www.ilfsindia.com

C

luster

_ D

evelopment

__ I

nitiative

December 2006

Index



IL&FS-Cluster Development Initiative

 The Need  Vision  Approach & Methodology  Bouquet of Services  Our Footprint  The Organogram  Our Team  Why Us?

Index



IL&FS-Cluster Development Initiative

 The Need  Vision  Approach & Methodology  Bouquet of Services  Our Footprint  The Organogram  Our Team  Why Us?

MSMEs: Integral Part of India’s Growth Strategy



Significant contributor to Indian economy



Employs more than 28 million people and accounts for over

 40% of gross industrial value addition  35% of direct exports  15% of indirect exports

“Ensuring the competitiveness of small scale sector is important as it would help in overall growth of Manufacturing Sector as also the National Economy” - NMCC

The Need

Sub-Sector Engagement Is the Key for MSMEs Development Programme

“

Certain sectors emerge in the forefront of growth and employment because of the unique opportunities they enjoy at the present time. Textiles & Garments,Leather & Leather products, Food Processing, Auto components and Drugs & Pharmaceuticals, select them selves at this point in time

”-NMCC

The Need

Textiles : Emerging Growth Story

90 80 70 60 50 40 30 20 10 0

25 13

2005 Exports Domestic

45 40

2010

Value in USD Billions

Burgeoning domestic markets and favourable international trade climate in the post quota regime offer significant opportunities for the Indian textile industry to grow rapidly

The Need

Increasing Market Share of Indian Clothing in US Market

Before Quotas

Rest of world 24% China 16% Bangaladesh 4%

India 4%

Indonesia 4% Philippines 4% Chinese Taipei 4% EU 5% Rest of America 16% Mexico 10% HK- China 9%

Post Quotas

Bangaladesh 2% Rest of world 10% Indonesia 2%

India 15%

Philippines 2% Sri Lanka 2% Thiland 3% 6% Mexico 3% Rest of America 5% China 50%

The Need

Leather & Leather Products:significant Turnaround and Growth

Value in USD Billions

8 7 6 5 4 3 2 1 0

2.39

Exports 2005

7

2010

The Need

Agro & Food Processing: ……. 300 250 200 150 100 50 0 102 62 2005 Primary Processed Food 182 93 2010 Processed Food

Value in USD billion

Emergence of organized retail chains in India and increasingly urbanizing lifestyles offer a strong opportunity for SMEs to participate in supply chain as well as food processing segments

The Need

Auto Components……..

0 1 2 3 6 4 5 1.8

Exports 2005 5 2010

Value in USD Billions The Need

Handicrafts: Growing Market for Ethnic Products

Value in USD Billions

7 6 5 4 3 2 1 0 3.8

Exports 2005 6.5

2010

The Need

Exploiting the Emerging Market Opportunities Challenges & Constraints

 Global free trade regime - survival of the fittest  Policy and fiscal rationalization within the country lower protection and increased competition  Increasing technology benchmarks  Lower turnaround time  Compliances - trade and legal  Lowering cost of manufacture and improving quality The Need

……..Challenges



Factors adversely affecting competitiveness of MSMEs

 Limited size and scale  Outdated technology  Non-availability of finance  Traditional marketing systems  Inability to meet environmental compliances  Poor infrastructure The Need

MSMEs & Clusters



Most of the MSMEs are located in 388 industrial clusters across the country

 490,000 firms  75,00,000 employed  Rs 157,000 crores of annual output The Need

….Some of the Prominent Clusters Cluster

Ludhiana Panipat & Karur Tirupur Surat Jalandhar Jamnagar Ludhiana Ambur, Agra,Kanpur Chennai & Gurgaon Badohi & Jaipur Alleppy Rajkot & Coimbatore Cochin & Veraval

Product

Woolen knitwear Home furnishings Cotton knitwear Synthetic textiles Sports goods Brass parts Sewing machines Leather Auto components Carpets Coir products Diesel engines Sea-food processing

Production (Rs. Crore)

5500 5000 6500 7000 400 1000 750 3500 6000 3500 600 3500 3000

% of total sectoral production

90 60 60 (80% of exports) 80 65 70 70 80 60 70 80 80 80 The Need

Cluster: Definition & Principle Definition:

Geographical concentration of units producing similar products and facing similar threats and opportunities

Principle:

Collaborating while competing

The Need

Why Cluster Based Approach?

 Offers critical mass for customization of interventions  Economies of scale in operation  Better access to technology, information  Greater access to customers, channels  Cheaper access to inputs, raw materials

“ Cluster approach should be the preferred route for improving the manufacturing competitiveness. New and innovative approaches to cluster development should be adopted”- NMCC

The Need

Some Benefits of Clustering 1 1.

2.

3.

4.

Commercial Benefits Enhanced chances of securing larger contracts Greater bargaining power with customers Greater presence in the market place Guidance from experienced larger companies with shared risks 2 1.

2.

3.

Economic Benefits Sharing & Pooling of resources Sharing Business Development & Operating Costs Access to New Technology 3 Environmental Benefits 1.

2.

3.

Aids in decongesting units from urban areas Ensures that environment al safety standards are maintained Various forms of pollution always under check 4 1.

2.

3.

Social Benefits Employment generation Compliance to trade related barriers Ensures enhanced security during the start up phase

The Need

Index



IL&FS-Cluster Development Initiative

 The Need  Vision  Approach & Methodology  Bouquet of Services  Our Footprint  The Organogram  Our Team  Why Us?

IL&FS Cluster Development Initiative Vision , Goals and Objectives

Vision

IL&FS would be the preferred service provider to MSMEs and the Government for developing clusters across the country

Approach

PPP driven & ‘Concept to Commissioning’

Development Goal

Contributing to creation of 1 million jobs by 2010

Commercial objective

Rs 1 billion annual revenues by 2010

Index



IL&FS-Cluster Development Initiative

 The Need  Vision  Approach & Methodology  Bouquet of Services  Our Footprint  The Organogram  Our Team  Why Us?

Our development approach in addressing critical gaps to enhance sustainability

Not for profit Commercial Soft Inputs Association Critical Infrastructure Marketing, Credit SPV (Company) Approach & Methodology

Cluster based PPP Model where we play a pivotal role in bringing the stakeholders together SMEs Government Banks/FIs Other Institutions

Approach & Methodology

Methodology entails handholding the stake holders from “concept to commissioning” Concept Commissioning Need Assessment Capacity Building Project Development Project Financing Project Execution

Approach & Methodology

With specific focus on Common Infrastructure in the Cluster

Cluster Common Infrastructure Physical Infrastructure Technology Infrastructure Marketing Infrastructure CETP Power Supply Water Supply CFC Design Studio Testing Centre Display centres e-commerce Exhibitions Approach & Methodology

Not forgetting the Social Capital which is a prerequisite for SME common infrastructure



Awareness creation



Sensitization



Trust



Organization



Capacity building



Competitive reliance on one another

Approach & Methodology

Why are Cluster Parks different - A comparative analogy 1 Cluster Parks

1.

2.

3.

4.

5.

Focus on the enterprises and their needs Owned and managed by user enterprises Pre-marketed Customised infrastructure Homogeneous units with strong linkages and collaborative behavior

2 Industrial Estates

1.

2.

3.

4.

5.

Focus on real estate No involvement of user enterprises Post marketed Standard infrastructure Absence of collaborative behavior Approach & Methodology

Index



IL&FS-Cluster Development Initiative

 The Need  Vision  Approach & Methodology  Bouquet of Services  Our Footprint  The Organogram  Our Team  Why Us?

Bouquet of Services CDI Infrastructure Finance Capacity Building Technology Market Access Textiles Agro CLUSTERS Pharma Leather Artisan

Bouquet of Services

Our Services are encompassing

1.

Structuring of the Special Purpose Vehicle (SPV) 2.

Proposal Preparation for funding from Central/State Govt 3.

Financial Closure through syndication of debt funding requirements 4.

Detailed Engineering/Procurement process including a) Layout, design, detailed engineering b) Preparation of cost estimates of the infrastructure facilities c) Preparation of bid documents d) Selection and appointment of contractors/consulting firms 5.

Monitoring and supervision of implementation 6.

Assistance in establishing systems and contractual structures for O&M Bouquet of Services

With Value Added propositions such as :

1.

Capacity building of the SPV/members 2.

Assistance in selection of appropriate technology/ machinery 3.

Facilitating marketing tie-ups 4.

Creating Brand concepts 5.

Facilitating compliances: a) Corporate Governance b) Legal compliance c) Social compliance d) Environmental compliance Bouquet of Services

Index



IL&FS-Cluster Development Initiative

 The Need  Vision  Approach & Methodology  Bouquet of Services  Our Footprint  The Organogram  Our Team  Why Us?

Focus Areas and Current Mandates

Focus Areas and Current Mandates New Industrial Clusters (Induced) Existing clusters Infrastructure improvement Textiles Leather Pharma Skill Development Agro Processing Growth Poles Artisan clusters Policy Advisory Our Footprint

Commencing with formulation of the Scheme for Integrated Textile Parks (SITP)

      Addresses infrastructure constraints of textile industry on cluster basis sectoral and cluster approach Targets growth potential clusters 26 parks, Rs.13,126 Cr investment, Rs.19,529 Cr Annual production, 5 Lakh employment Critical mass of entrepreneurs cluster SPV led by entrepreneurs to own, develop & manage park sustainability GoI as facilitator – 40% of project cost not exceeding Rs. 40Cr as grant/equity- improving viability and need based IL&FS as Programme Manager – for handholding support from “ concept to commissioning ”-proactive project development Our Footprint

Small footsteps has resulted in 26 Park Projects being approved so far under SITP State

Andhra Pradesh Gujarat Maharashtra Tamil Nadu Rajasthan Karnataka Uttar Pradesh West Bengal

Total No of Parks

4 6 6 5 2 1 1 1

26

Expected Techno-commercial impact due to development of Textile Parks State No of Parks

6 6 5 2 1 1 1

26 Aggregate Investment (Rs. crores)

3164 2020 1298 650 132 210 140

13,126 Employment (No of Persons)

73,500 38,100 30,500 17,000 2,000 3,500 30,000

500,400 Annual Production (Rs. crores)

5034 2550 1895 1350 350 225 300

19529 Weaving Capacity (No of shuttle less looms)

4788 4106 6516 2214 1260 704 600 -

20,188* Annual Processing Capacity (Million meters)

1347.5

1610.5

126.8

318 0.5

12.5

-

3415.8** Annual Garmenting Capacity (Million Pieces)

297.00

37.00

10.00

7.00

2.5

2.25

30.00

386.00

** Includes yarn processing, fabric processing as well as texturizing, converted into million meters ** The modern processing capacity (3416 million meter) out of this initiative will be 35% of the existing modern processing capacity (6,000 million meter)

Our Footprint

Our footprint has been covering more sectors ever since - > 40 clusters

 Industrial  Textiles – 26  Chemical - 3  Steel – 2  Pharma-1  Light engineering-1  Foundry- 1  Leather-2  Chemical-1  Agro  Bamboo - 1  Fisheries- 1  Rubber-1  Craft  Art Metal-ware -1  Stone Carving - 1  Zari -1  Bamboo-1 Our Footprint

Project Development Process - A Snapshot

Identification of cluster Interaction with industry associations and other representatives Identification of potential Entrepreneurs Identification of Land Need assessment and capacity building Establishment of SPV Procurement of Land Detailed Engineering & Procurement Award of contract Construction & Supervision Operation & Maintenance Assessment of Common infrastructure, amenities & factory buildings for the park Preliminary layout plan Preliminary Costing Vetting by SPV Preparation of DPR GoI Approval Financial closure Our Footprint

Growth Pole Projects

     Integrated development of a sub-district (about 1000 sq kms) with economic potential that would become growth engine with in the region Cluster of clusters Enterprise development with PURA (infrastructure and linkages) Projects are being formulated by GoI (SSI) through National Commission for Enterprises in Unorganised Sector (NCEUS) IL&FS has been mandated to prepare the DPRs to begin with Our Footprint

The Growth Pole Concept

Eco – System For Sustainable Employment and Incomes Existing Enterprises & Clusters Promotion of Potential Clusters

Capacity Building Market Skills Business Dev Services Technology Prod. Infrastructure

Attracting New Investments

Factor Conditions Policy Initiatives

Infrastructure and Linkages (PURA) PPP Institutional Framework Our Footprint

Growth Pole: Evolution and Development

Public Existing and Potential clusters Organisations (Formed with Common Interest Groups/SHGs) STAGE I Capacity Building: Skills and Micro Finance Production Inputs: Technology and Design Market Linkages

Inst.

Advisory Group/ Project Manager

Market PPP Technology Upgradation Cluster / Sector Development Finance STAGE II Infrastructure and Linkages

SPVs

Private Social Infrastructure Demand for employees and migrants Retail Services STAGE III Housing Growth Pole

ULB Our Footprint

Skill Development – a precursor to industrial growth

“If Indian manufacturing sector has to grow at a rate of 12% per annum, it will be necessary for the education and training system to produce at least 1.5 million technically skilled people every year” - NMCC

Our Footprint

Manpower Development for Apparel Industry

     Apparel – fastest growing segment in the textile value chain In need of skilled manpower at various levels Lack of trained manpower has been adversely affecting volumes, quality and productivity Demand-supply gap of 1.9 Million persons by 2010 Limitations of the present initiatives:   Current training capacity (govt & private) is only 40,000 per year Quality of training does not match with the industry requirement Our Footprint

The Strategy

 Demand driven and placement assured programme  To train 1 million persons over a period of six years  Leverage the infrastructure of existing institutions like ITIs, PSCs, ATDCs, and private/NGO vocational institutions.

 Bring in innovative multi-media based teaching methodology and market oriented curriculum  Driven by SPV with industry participation  Government to provide one-time capital support Our Footprint

The Approach MoRD APPTEX Manpower Development Company Limited (SPV) Assistance towards



Equipment



Content development

 

Teaching aids O&M expenses

    

Provide equipment Content development Train the trainers Certification Placement Assistance Training Partners Advisory Committee Training Centres (Polytechnics/ ITIs/PSCs/ ATDCs/NGOs/ Private Entrepreneurs

  

Provide Land & Building Conduct programme Placement Trainee Feedback

Our Footprint

The Process flow

Identification

of Prospective Employer

Assessment

of manpower requirement Identification of

Potential catchment area

Identification of

BPL trainees

as per GoI Norms

Screening by SPV

representative with respect to suitability for training

Selection of trainees

Sending the trainees to

nearest training centre

by SPV

Training by the SPV

through training partner

Examination & Certification by training partner

under supervision of SPV

Placement by SPV

Our Footprint

IL&FS Anchoring the Initiative

     Concept developed and presented to major stakeholders SPV has been incorporated Content development is in progress Training partners have been identified Ministries of Rural Development and Textiles have agreed, in principle, to support the programme  Industry has agreed to be part of SPV and the programme  To be launched by Feb 2007 Our Footprint

Index



IL&FS-Cluster Development Initiative

 The Need  Vision  Approach & Methodology  Bouquet of Services  Our Footprint  The Organogram  Our Team  Why Us?

Our operating framework :

CEO SME Policy Experts Legal Experts Industry Technical Experts Marketing Experts Project Finance Experts Project Management Experts COO Infrastructure Planners Architects Engineers Environment Engineering Experts Brand Developers Cluster Capacity Building Expert Cluster Capacity Building Expert Cluster Capacity Building Expert Cluster Capacity Building Expert

Organogram

With emphasis on adding value to our clients by providing Multidisciplinary inputs Project Finance SPV Capacity Building Engineering Environment Specialists Legal Domain Expert

Organogram

Index



IL&FS-Cluster Development Initiative

 The Need  Vision  Approach & Methodology  Bouquet of Services  Our Footprint  The Organogram  Our Team  Why Us?

Skill Sets residing in-house:

 Given the breadth and depth of services provided by our team across projects, an in-house cross-functional team with following skill sets has been put in place       Industrial Domain Experts to assist in defining technical contours of the projects and providing SMEs access to technology and best practices Technical Experts to oversight physical project development Capacity Building Experts to develop SMEs’ capacity to move up the value chain Project Development Experts to interface with sponsors, State Governments, external technical consultants and other stakeholders on all aspects of project development Project Financing team to structure projects and raise external financing Legal, Accounting and Secretarial expertise from within IL&FS’ and outside Our Team

Our geographic presence helps us cater to the needs of our clients in the North, South, East or West

Jaipur Delhi Ahmedabad Mumbai Bangalore Hyderabad Chennai Palladam Kolkata

Our Team

Index



IL&FS-Cluster Development Initiative

 The Need  Vision  Approach & Methodology  Bouquet of Services  Our Footprint  The Organogram  Our Team  Why Us?

We believe in…

…………handholding India’s industrial growth through considerable contribution from the MSMEs, by providing them with strong infrastructure enablers through a collaborative approach, thereby ensuring trade related compliances and creating a conducive framework for MSMEs to move up the value chain efficiently and expeditiously

Thank you, and looking forward to work with you soon

www.ilfsindia.com

You could reach us at:

Sanjay Sethi IL&FS India Habitat Centre, 4 th Floor Lodhi Road, East Court, Zone VI, New Delhi - 110003 Tel: 91-11-24682060 to 63 Fax: 91-11-24682070 to 71 Email: [email protected]

Ravi Raman The IL&FS Financial Centre, 3 Bandra-Kurla Complex, Bandra (E) Mumbai - 400 051 Tel: 91-22-66947682 Fax: 91-22-66947700 Email: rd Floor [email protected]

www.ilfsindia.com