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SME cluster programme being redrawn with UNIDO help

The contours of cluster development programme for small and medium enterprises (SMEs) look set to be redrawn under joint programme of the Department of Industrial Production and Promotion (DIPP) and the United Nations Industrial Development Organisation (UNIDO).

Eight clusters have been identified and an action plan for integrated development of these as model clusters would be announced soon. The Integrated Cluster Development Programme (ICDP) would have clear actionable and deliverable agenda with timelines for achieving them.

It is intended that the implementation of the action plan would begin in January 2009. The clusters identified are the auto components clusters in Pithampura (MP), Chennai and Pune, foundry clusters in Belgaum and Coimbatore, machine tools cluster in Bangalore, chemical cluster in Ankleshwar and leather cluster in Kanpur.

A senior DIPP official coordinating the programme said the government expects most of the SME clusters (estimated at 6,400 unofficially) would be upgraded over time along the lines of the model clusters.

The proposed model clusters are among the 25 clusters that have already benefited under the Industrial Infrastructure Upgradation Scheme (IIUS) launched in 2003. While the IIUS focused on creating physical infrastructure such as roads and training centers in these clusters, it was now felt that physical infrastructure alone was not enough to make these units become more competitive.

Technical guidance was needed to make them more energy efficient, more environment friendly, improve productivity, incorporate better design and seek intellectual property protection. For instance, a better design of furnace in a ceramics unit can bring down energy bills as much as 20%, says UNIDO representative and head for South Asia Philippe R Scholtes.

Much of this guidance would be provided through collaboration between UNIDO and autonomous bodies under DIPP such as National Productivity Council and Quality Council of India. The idea is to integrate the efforts of all these agencies to achieve optimum results at the industry level. The number of clusters identified for integrated development under the DIPP-UNIDO country programme would be expanded over a period of time.

It may be noted that DIPP and UNIDO had agreed to a country programme of cooperation in May 2008 with the objective of strengthening the competitiveness and productivity of the industrial enterprises. The $42 million programme is to be implemented between 2008 and 2012. UNIDO will bring in technical experts in each of the fields who will share their learnings from other countries to provide appropriate intervention at each of the clusters, Mr Scholtes says.

But why would the SME units agree to invest in new technology or additional piece of machinery at this stage when the slowdown in economic activity threatens the survival of many of these units? And, how will the small units expect to raise funds to invest in new technology?

According to Mr Scholtes the solution lies in finding innovative and out-of-the-box ways to help these units raise funds. After all, cost savings would make the units more competitive. UNIDO, for instance, recommends setting up of a mutual credit guarantee scheme, on the lines of those existing in Italy, to help the SME sector raise funds from banks and financial institutions.

Mr Scholtes says exploratory talks with financing agencies such as International Finance Corporation (IFC) and Small Industries Development Bank of India (SIDBI) to participate in the scheme are underway. Member units of the clusters too would be required to contribute to the scheme.

Such schemes ensure better credit flow to the SME sector as the fund extends guarantee to financial institutions and banks. International experience shows, at any point in time, only a few members of a cluster would require the mutual credit guarantee fund to extend assistance and, therefore, it need not have a very large corpus.

UNIDO is also exploring putting in place a credit line in association with IFC to help SMEs induct clean technology.

*source- The Economic Times