State Of The Economy 2014

Errorgenous zones

Ernst & Young partner Abhaya Agarwal believes existing clusters need to be bolstered instead of setting up new ones

The national investment and manufacturing zone (NIMZ) is a new concept envisioned to revitalise manufacturing growth in the country. The concept of NIMZ was intended to capture the benefits arising out of clustering of manufacturing activities in integrated industrial townships with modern infrastructure, besides improving the competitiveness of industries.

Essentially, NIMZs will have multiple industries located closely so that they can benefit from co-location, further aided by infrastructure and friendly business regulations to lower the cost of production. Clustering has always been advocated in economic theory as a means to reduce the cost of production. Clusters are expected to bring in economies of scale and most developed nations have adopted this approach for industrial development at some point in their economic history. Of late, it has emerged as a major focus of economic policy dialogue given the focus on urbanisation. The development of “industrial corridors” is an extension of the cluster theory and India, in particular, is banking on a cluster-driven approach to industrial development. A closer look at the new manufacturing policy makes you realise that the government is banking heavily on NIMZ as a tool to put its policies into action. The key question is, can it work?

We can seek the answer from our own past experience. India has introduced many schemes and policies to develop clusters across industries. The schemes have been launched for promotion of both greenfield and existing clusters. However, the focus of the government has always been on new greenfield clu

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