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: India has been a study in contrast as far as cluster development is concerned, with ‘islands of excellence amidst oceans of mediocrity’ in the 350 industrial and 2,000 rural/artisan-based clusters around the country.

On one hand, Tirupur in Tamil Nadu, contributing one-third of India’s apparel exports and Ludhiana in Punjab, contributing 95% of woollen knitwear, 85% of the sewing machines and 60% of the county’s bicycle/parts, have emerged as leading clusters. However, others as diverse as Karnal agriculture implements, Mirzapur carpets, Agra leather footwear, Sivakasi safety matches/fireworks, Jamnagar brass parts, and Firozabad glass are merely surviving on the life support of low labour cost.

The sporadic development of clusters in India is associated with (a) lack of a cultural attitude towards cooperation, both at the firm and at the institutional level (b) significant transaction costs that hinder identification of suitable network partners (c) inadequate financial and fiscal incentives for implementation of common projects (d) non-provision of crucial inputs for networking development such as information and innovation and (e) the high risk of fall-outs in the wake of weak legal framework to back up joint endeavours.

Clusters in Tirupur have succeeded mainly due to agents responsible for a joint entrepre-neurial vision involving the entire business system—firms, suppliers, buyers and support institutions—and being able to transform the vision through common development projects (joint purchase of raw material, marketing, new product development, common services such as water treatment plants and information centres).

Cluster initiatives are based on two approaches. One, organisations like Unido with expertise on SMEs are involved with projects that emphasise on efficient systems of relations among enterprises, and between enterprises and institutions, enabling new collective competitive advantages beyond the reach of individual firms. On the other hand, several governments are directly involved in cluster development. With the emphasis on strengthening local firms networks, especially after Michael E Porter described in the ’90s how clusters or locally based networks of firms in the same industry could constitute a source of competitive advantage, most advanced economies are increasingly using market-driven cluster policies.