amit kapoor

Clusters in India

Institute for Competitiveness (IFC), India is an independent, international initiative centred in India, dedicated to enlarging and disseminating the body ofresearch and knowledge on competition and strategy, pioneered over the last 25 years by Professor M.E. Porter of the Institute for Strategy andCompetitiveness, Harvard Business School (ISC, HBS), USA. IFC, India works in affiliation with ISC, HBS, USA to offer academic & executive courses, conductindigenous research and provide advisory services to corporate and Government within the country. The institute studies competition and its implications forcompany strategy; the competitiveness of nations, regions & cities; suggests and provides solutions for social problems. IFC, India brings out India CityCompetitiveness Report, India State Competitiveness Report, India Economic Quarterly, Journal of Competitiveness and funds academic research in the areaof strategy & competitiveness. To know more about the institute write to us at [email protected].

1

mailto:[email protected]



Macro Economic Trends in India – The Big Idea

Opportunities in India India versus Bharat

Base of the

Pyramid

The Indian Middle Class

Factor Conditions

Demand Conditions

The rural and the urban India

The Big Idea

Income Distribution

Rich

Consumers

ClimbersAspirants

Destitutes

Indian Auto Cluster

Indian Auto Cluster – What is expected

Indian Auto Cluster – Driven by Auto Component Outsourcing

•PERD, NIPER

•Savli Biotech Park

• Proposed Biotech Park in Ahmedabad

• MS Univ Baroda

• Anna University

•IIT Madras

• TICEL Biotech Park

• Women’s Biotech Park

• CDRI, IITR, CIMAP, NBRI

• Lucknow Biotech Park

•NIPER

•PGI Chandigarh

•IMTECH

•IISER

• Proposed Agri Biotech Park

•TIFR

•IIT Bombay, Univ of Mumbai

•National Chemical Laboratory

• National Centre for Cell Sciences

• Pune University, IISER

• International Biotech Park

• Indian Inst of Chemical Biology

• IIT Kharagpur

• Bose Institute

• Dept. of Biotechnology, CU

• IISER, DBT Institute, Haringhata

• DBT, DST, CSIR, DP, ICMR, ICAR

• Translational Health Sciences Cluster

•National Institute of Immunology

•ICGEB

• Institute of Genomics & Integrative Biology

• National Brain Research Centre

•JNU, Delhi University

•Indian Institute of Chemical Technology

•Centre for Cellular & Molecular Biology

•Centre for DNA Fingerprinting & Diag

•National Institute of Nutrition, ICRISAT

• University of Hyd, Osmania Univ

•IKP Knowledge Park, SP Biotech Park

• Indian Institute of Science

•National Centre for Biological Sciences

•Jawaharlal Nehru Centre for Advanced Scientific Research

• University of Agricultural Sciences

• Stem Cell Institute

•IBAB, ABLE

Indian Life Science Clusters

S.No Name of the cluster No. of firms EmploymentTurnover (Rs. in

crores)

Large Clusters

1 Tirupur Cotton Knitwear Cluster 7200 300000 11000

2 Delhi Ready Made Cluster 2039 50000 4000

3 Chennai Leather Cluster 1195 40000 2020

4 Panipat Made ups Cluster 7435 260000 1200

5 Ludhiana Knitwear Cluster 12000 500000 5000

6 Rajkot Engineering Cluster 2190 62800 5450

7 Surat Diamond Cluster 6000 700000 72000

8 Ahmedabad Pharmaceuticals Cluster 1290 41000 10250

Small Clusters

1 Kaithun Handloom Cluster 1500 1500 2

2 Baruipur Surgical Instruments 500 7500 5

3 Gurera Beads cluster 800 2500 2

4 Madhepura Jaggery Cluster 221 3000 10

5 Lonavala Chikki Cluster 100 950 20

6 Pareo Brassware Cluster 500 4000 18

7 Parwanoo Light Engineering Cluster 75 2000 70

8 Roorkee Survey Instruments 250 5000 50

Typology of Clusters

The Ministry of Micro, Small and Medium Enterprises (MSME), Government of India 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.

Objectives of the Scheme:

To support the sustainability and growth of MSEs by addressing common issues such as improvement of technology, skills and 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).

Cluster Development in India: MSME’s CDP in India

POLICYTHE ECONOMIC TIMESON SATURDAYMUMBAI 27 NOVEMBER 2010 *

SAWANT SINGH, SRIRAM RAMACHANDRAN &

GAURAV SINGHI

ON MARCH 31, 2010, FOR THE FIRST TIME,the department of industrial policy andpromotion (DIPP) in the ministry of

commerce and industry put out a Consolidated FDIPolicy: Circular 1 of 2010 overriding the entire heapof press notes, circulars and clarifications issuedearlier in connection with foreign direct investment(FDI). The DIPP’s efforts in preparing Circular 1,which became effective from April 1, 2010, earnedplaudits from the industry at first, but on a closerlook, left India Inc and foreign investors high anddry, especially on issues relating to upfrontdetermination of price for capital instruments andnon-inclusion of partly-paid shares and warrantswithin the definition of ‘capital’.

To its credit, however, the DIPP has issued Consol-idated FDI Policy: Circular 2 of 2010 within sixmonths of Circular 1 and lived up to its promise byclarifying issues that had ruffled feathers in the FDIspace. We highlight a few key clarifications made inCircular 2.Death to warrants and life again:Circular 1 created animpression that there was a complete embargo on is-suance of warrants and partly-paid capitalinstruments to non-residents even if the ForeignInvestment Promotion Board (FIPB) approved it. Onthe contrary, as a matter of practice, the FIPB wasconsidering such proposals and granting approvalsafter factoring in the time limit for conversion of thewarrants and quantum of upfront consideration.

The DIPP clarified the matter in a note to thedefinition of ‘capital’ in Circular 2 by stating thatinstruments other than equity shares and fully, com-pulsorily and mandatorily convertible preferenceshares and debentures may be issued after obtainingprior government approval. This change will ensurethat, on one hand, there is some elbow room for ma-ture foreign financial investors to structure theirinvestments and, on the other, domesticundertakings need not hand over a pie of theirbusiness at a price that could potentially be higher ata future point.Soothing NBFCs:Circular 2 also partly settles the dustover downstream investment by foreign owned andcontrolled (FOCC) non-banking financial

companies (NBFCs). Reading the relevantprovisions of Circular 1 (reiterating what had beenstated in press note 4 issued in February, 2009) ledone to conclude that 100% wholly ownedsubsidiaries of the FOCC NBFCs must also meet theminimum capitalisation requirements of NBFCs.This would have made it commercially difficult forFOCC NBFCs to set up and operate differentsubsidiaries for separate activities like stock broking,housing finance etc. Much to the relief of 100%FOCC NBFCs, however, Circular 2 has explicitlystated that they will not be required to meetminimum capitalisation requirements. Speaking ofdownstream investments, there were concerns afterthe release of Circular 1 that downstreaminvestment by a FOCC could be done only through

funds from abroad and not by leveraging funds fromIndia. Fortunately, Circular 2 has stated with wellclarified that investment by internal accruals ispermitted as long as other conditions laid down inthe policy on downstream investments are fulfilled.Breather to retailers too:Since FDI in multi brand retailis prohibited, players in this market have often beenin the news for the wrong reasons, trying to use thewholesale cash-and-carry route, where100% FDI ispermitted, as a backdoor to enter the multi brand re-tail sector. In Circular 1, the government had comedown heavily on FDI in multi brand retail sectorstructure — where the ownership structure of theretail entity and the wholesale entity were keptdistinct but within the same groupcompanies/promoters and exclusive arrangementswere made between the two companies to realisecommercial value — by stating that only 25% of thetotal turnover could be traded by the wholesale enti-ty amongst the same group companies and for‘internal use’ only. However, after much cajoling,the government has provided a breather to theinfamous indirect structures by getting rid of the‘internal use’ rule.Conclusion:The DIPP deserves a pat on its back for itsexemplary efforts, some of which we have discussedabove. In recent months, the DIPP has published afew discussion papers on opening up prohibited sec-tors such as multi-brand retail and defence to FDI. Apaper has also been put up for discussion on issue ofshares for consideration other than cash, so farpermitted in certain cases such as conversion ofexternal commercial borrowings or royaltypayments). There are, nevertheless, otherambiguities in the FDI policy requiring the DIPP’s at-tention — the important ones being upfrontdetermination of price of capital instruments at thetime of issuance and treatment of FOCC Indian com-panies as non-resident entities, given the guidingprinciple in the FDI policy that downstreaminvestment by FOCC Indian companies are requiredto follow the same norms as a direct foreigninvestment. These issues have been the bones ofcontention in boardrooms and we can only hopethat they can grab the DIPP’s attention at the earliest.

(S Singh is partner, G Singhi is senior associate and SRamachandran is associate at Phoenix Legal)

9

NDIA is at the centre of the population-versus-growth debate. With the world’s second-largestpopulation at 1.2 billion, the country must fo-cus on turning this population into a benefitrather than a disadvantage. This month, welook at how states in India can use their popu-lation size and growth rate to improve theircompetitiveness.

TRADITIONAL economic thinking seespopulation as a drag on a nation’s eco-nomic growth. However, with the worldlooking towards India as a growing andvibrant market, her ‘demographic advan-tage’ is often touted as her biggest asset.

According to the theory of demograph-ic dividend, the rate of economic growthincreases due to a rising share of workingage people in a population. For India,falling fertility rates are resulting in a larg-

er chunk of working-age people, who cancontribute to the GDP and generate high-er output per capita.

In fact, the International Labour Orga-nization (ILO) has stated that India willaccount for the highest working age pop-ulation in the next 10 years, in a report re-leased recently. In the document preparedfor the G-20 Summit held earlier thismonth in Seoul, the ILO says that the G-20 nations will see their working age pop-ulation between 15 and 64 years increaseby 212 million in the period 2010-2020.Over 64% of this increase will occur in In-dia alone!

This month’s IFCIndia State DevelopmentBarometer takes a sharp look at what pop-ulation really means to the economicgrowth of India’s states and analyses howstates can use their demographic situationto improve their competitiveness, andhence, enhance their prosperity.

Rising stars among statesIt is widely accepted that growth among In-dian states is skewed, with some prosper-ous states bearing the burden of growth,while several other lag in terms of GDPgrowth and development parameters.

The average decadal GDP growth figuresshow that unexpected states such as Biharand Orissa, historically notorious for poorgrowth, have exhibited a sustained GDPgrowth rate. Bihar, specifically, is notablefor exhibiting a remarkable decadal growthrate of 10.83% while contributing on amodest population base. Bihar accountsfor 8.1% to the country’s population, asseen in the accompanying graph.

Meanwhile, states such as Maharash-tra, Goa, Punjab and Tamil Nadu, that areknown for their higher levels of industrial-isation, human development or agricul-tural prosperity seem to have slowed interms of GDP growth over the past decade.

Size does matterA large size of population appears to be aburden on the economy of states such asUttar Pradesh, Rajasthan, West Bengaland Madhya Pradesh. These states arealso usually characterised by low percapita income and higher disparities.Large population size is a major factor,

among several others, that is draggingdown the economic growth of relativelyaffluent states like Maharashtra, Kar-nataka and Tamil Nadu. Yet, a few statessuch as Bihar, Andhra Pradesh and Gu-jarat with large populations are exhibit-ing high GDP growth.

No burden on economic growthSixteen states in India have a GDP growthhigher than the national average. Ofthese, ten states show a populationgrowth rate higher than the national av-erage, while six other states have a popu-lation growth rate lower than the nation-al average.

Population growth, considered a bur-den to economic growth, seems to havelittle correlation with GDP growth (corre-lation = 0.24). Large states such as Bihar,for instance, have showed sustained GDPgrowth over the decade along with asteadily rising population, whereas statessuch as Punjab and Manipur with slowerpopulation increase are showing GDPgrowth rates that are lower than the na-tional average.

Population, a double-edged swordClearly, population is a double-edgedsword. On one hand, the data shows thatthere is no clear correlation betweengrowth in population and GDP. Yet, accord-ing to the demographic dividend theory, alarge working age population is an asset.

In order to be able to catapult theirgrowth rates, states need to look closelyat their competitiveness, which in turnis linked to their level of productivity.Improved competitiveness leads to im-proved incomes and better quality of lifeacross the board. When viewed fromthis standpoint, states will be able to de-velop strategies on how best to utilisetheir workforce — small or large, grow-ing slow or growing fast — to maximiseproductivity.Group 1: States with lower populationgrowth rates and high GDP growth rates,such as Kerala, Andhra Pradesh and Oris-sa need to look closely at the training lev-els of their workforce and create strategyto move towards high value sectors andindustries that need a more skilled work-

force, which are also correspondingly farmore productive.Group 2: States with healthy GDP andpopulation growth rates, such as Chandi-garh, Delhi, Haryana and Bihar must fo-cus on sectors where they are inherentlycompetitive because of the presence ofnatural resources or traditional skills andknowledge. These states should find waysto turn the availability of a large work-force in their favour by offering suitableeducation policies and opportunities. Set-ting the right priorities is critical to en-hance competitiveness for this band of In-dian states.Group 3:A number of states such as Kar-nataka, West Bengal, Rajasthan, TamilNadu and Mizoram are performing onlyslightly below India’s average GDPgrowth rate. These states can quickly cat-apult themselves into Group 2 with a fo-cused effort on productivity.Group 4:A roadmap for enhancing com-petitiveness is critical for poorly perform-ing states. Among these, states such as Ut-tar Pradesh and Madhya Pradesh withlarge and growing populations must con-trol the rate of population growththrough effective healthcare and out-reach efforts, as arresting populationgrowth takes time. They also need to har-ness their large growing workforce effec-tively and focus on promoting economicactivities that can employ and utilise alarge labour workforce, like certain typesof manufacturing.

Vision for the futureA look at the relationship between thepopulation and GDP growth serves tohighlight how states in various stages ofgrowth — both economic and demo-graphic — can harness their position inthe best possible manner. This is best doneby first ascertaining a state’s inherentcompetitive edge — these could be re-sources, sectors, human potential, etc —and then designing and implementingpolicy around this to achieve highly pro-ductive and efficient clusters that provideemployment, contribute to growing theGDP and bring prosperity as well.

Inst it ut e For Compet it iveness

POST the crisis, the one common thread thatlinks advanced economies across the world,with perhaps the exception of the ever-prudentGermans, is the phenomenal increase in publicdebt, i.e., debt raised by governments strappedfor funds and desperate to kickstart the econo-my with stimulus packages.

Based on IMF forecasts, Eswar Prasad at Cor-nell University calculates that the level of aggre-

gate net government debt in the world will more than double from $23trillion — 44% of world GDP — in 2007 to $48 trillion — 65% of GDP— in 2015. Advanced economies account for much of this increase.

Prasad estimates the ratio of aggregate debt-to-aggregate GDP for ad-vanced economies will rise from 48% in 2007 to 71% in 2010, and fur-ther to 85% in 2015. In contrast, emerging markets (EMs) fare muchbetter. The corresponding ratios for the EM group are 30%, 30% and26% respectively. In 2007, EMs accounted for 24% of world nominalgross domestic product (GDP), in US dollars terms, and 17% of worlddebt. By 2015, they are expected to produce 35% of world output butaccount for just 14% of world debt. Thus, even as EMs increase theirshare in world GDP, their share in world debt is expected to come down.To put that more graphically, EMs will power their growth from inter-nal rather than borrowed resources.

This has two major consequences for EMs — both positive. One,they will be able to use more and more of their revenue for productivepurposes rather than for servicing debt, whether by way of interest costor repayment. Two, the distressing issue of inter-generational equitywhere succeeding generations end up paying for the profligacy of ear-lier generations will be resolved far more satisfactorily in EMs than inadvanced economies. Add to this the fact that EMs have a lower de-pendency ratio — read: larger share of population in the younger agegroup — and clearly, they are on a stronger wicket.

This is graphically brought home when the rise in debt is comparedwith the rise in GDP. EMs accounted for 10% of the rise in global debtlevels from 2007 to 2010, and could account for 13% of the rise from2010 to 2015. In contrast, their contributions to global GDP growthover these two periods are expected to be 70% and 54%, respectively.Average debt per capita in advanced economies was $19,400 in 2007,rose to $29,100 in 2010, according to the paper, and will go up to$41,000 in 2015. By 2015, the burden of debt for US citizens will rise to$48,000 per person. The debt burden for Japanese citizens will hit$75,900, the highest in the world. In contrast, China’s debt burden willbe just $1,200 in 2015. India’s, however, will be far higher at $2,013.

Among advanced economies, average debt per working-age personwill more than double from $31,700 in 2007 to $68,500 in 2015. Japantops the league tables by this measure while the US moves into secondposition by 2015 with debt per working-age person of $134,500 and$79,200, respectively.

Diehard optimists point to periods when public debt ballooned butfears of Doomsday proved ill-founded as a reason not to get perturbedabout the sharp rise in debt. But they could be living in cloud cuckooland! Borrowing like there is no tomorrow has serious — and unhappy— consequences for both their own as well as global financial stability.

The analysis paints a sobering picture of worsening public debt dyna-mics and a sharply-rising debt burden in advanced economies. It warnsthe worst is, perhaps, yet to come. First, these countries are experienc-ing little population growth. Second, they are facing rapidly aging pop-ulations. Third, their economies are likely to register slow growth, es-pecially relative to the EMs. Fourth, entitlement spending on health-care and pension could rise sharply due to unfavourable demographics.

The prescription: advanced economies had better get their fiscal acttogether once the recovery is better entrenched. It will take strong po-litical will to tackle near-term deficits and then to control the growth inentitlement spending. In the absence of decisive action, ballooningpublic debt in these economies could become a major threat to domes-tic and global financial stability.

http://www.brookings.edu/articles/2010/1101_government_debt_prasadMyt hil i Bhusnur mat h

[email protected]

Sins ofindulgence

The DIPP has clarified many

contentious issues regarding FDI,

but ambiguity remains on subjects

such as determination of pricing of

capital instruments at issuance

THE EXPLOSION OF PUBLIC DEBT HASSERIOUS LONG-TERM REPERCUSSIONS

ANIMISHA

POLICIES THAT MAKE PRODUCTIVE USE OF AVAILABLE RESOURCES ARE CRITICAL

ARINDAM

I

INDIA

Source: IMF Fiscal Monitor, May 2010; IMF WEO, April 2010;ILO Economically-Active Population Estimates and Projections, 2009

DEBTBURDEN

Gross debt to GDP (%)

Gross debt(US dollars in billions)

Gross debt percapita (US dollars)

Gross debt perworking-ageperson (US dollars)

79.0

1,080

888

1,638

77.8

1,164

945

1,728

70.3

1,400

1,092

1,954

2009 2010 2011 2014 2015

80.8

999

833

1,548

67.3

1,471

1,132

2,013

Chandigarh

Delhi

Uttarakhand

Haryana

Gujarat

Bihar

Chhattisgarh

Sikkim

Nagaland

Himachal Pradesh

5.05

3.11

1.59

1.98

1.64

1.86

1.76

1.58

4.89

1.59

Population

growth rates

are HIGHER

than national

average

Population

growth rates

are LOWER

than national

average

GDP(India avg 7.99)State

Populationgrowth rate

(India avg 1.55)

13.12

11.86

11.8

11.69

10.8

10.83

9.78

9.6

9.54

8.88

Andhra Pradesh

Orissa

Meghalaya

Tripura

Arunachal Pradesh

Kerala

0.99

1.07

1.39

0.99

1.27

0.77

9.52

9.37

8.05

8.4

8.79

9.55

PEOPLEPOWER

States contributing to India’s GDP growth

(GDP growth higher than national average)

Population size vs GDP growth rate

Comparison of state population growth and GDP growth

0 500 1000Population size in lakhs

1500 2000 2500

14

12

10

8

6

4

2

0

CH

GOTR

MG

MZ

HP

JH

PJMPAS

ANMN

JK

PD

DLHRUK

SK CG KRORAR

NL

TN

AP

BR

KA RJWB

MH

UP

DL: DelhiCH: ChandigarhKR: KeralaTR: TripuraMG: MeghalayaPD: PuducherryKA: KarnatakaWB: West Bengal

AS: AssamNL: NagalandUK: UttarakhandHR: HaryanaGJ: GujaratCG: ChattisgarhSK: SikkimJH: Jharkhand

TN: Tamil NaduBR: BiharRJ: RajasthanGO: GoaMZ: MizoramPJ: PunjabMN: ManipurOR: Orissa

UP: Uttar PradeshAP: Andhra PradeshAR: Arunachal PradeshHP: Himachal PradeshJK: Jammu & KashmirMP: Madhya PradeshAN: Andaman & Nicobar IslandsMH: Maharashtra

0 1 2Population growth (%)

3 4 5

14

12

10

8

6

4

2

0

AP

TR KR

WB

AS

TN

KR ORAR

MGMH

RJGO

AN

PD

JH

PJJK

UPMN

MP

SK CGHP

GJ BR

UK HR DL CH

NL

GJ

MZ

JAYEETA

States can harness theirpopulation to grow

FDI policy needs some more weeding DILBERT byS Adams



GAURAV SINGHI








9






























[email protected]

Sins ofindulgence







ANIMISHA


ARINDAM

I

INDIA


DEBTBURDEN





79.0

1,080

888

1,638

77.8

1,164

945

1,728

70.3

1,400

1,092

1,954

2009 2010 2011 2014 2015

80.8

999

833

1,548

67.3

1,471

1,132

2,013

Chandigarh

Delhi

Uttarakhand

Haryana

Gujarat

Bihar

Chhattisgarh

Sikkim

Nagaland

Himachal Pradesh

5.05

3.11

1.59

1.98

1.64

1.86

1.76

1.58

4.89

1.59

Population

growth rates

are HIGHER

than national

average

Population

growth rates

are LOWER

than national

average



(India avg 1.55)

13.12

11.86

11.8

11.69

10.8

10.83

9.78

9.6

9.54

8.88

Andhra Pradesh

Orissa

Meghalaya

Tripura

Arunachal Pradesh

Kerala

0.99

1.07

1.39

0.99

1.27

0.77

9.52

9.37

8.05

8.4

8.79

9.55

PEOPLEPOWER






1500 2000 2500

14

12

10

8

6

4

2

0

CH

GOTR

MG

MZ

HP

JH

PJMPAS

ANMN

JK

PD

DLHRUK

SK CG KRORAR

NL

TN

AP

BR

KA RJWB

MH

UP






3 4 5

14

12

10

8

6

4

2

0

AP

TR KR

WB

AS

TN

KR ORAR

MGMH

RJGO

AN

PD

JH

PJJK

UPMN

MP

SK CGHP

GJ BR

UK HR DL CH

NL

GJ

MZ

JAYEETA





GAURAV SINGHI








9






























[email protected]

Sins ofindulgence







ANIMISHA


ARINDAM

I

INDIA


DEBTBURDEN





79.0

1,080

888

1,638

77.8

1,164

945

1,728

70.3

1,400

1,092

1,954

2009 2010 2011 2014 2015

80.8

999

833

1,548

67.3

1,471

1,132

2,013

Chandigarh

Delhi

Uttarakhand

Haryana

Gujarat

Bihar

Chhattisgarh

Sikkim

Nagaland

Himachal Pradesh

5.05

3.11

1.59

1.98

1.64

1.86

1.76

1.58

4.89

1.59

Population

growth rates

are HIGHER

than national

average

Population

growth rates

are LOWER

than national

average



(India avg 1.55)

13.12

11.86

11.8

11.69

10.8

10.83

9.78

9.6

9.54

8.88

Andhra Pradesh

Orissa

Meghalaya

Tripura

Arunachal Pradesh

Kerala

0.99

1.07

1.39

0.99

1.27

0.77

9.52

9.37

8.05

8.4

8.79

9.55

PEOPLEPOWER






1500 2000 2500

14

12

10

8

6

4

2

0

CH

GOTR

MG

MZ

HP

JH

PJMPAS

ANMN

JK

PD

DLHRUK

SK CG KRORAR

NL

TN

AP

BR

KA RJWB

MH

UP






3 4 5

14

12

10

8

6

4

2

0

AP

TR KR

WB

AS

TN

KR ORAR

MGMH

RJGO

AN

PD

JH

PJJK

UPMN

MP

SK CGHP

GJ BR

UK HR DL CH

NL

GJ

MZ

JAYEETA



Thank You