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| Role of Industrial Policy and Cluster Development | |||||||||
| Paper Id :
17541 Submission Date :
2023-04-14 Acceptance Date :
2023-04-20 Publication Date :
2023-04-25
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| Abstract |
This paper reviews the confirmation on emante reflection and latest drift in the sphere of industrial cluster policy. The paper follow wide and inclusive definition of industrial cluster policy. This paper recognizing the importance of clusters for various countries such as developed and developing countries. 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. 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. 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 Jalandhar.
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| Keywords | Industrial Policy, Cluster, UNIDO Approch, Innovation, Five Year Plan, Special Economic Zone. | ||||||||
| Introduction |
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).
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| Objective of study | 1. Discuss the industrial polices and their schemes for promotion of cluster development in India.
2. Discuss the UNIDO Cluster Development Approach
3. Discuss the role of five year plans for development industrial cluster.
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| Review of Literature | 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
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 11th 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
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 (11th
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 (11th 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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| Conclusion |
The Central Government and the Punjab Government have designed numerous policies for industrial cluster development. It is found that most of the policies are to promote the exports of the products. But out of these policies few policies were implemented and there is absence of any policy for the promotion of sports goods cluster. UNIDO (2001) conducted a study on sports goods cluster at Jalandhar and found that Government had provided support to the exporters for the promotion of exports but no assistance is provided to the domestic or home market. It shows that even after expiry of one decade, no initiatives are taken by the Government for provide assistance to the firms dealing in the domestic market. Various firms have reported that the Government declare numerous policies but they were not implemented. For example, one per cent (1%) freight subsidy was announced by the Government of Punjab but this subsidy has never been given to the industrial firms. It is seen that some firms are even not aware about the policies issued by the Government. Various initiatives are required to be taken by the Government to promote the growth and development of the cluster.
An information center should be developed by the Government under the scheme of Cluster Development Programme where all the advance knowlegde associate with the technology, innovation and raw material should be obtainable. This information should be provided to each and every firm included in the cluster so that they become attentive of the latest innovations technologies. A number of trade fairs and trade shows are arranged in various parts of the globe. Numerous Export Promotion Council is furnish the help to several exporters for the involvement in the trade fairs. But this support are given to its registered member firms. But a number of micro enterprises do not involving in such exhibitions and trade fairs beacuse the lack of knowlegde. The Government should provide subsidy to these small scale firms (SMEs) to uplift and encourge to participate in exposition and trade fairs.
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