The Ministry of Micro, Small and Medium Enterprises (MSME), Government of India (GoI) has adopted the Cluster Development approach as a key strategy for enhancing the productivity and competitiveness as well as capacity building of Micro and Small Enterprises (MSEs) and their collectives in the country. A cluster is a group of enterprises located within an identifiable and as far as practicable, contiguous area and producing same / similar products / services.
The essential characteristics of enterprises in a cluster are
Similarity or complementarity in the methods of production, quality control & testing, energy consumption, pollution control, etc.,
Similar level of technology & marketing strategies / practices,
Similar channels for communication among the members of the cluster, and
Common challenges & opportunities.
To support the sustainability and growth of MSEs by addressing common issues such as improvement of technology, skills & quality, market access, access to capital, etc.
To build capacity of MSEs for common supportive action through formation of self help groups, consortia, upgradation of associations, etc
To create / upgrade infrastructural facilities in the new / existing Industrial Areas / Clusters of MSEs.
To set up Common Facility Centres (for testing, training centre, raw material depot, effluent treatment, complementing production processes, etc).
Strategy and Approach
Given the diverse nature of the MSEs in terms of both geographical spread and sectoral composition, the MSE-CDP scheme aims at addressing needs of the industries, through well defined clusters and geographical areas. This will enable achieving the economies of scale in terms of deployment of resources as well as focusing on the specific needs of similar industries. The capacity building of industries, setting up of Special Purpose Vehicles (SPVs) to set up Common Facility Centres (CFCs) are integral part of the scheme and would enable the MSEs to leverage their resources and also to have better access to public resources, linkages to credit so as to enhance their competitiveness. Following activities are suggested, which may be considered, while developing a cluster:
The first and foremost activity in the cluster development process is to conduct a diagnostic study. The objective of conducting diagnostic study in a cluster is to map all the business processes of the cluster units viz. manufacturing processes, technology, marketing, quality control, testing, purchase, outsourcing, etc. to find out its Strengths, Weaknesses, Threats and Opportunities (SWOT), problems and impediments, suggestions and a well-drawn action plan for enhancing competitiveness of the units of the cluster and to position the cluster on a self sustaining trajectory of growth.
Soft activities under the programme may consist of activities which lead to creation of general awareness, counseling, motivation & trust building, exposure visits, market development including exports, participation in seminars, workshops and training programmes on technology upgradation, etc.
Detailed Project Report (DPR)
After diagnosis of cluster or identification of need for a Common Facility Centre (CFC), a Detailed Project Report (DPR) is required to be prepared for a technically feasible and economically viable Project. The indicative format for preparation of DPR is at Annexure-1. The DPR should include financial analysis like Internal Rate of Return, Break-even Point, Debt-service Coverage Ratio, Sensitivity Analysis, etc., using basic templates such as Projected Profit & Loss Account, Projected Balance Sheet, etc.
DPR should be appraised by a bank (if bank financing is involved) / independent Technical Consultancy Organization / SIDBI. The State Level Project Steering Committee will deal with Diagnostic Study Report and Soft Interventions. It will have the final authority to sanction Diagnostic Study Report and to monitor the implementation of Soft Interventions. The Steering Committee at the National Level will only look into the Detailed Project Report. The Government of India will not give any grant for Diagnostic Study Report and Soft Interventions. However, if a Detailed Project Report is finally approved, a sum of Rs.10.00 lakh (ten lakh) will be considered as a contribution by the Special Purpose Vehicle (SPV) towards this purpose under the Project.
Setting up of CFCs
This component will consists of creation of tangible “assets” as Common Facility Centers (CFCs) like Common Production / Processing Centre (for balancing / correcting / improving production line that cannot be undertaken by individual units), Design Centres, Testing Facilities, Training Centre, R&D Centres, Effluent Treatment Plant, Marketing Display / Selling Centre, Common Logistics Centre, Common Raw Material Bank / Sales Depot, etc.
Exhibition Centres by Associations of Women Entrepreneurs
The GoI assistance shall also be available to Associations of Women Entrepreneurs for establishing exhibition centres at central places for display and sale of products of women owned micro and small enterprises @ 40% of the project cost. The GoI contribution will be towards furnishings, furniture, fittings, items of permanent display, miscellaneous assets like generators, etc .
Infrastructure Development Projects under the scheme will consist of Projects for infrastructural facilities like power distribution network, water, telecommunication, drainage and pollution control facilities, roads, banks, raw materials, storage and marketing outlets, common service facilities and technological backup services for MSEs in the new/ existing industrial estates/areas.
Financial assistance under the scheme
The financial assistances for various interventions are:
Diagnostic Study Report: Government of India (GoI) grant of maximum Rs 2.50 lakh. For the field organizations (MSME-DIs) of the Ministry of MSME, this financial support will be Rs 1.00 lakh.
Soft Interventions: GoI grant of 75% of the sanctioned amount of the maximum project cost of Rs 25.00 lakh per cluster. For NE & Hill States, Clusters with more than 50% (a) micro/ village (b) women owned (c) SC/ST units, the GoI grant will be 90%.
Detailed Project Report: GoI grant of maximum Rs 5.00 lakh for preparation of a technical feasibility and viability project report.
Common Facility Center/Hard Interventions: Tangible assets like machinery and equipment for critical processes, research and development, testing, etc. with GoI grant upto 70% of the cost of project of maximum Rs 15.00 crore. For NE & Hill States, Clusters with more than 50% (a) micro/ village (b) women owned (c) SC/ST units, the GoI grant will be 90%.
Infrastructure Development: GoI grant upto 60% of the cost of project of Rs 10.00 crore, excluding cost of land. GoI grant will be 80% for projects in NE & Hill States, industrial areas/ estates with more than 50% (a) micro (b) women owned (c) SC/ST units.