Spurring growth through clusters

Updated: Jan 27 2005, 05:30am hrs
The success of East Asian economies has been built around the promotion of growth poles and innovative economic clusters. These have significantly contributed to generating exports and employment, ushering in latest technology, and attracting foreign investment, mostly from its residents abroad. The involvement of the diaspora of East Asian knowledge workers in USA and OECD countries was critical to the emergence of innovative clusters in East Asia. The UPA government has stated the same objectives, but with piecemeal and haphazard approaches. A new ministry has been created to promote the involvement of the Indian diaspora in the economy; growth poles are a part of the work programme of the newly established National Commission for Promotion of Enterprises in the unorganised/informal sector; and the commerce and industry ministry is proposing to strengthen the special economic zones (SEZs), taking the lead from China.

There is an urgent need to have a coordinated approach on the development of growth poles and clusters in India, and involving the Indian diaspora in its development process. We should not hastily move towards an umbrella legislation of SEZs, recognising that SEZs are an integral part of growth poles, and hence policies towards them should not be taken separately. Innovative clusters are a local phenomenon, but their long-term dynamism rests on their becoming a part of a global network of similar clusters and participating in the circulation of human capital among them. Just like the East Asians, we have to find ways of meaningfully connecting the Indian diaspora with local entrepreneurs, encouraging technical interaction bet-ween local and foreign firms with skilled workers from abroad bringing ideas, technology transfers, and access to foreign markets. The coordinated approach urgently needs a master plan for clusters that should benefit from the rich experience of East Asia.

Bangalore, Hyderabad, Chennai, and Delhi are examples of Indian growth poles. They are attracting a lot of foreign investment. They are also contributing significantly to export earnings. Bangalore, for e.g., contributes 40% of Indian services exports ($8 billion) and about 12-15% of Indias merchandise exports ($6 billion). It displays the basic characteristics of a growth pole around which several specialised industrial clusters are developing in Hosur, Ramanagaram, and Mysore. Gurgaon and Noida are fast developing as clusters around Delhi. Clusters are also mushrooming around Chennai and Hyderabad.

Clusters need not be so closely linked to mega cities. There are numerous examples of stand-alone clusters in East Asia. Japan has over 500 clusters centred on low-tech activities. China has numerous clusters producing footwear and hosiery. In India, Tiruppur and Surat are the best examples of such clusters. Stand-alone clusters exist both in manufacturing and in services, and are sub-divided into low-tech clusters that make up the majority, and high-tech clusters that depend on continuous innovation. India should aim for both, given its rich endowment of skilled workers here and abroad.

Involve the Indian diaspora in the development of economic clusters
World class infrastructure required to develop clusters and growth poles
What are the main ingredients of successful clusters and growth poles First, we need First World infrastructure with focus on modern airports, efficiently handled ports, a good telecommunication system, and reliable access to water and electricity. Second, we require a strong supply chain that allows low inventory management expenditure, and production networks that allow firms to specialise and sub-contract. Third, the government should encourage the setting up of research-based academic institutions, and private industry-based research facilities that collaborate with centres of academic excellence in India and abroad. The Indian government should encourage its skilled nationals abroad to come back temporarily, if not permanently, and augment the pool of local researchers and entrepreneurs with the latest advances in technology, access to foreign markets, and foreign investment.

The process of creating dynamic poles and clusters can be accelerated through the joint efforts of the Centre, the state governments and the private sector. The role of the government must be collaborative, not authoritative.

The writer is principal advisor, CII. These are his personal views