Initiatives that drive growth in the small-scale sector

: The small-scale industrial sector occupies a place of pride in India’s industrial economy. It contributes about 49% of the overall exports, over 40% of the manufactured output besides generating substantial employment of around 28.3 million people.

The SME sector would continue to play a crucial role in our globalising economy towards national development, under the new world trade rules. There have been numerous efforts, schemes and policies to provide support to the SME segment but the results have been mixed. One of the biggest reasons has been the lack of focus and coordination among the various initiatives. More so due to lack of understanding some of the realities in which the SMEs are thriving.

In India, most of the SMEs are in industrial clusters and are prevalent in select sectors like textiles, chemicals, auto components, leather and machine tools. In the current liberalised environment, one of the problems plaguing the clusters is their expansion.

A cluster if expanded vertically, is good wherein it adds value to the cluster and the additional productive activities and modernisations happen at a faster pace. In modern terms, we call it as moving up in the value chain. However, if the cluster expands horizontally, it moves to nearby geographical locations and faces the danger of losing its originality.

Moreover, industrial clusters which are mainly constituted by the SMEs are managed by individuals or families. The second-generation entrepreneurs of these families tend to look for greener pastures and industries which are more profitable. Thus, the competitiveness and the sustainability of the clusters depend on the path to growth and continuous induction of entrepreneurial input.

The debate still remains as to the cluster should grow horizontally or vertically? How to maintain the entrepreneurial generation gap for the competitiveness and sustainability of the cluster?

Although it appears superfluous, it is the reality. The fitting case in point is of Tirupur knit cluster in the textile industry. India’s external trade in clothing is governed by clusters like Bangalore, Tirupur, Ludhiana, Chennai, Noida, Jaipur and Indore. With the phase-out of quotas, it was predicted that India will gain huge opportunities in the world market. However, statistics show that the gain was moderate and the price pressures have increased tremendously.

This led to lot of actions in the clusters wherein some of the SMEs have gone in — for consolidation and capacity-building through expansion. Apparel, being in the commodity value chain for the external trade,...