For the Indian economy, this was a year of recovery interrupted. A year ago the challenges were many, yet there was a sense of getting out of the trough now belated. While there is no room for complacency, nor any excuse for what happens in one's own country, we cannot ignore the ground realities of the world. The global crisis has affected us. India's Gross Domestic Product (GDP) grew by 6.3 per cent in 2011-12, after having grown at the rate of 8.4 per cent in each of the two preceding years. This year's performance has been disappointing. It is however a fact that in any cross-country comparison, India still remains among the front runners in economic growth.


For the better part of the past two years, we had to battle near double digit inflation. Our monetary and fiscal policy response during this period was geared towards taming domestic inflationary pressures. A tight monetary policy impacted investment growth. Fiscal policy could not deal with expanded outlays on subsidies and duty reductions to limit the higher fuel prices to consumers. Growth moderated and the fiscal balance deteriorated.

The Foundation for MSME Clusters started its operations at an important juncture when the Parliament of India enacted the MSME Development Act during the year 2006. Two significant changes were introduced then; one, a clear segregation between micro, small and medium enterprises, and the second related to induction of service enterprises. This recognised the significance of the growth of small enterprises in size and still more importantly the rising significance of the services sector.


The services sector is the fastest growing sector in the Indian economy. During the year 2010-11 its contribution has been 55 per cent of the GDP and attracted 21% of the total FDI. Its share in providing employment is about 25% and accounts for 27% of the exports from India according to Economic Survey 2010-11. There are 18.6 million services enterprises in MSMEs sector which is 71 per cent of the total number of MSME enterprises according to the 4th All India Census of MSMEs. Through the Foundation’s work on Information Communication Technology (ICT) cluster in the NCR region, as a part of Department of Science and Technology’s project on innovation, it was realized that development schemes for the services sector, especially among MSMEs are limited. The sector requires greater attention for its development and sustainability through framing of appropriate schemes of promotion.

The Foundation for MSME Clusters (FMC) has completed 5 years of its existence of which it has history of 4 years of operations. It is time to look back on this experience and reflect in the future.


During its existence, the FMC has undertaken 59 assignments with a gross value of Rs. 93.2 million across a range of thematic areas starting from productivity & competitiveness, innovation, energy, marketing, poverty and CSR. From the part-time staff of 3 persons at the end of first year, it has grown to 27 persons from diverse academic and institutional backgrounds, engaged in contributing from policy level to training and field level execution.


Most of its current assignments are of long term nature, reflecting the trust that institutions and donors have with the Foundation. It has successfully built a strong working relationship with state, national and international institutions. Some of these are ‘Department of Science and Technology, Government of India’, ‘Small Industries Development Bank of India’, GTZ, ‘United Nations Development Program (UNDP)’, ‘United Nations Industrial Development Organisation (UNIDO)’, ‘Swiss Agency for Development and Cooperation (SDC)’, ‘International Finance Corporation (World Bank Group)’, ‘Ministry of MSME, Government of India’, State Governments of West Bengal and Kerala, and several others.

No other year in recent times saw such wild mood swings in the Indian economy than 2008, which started on a strong note but ended on a somber mood in the wake of a general global slowdown and economic recession in some of the richest countries like the US and Japan. From economic expansion to performance of equity markets, from export growth to industrial production, from reality prices to employment, all indicators had the same story to tell, as India faced the ripple effects of the gloom in the global economy.


As a result of this global meltdown India’s GDP growth has been revised downward and hoping to achieve 7-7.5 per cent instead of the estimated 9 per cent for the fiscal year of 2008-09. The meltdown is not expected to reverse in the next 2 years, as per predictions available so far. With the manufacturing sector taking the biggest hit, smaller enterprises are likely to be more vulnerable than the others. Will the waving of agricultural loans and institution of revival packages for the overall economy is a larger question that the luminaries are trying to explain but what can be directly done to help smaller enterprises, has not been discussed sufficiently well.

In the ideas propounded by Charles Sabel and Michael Piore, entitled “The Second Industrial Divide: Possibilities for Prosperity”, published in 1984, a powerful paradigm has found its way that focuses on building local social capital for local area development. This is because it is now more than 15 years since MSME clusters have ceased to be only a topic of just academic research. They have got requisite attention from the policy makers, practitioners and other economic entities. In India, the existence of a very large number of MSME clusters, their contribution to employment creation and export generation, and the challenges they face as a result of economic liberalization and globalization, has triggered a keen interest in policies to support underperforming clusters and to help them achieve their potential on the basis of coordinated collective actions.


Within the larger context of the in formalization of work in Indian industry in the reform and high growth phase, it seems clear that the MSME clusters are embedded in the received tradition of artisan based industrialization in many cases. Diamond polishing, specialized textiles and engineering clusters near skill bases are examples. Also there are similar bases emerging from raw material origins like footwear and silk textiles.

The Foundation has completed 2 years of operation. During the year 2006-07 the Foundation provided development services in the areas of training, cluster mapping and strategy, preparation of policy documents, capacity building of technical agencies and support for BDS development etc. The Foundation bagged the following international and national assignments during the year 2006-07 valued at Rs.17 million (USD 400,000) of which it implemented assignments worth Rs.6.2 million (USD 150,000) during the year under review.


Brief Description of the Assignments Undertaken During the Year



UNIDO - Cluster Development Methodology: UNIDO had assigned the work of preparation of a Methodology document for ‘Cluster Development and Poverty Alleviation’ to the Foundation in July, 2006. The objective of the assignment was to prepare a customized cluster development methodology for implementing a cluster initiative with an impact on poverty alleviation.



SEDF - Cluster Mapping and Strategy: SouthAsia Enterprise Development Facility, Bangladesh, (a part of International Finance Corporation/World Bank) had awarded a contract to the Foundation in August 2006 to map clusters in a Sector and to suggest an intervention strategy thereon. The assignment included preparation of a cluster map on engineering clusters in Bangladesh. Final report has been submitted and accepted by the client.

On March 2006, the Foundation for MSME Clusters successfully completed its first nine months of existence. Some of the major activities carried out during this period were as follows:


Brief Description of the Assignments Undertaken During the Year



National Convention on "Cluster Development for Competitiveness and Poverty Alleviation"



This Convention was held during December 1-2, 2005 in New Delhi. It may be mentioned here, that this was the first such Convention of its kind. The Foundation was also formally launched on this occasion by Mr. Anupam Dasgupta, Secretary, Ministry of SSI&ARI. Mr. Somnath Chatterjee,'Honible Speaker of the Loft Sabha gave the Valedictory Address. The Workshop was supported by Ministry of Small Scale Industries (SSI), UNIDO Cluster Development Programme, and Entrepreneurship Development Institute of India (ED!).



The convention can be considered path breaking on three counts. First was the overwhelming support for the cluster approach & its effectiveness from amongst a diverse range of around 60 institutions whose representatives participated in the convention. Second, there was a strong recommendation from a large section of the participants to focus on cluster development as a means to integral regional development with people and poverty alleviation at the centre. Third and the most important was the dimension that emerged on the structure and a proposed agenda for the Foundation itself (Annex F).