competition and promoting entrepreneurial spirit, Government should actively engaged in and promote such an approach.

Government should develop new policies to enhance the innovative capacity of each firm and create an environment that promotes innovation. Various initiatives should be taken to establish various research institutes and universities where new ideas, products and designs can be developed. Measures should be taken by the Government to increase interaction and cooperation between firms and research institutes with regard to development of new product.

The Government should promote cluster based development policies, where each policy should be designed according to the requirement of individual cluster. Government should not frame a single policy for all the clusters in the country but different policies should be designed for different clusters as each cluster is unique and has its own problems and constraints. Further, Government should encourage all the cluster actors to collaborate with each other and work together. Various training programs should be organized by the Government for the workers working in the cluster.

Porter (1998) suggested that Government should promote the formation of cluster and establish centre of range of services in training, design, product and marketing to increase the competitiveness and innovation capabilities of the clustered firms.

Integrated Handlooms Development Scheme (IHDS)

Integrated Handlooms Development Scheme (IHDS), implemented during the XI Plan, has been formulated as a Centrally Sponsored Plan Scheme by merging the essential components, with or without modifications, of the four schemes i.e. Deen Dayal Hathkargha Protsahan Yojana (DDHPY), Integrated Handloom Training Overview of the IHDS – CDP, Study Area and Select Handloom Clusters Project (IHTP), Integrated Handloom Cluster Development Scheme (IHCDS) and Workshed-cum-Housing Scheme, implemented during the 10th Plan (Kaushik and Jain, 2015).

Integrated Handloom Development Scheme- Cluster Development

Programme (IHDS- CDP)

The Government of India has introduced a Centrally Sponsored Plan Scheme during the Xlth  Five Year Plan, known as the Integrated Handlooms Development Scheme (IHDS), by merging essential components of four schemes which were operational during the Xth Five Year Plan. Under this scheme, handloom clusters have been selected across the country and interventions appropriate to each cluster is identified and necessary support is given (Basu, Ravi and Raj, 2011). During 11th Five Year Plan (2007-08 to 2011-12), five schemes are under implementation, which are - (i) Integrated Handloom Development Scheme; (ii) Handloom Weavers Comprehensive Welfare Scheme; (iii) Marketing & Export Promotion Scheme; (iv) Mill Gate Price Scheme; and (v) Diversified Handloom Development Scheme. Under the scheme, clusters having about 300 - 500 looms under each, are taken up for development' in a time frame of 3 years (Ministry of Textiles, 2010-11).

The main objective of Cluster Development Programme under IHDS:

1. To focus on formation of handloom weavers’ groups as a visible production group in a selected handloom clusters,  2. To assist the handloom Weavers Groups for becoming self –sustainable, 3) to adopt an inclusive approach to cover weavers both within and outside the Co-operative fold, 4) to up-grade the skills of handloom weavers or workers to produce diversified products with improved quality to meet the market requirements, 5) To provide suitable workplace to weavers to enable them to produce quality products with improved productivity, 6)  to provide market orientation by associating entrepreneurs, designers and professionals for marketing, designing and managing the production (Thomas, 2013).

The UNIDO Cluster Development Approach

United Nations Industrial Development Organisation (UNIDO) has been implementing technical assistance projects in India based on a cluster and network development approach since the mid 90s (Vij, 2005).

The UNIDO approach to cluster development sees the key problem faced by the MSMEs/SMEs as one of relative isolation rather than size. Isolated enterprises are unable to achieve economies of scale, lack negotiation power, find it difficult to specialize and have limited access to credit, strategic information, technology and markets. The main objective of UNIDO’s cluster development program is not to create new clusters but rather to provide assistance to underperforming clusters by initiating joint actions among enterprises in the cluster and various institutions.

Cluster based schemes

Cluster Development Initiatives in different sectors




Source- Report of the Working Group on Clustering and Aggregation
Five years plans-
History of Planning in India & Origin of Five Year Plans:
Though the planned economic development in India began in 1951 with the inception of First Five Year Plan, theoretical efforts had begun much earlier, even prior to the independence. Setting up of National Planning Committee by Indian National Congress in 1938, The Bombay Plan & Gandhian Plan in 1944, Peoples Plan in 1945 Sarvodaya Plan in 1950 by Jaiprakash Narayan were steps in this direction (Gobindaraj, 2021).  Though the planned economic development in India began in 1951 with the inception of First Five Year Plan (Sharma, 1958). Five-Year Plans (FYPs) are centralized and integrated national economic programs. Joseph Stalin implemented the first FYP in the Soviet Union in the late 1920s. Most communist states and several capitalist countries subsequently have adopted them (Kremenstov, 2011).
After independence, India launched its First FYP in 1951, under socialist influence of first Prime Minister Jawaharlal Nehru (Das, 2001). The process began with setting up of Planning Commission in March 1950 in pursuance of declared objectives of the Government to promote a rapid rise in the standard of living of the people by efficient exploitation of the resources of the country, increasing production and offering opportunities to all for employment in the service of the community (Rajanna, 2021).
The first Five-year Plan was launched in 1951 and two subsequent five-year plans were formulated till 1965, when there was a break because of the Indo-Pakistan Conflict. Two successive years of drought, devaluation of the currency, a general rise in prices and erosion of resources disrupted the planning process and after three Annual Plans between 1966 and 1969, the fourth Five-year plan was started in 1969 (Gobindaraj, 2021).
The Eighth Plan could not take off in 1990 due to the fast changing political situation at the Centre and the years 1990-91 and 1991-92 were treated as Annual Plans. The Eighth Plan was finally launched in 1992 after the initiation of structural adjustment policies.
 For the first eight Plans the emphasis was on a growing public sector with massive investments in basic and heavy industries, but since the launch of the Ninth Plan in 1997, the emphasis on the public sector has become less pronounced and the current thinking on planning in the country, in general, is that it should increasingly be of an indicative nature.

Typology of Clusters in India From A Policy Perspective

In India, as per the current estimates, there are over 6600 clusters. Agencies have come up with a range of definitions of clusters by specifying a minimum number of units in a given measured location. However, from a policy perspective, it makes sense to typify cluster by their broad challenges relevant for policy intervention. Accordingly, clusters in India can be classified into three broad categories, namely, (i) high-tech clusters (very few at present) targeting innovation for existence, (ii) traditional manufacturing clusters (around 400 plus) targeting competitiveness and consequent employment, and (iii) low-tech micro enterprise ‘poverty-intensive’ clusters (around 6000) that have both employment as well as poverty implications.

Baba Saheb Ambedkar Hastshilp Yojana: Revised to a demand driven, needs-based scheme for integrated development of handicraft clusters. Setting up of CFCs and e-Kiosks, publicity, toolkits distribution will be included. Target: 375 new clusters in 322 districts covering four lakh artisans (11^th five year plan).

Design and Technology Upgradation: Thrust on skill upgradation, new designs, technologies, innovative products, revival of languishing crafts, setting up of Design Bank. Target: 1000 Design Workshops and 400 Integrated Design Projects to benefit 38600 artisans.

Marketing Support, Services, and Export Promotion: This scheme will continue. Target: 1.2 lakh artisans.

R&D Scheme: The scheme includes conducting research studies, all-India census for handicrafts, setting up of six labs, technology development, and transfer/adoption of technology.

Develop a cadre of human resources to initiate cluster development. Develop at least 8–10 national and 25–30 regional institutions to support the implementation of cluster-based development initiatives. Policy institutions should set up cluster cells and either deploy adequately trained personnel or hire expert institutions for continuous monitoring and evaluation (11^th five year plan).

India’s Manufacturing Plan strategy in the Twelfth Plan must be built around three components.

The first are capabilities and processes that go across many, if not all sectors of manufacturing, and that build into the ecosystem the processes for rapid learning and building of capabilities.

The second component has to be the plans to strengthen the performance of selected sectors. The third, vital, component of the Strategy is the institutional ability for effective consultation and collaboration between producers and public policymakers and implementers and the systemic reform of existing systems and processes within the Government.

Strategy and Key Recommendations

1. It may be desirable to set up a Cluster Stimulation Cell (CSC) at apex level to monitor the performance of clusters and share best practices across them. The CSC should also develop a cluster manual which may define clusters, development strategies adopted across the clusters, share best practices and develop a communication channel. The constitution of a CSC will considerably reduce the coordination problems across the clusters and within clusters across different sectors.

The CSC should undertake mapping of clusters to identify the key bottlenecks and the means for overcoming the same. It would also enable devising an appropriate strategy and support mechanisms for including the clusters in the growth trajectory. Maintain information about all the clusters along with the cluster participant profile, employment generated and so on.

Evaluate the performance of these clusters on predetermined range of various performance parameters. Identify best practices and ensure sharing the best practices across clusters, in areas like

a. Building trust among participants

b. Cluster branding Building innovation at cluster level

c. Suggesting fiscal incentives to provide to clusters

d. Increasing competitiveness of cluster players

e. Effectively leveraging the common facilities

Today there are several agencies playing critical roles in developing and supporting clusters:

1. Implementing ministries like MSME, Textiles, Leather, Food Processing and Heavy Industries

2. State Governments

3. Department of Science and Technology and National Innovation Council in the areas of technology upgradation and innovation.

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