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VE Idea Accelerator Series: MSME Clusters in the State of Gujarat – An Introduction

As the land of entrepreneurs, Gujarat is acknowledged for its spirit to advocate the MSME sector characterised by numerous small and medium scale industries. On the basis of the nature of investment and type of adopted technology, it can be stated that small-scale industries have huge scope for employment generation and thereby alleviating the core problem of unemployment in India. Over a significant time period, this sector is nourished by the business acumen of entrepreneurs of Gujarat and acknowledged for using the technical skills and capability of them for running the units with lower overheads. However, in this era of globalisation, the need for strengthening the small and medium enterprises is felt in terms of several aspects, like financing, technology up gradation, capacity building, infrastructural support, R&D activities, quality improvement and others. By making significant improvement in these areas, it is believed that small-scale industries can accomplish competitive advantages in the international market.msme-cluster-ve-idea-accelerator-ventureexpress-in

Need for Cluster Development

Cluster-based entrepreneurs and workers are often sharing a similar background in respect of social, cultural and political context which not only help in practice reciprocity, but also in producing inclusive type of growth patterns in comparison to other economic perspectives. The clusters are particularly creating promising environments for the SMEs as their small sizes are creating difficulties for them to realise economies of scale and taking advantage of market opportunities.

The three important pressing needs of MSMEs which can be satisfied through Cluster Development approach are Funding, Refinancing and working capital.

Accessibility to capital: Cluster development schemes frequently make it simpler for MSMEs to obtain capital. These programs create a collaborative environment that draws financing organisations, financial institutions, and investors by grouping enterprises according to their industry or proximity to one another. MSMEs find it simpler to obtain loans, equity investments, and grants for their commercial endeavours as a result of their greater visibility and collective power.

Refinancing: Programs for cluster development may make refinancing choices for MSMEs more accessible. These initiatives can provide channels for refinancing current loans or obligations at more advantageous terms by grouping together similar enterprises. This can assist MSMEs in increasing their cash flow, lowering their financial load, and gaining access to more working capital for growth or other business requirements.

Working capital: Clusters often provide opportunities for MSMEs to collaborate and streamline their supply chains. By leveraging the collective strength of the cluster, MSMEs can negotiate better credit terms with suppliers, optimise inventory management, and implement efficient working capital practices. This leads to improved cash flow, reduced working capital requirements, and better overall financial stability for the individual businesses within the cluster.

MSME Cluster Development Initiatives in Gujarat
In order to accomplish competitive advantage, the cluster approach is considered very useful as they promote common interests. Further, they also advocate further innovation, worker skills development as well as address the productivity issues to enjoy profitability from most promising opportunities. In addition to these, competitiveness can be acquired with easy access to specialised suppliers of raw materials, parts and components, machinery, skills and technology. Besides, easy availability of timely support from other ancillary services is also helpful for attaining advantage in the marketplace. Hence, the target of cluster development is not only accomplishing competitiveness, but also taking a pivotal role in alleviating poverty, generating sustainable employment, fostering innovation and ensuring effective as well as sustainable credit flow.

In Gujarat, the vibrancy of the manufacturing base can be solely interrelated to the strong presence of 76 identified manufacturing sectors, encompassing a large number of small and medium scale enterprises. As part of the cluster segment these sectors are present across the state. Hence, in this era of increasing globalisation and liberalisation, the state industries are feeling the need to meet challenges as economies of scale and quality would play a predominant role in international trade. Thereby, to meet these challenges, empowerment of clusters is very much beneficial and hence cluster development approach is considered as an important initiative. Hence, for meeting the challenges ahead, the government is planning to strengthen the existing clusters in the state so that necessary support can be provided in this regard. A cluster can be defined as a group of manufacturing industries, producing identical and complementary products . The Government has decided to identify the critical mass of a minimum of 50 units located within the radius of 10 kms. at a particular location to recognize the cluster. However, in respect of certain sectors, this number of 50 units could be relaxed on the basis of technical and managerial competence as well as the nature and size of the industry.

By providing need-based financial assistance, the government is trying to empower the clusters which will subsequently strengthen the activities. The accredited rating agencies will be assigned responsibility to rate the individual clusters on the basis of technical and managerial competence, administrative set-up, transparency of operations, level of maturity and past track record. The significance level of financial assistance will be decided on the basis of grading. Besides upgradation of common infrastructure facilities, the clusters need to upgrade themselves in respect of quality improvement, common branding and marketing facilities, product design and technology, R&D activities, development of common facilities and capacity building of workers. Since small-scale industries have a major contribution to the economy, therefore consolidation would help the small units to survive and prosper in this competitive marketplace. The role of respective cluster associations is vital as the existing clusters need to be strengthened to convert the adversities into opportunities.

Gujarat is acknowledged for its inherent strengths and strong positioning, both from national and international perspectives, and hence they are in the forefront of promoting excellence and vision of the state. Since the state is aspiring to become a pioneer in the field of comprehensive social and economic development, therefore it has targeted to promote the following points-

  • Advocating the investment and facilitating the holistic growth
  • Accomplishing highest level of human development indicators within the country
  • Aligning high standards of quality with the ‘Made in Gujarat’ brand

All these initiatives are receiving international recognition as they subsequently ensure maximum utilisation of existing natural resources and facilitation of sector specifications. Further, all the proposed policy measures are using the following parameters for sustainability in the global marketplace in the face of stiff competition-

  • Balancing regional development with the promotion of geographical strengths
  • Increasing effectiveness of the available institutions within the state
  • Infrastructure upgradation within the state
  • Leveraging existing strengths and resources
  • Technical competence and manpower enhancement
  • Advocating improvement in labour market efficiencies
  • Environmental infrastructure improvement and promotion of comprehensive development
  • Responding to changing needs of domestic and global environment
  • Rewarding policies for new technology adoption, business sophistication and innovation

Hence, it can be stated that the new industrial policy in alignment with cluster development initiatives should be taken into account for making the state a favoured global investment decision.

Source: MSME Clusters in Gujarat (Table – I)msme-cluster-ve-idea-accelerator-ventureexpress-in



The opinions expressed in this article are the author’s own and do not reflect the view of MarketExpress – India’s first Global Analysis & Sharing Platform or the organization(s) that the author represents in his personal capacity.