park development, the identification and purchase of land. This is in contrast with other park programs where firms are called to fill in a park only after its completion, and therefore would be expected to have less sense of common belonging.

In other words, the means by which the scheme creates “hard” infrastructure also creates “soft”, in the form of a platform for the development of cluster effects. In that case, it may be that some form of limited support for demonstration effects may be an appropriate addition to SPV costs in SITP, but this would require further investigation.<sup>64</sup> It should also be investigated how certain design features, for example the format of monitoring reports, might divert efforts from developing such effects, though they have proven relatively effective at getting the common infrastructure built. An open question is to what extent the scheme will have the capacity to learn about and improve on such design features and their effects.

# _The prospects of expansion_

The relative success of the scheme has motivated its expansion, both in terms of adding new parks under SITP itself, as well as the model spreading to other sectors. Several other government entities and ministries, as well as some states, have now devised schemes that are highly similar to SITP **.** As mentioned above, the Department of Industrial Policy and Promotion (DIPP) already had a similar scheme, the Industrial Infrastructure Upgradation Scheme (IIUS) launched in 2003.

By definition it supports the upgrading of _existing_ clusters, and did not initially require the involvement of a PMC or equivalent. IIUS was however modified in 2009 to add a “Project Management Agency” (PMA), engaged by DIPP to carry out the financial and technical appraisal of the projects, together with a requirement for entrepreneurs to “ensure that the project proposal is of highest quality and a consultancy organization of national repute is engaged for its preparation”. However it has had to rely on much more generous grant amounts and conditions to generate enough demand.<sup>65</sup> Other sectors also now have similar schemes in various stages under their respective ministries: plastics under the Ministry of Fertilizers and Petroleum Products; the Mega Food Parks Schemes of the MoFP (replaces the more traditional FPS with an SITP-like scheme); leather under the Ministry of Commerce; engineering under the Ministry of Heavy Industries; and IT-Electronics with the recently launched Electronics Manufacturing Clusters (EMCs) of the Department of Electronics and Information Technology (DEITy). In such cases, it will be important that the relative roles, incentives and grant structures that work in the SITP are maintained and that the scheme is not pushed into sectors or contexts where its key features will no longer be effective. As noted above, this particularly relates to the industry structure, the capabilities of firms, and the size of the parks. We would, for example, be cautious about the prospects for “mega food parks”.

Given their importance, the capacity and incentives of the PMCs must also be kept in mind. For example, despite the competitive selection mechanism, PMCs might have weaker incentives to perform on each additional park they are awarded, once they each have “enough” parks to manage, i.e., such that losing access to new parks would lose some of its effectiveness in discipline. Moreover, if there are too few PMCs, their market might become oligopolistic. Neither risk appears likely at the moment, and in its inception the scheme only had one PMC, IL&FS, with few to no signs of nonperformance by it while a monopoly. As such, the competition between PMCs, while important, may

> 64 Bloom, N., McKenzie, D. & al. (2012). Does management matter? Evidence from India. NBER Working Paper.

> 65 The IIUS was typically offering grants worth 75% of project costs, subject to a ceiling of Rs. 50 crore. Further details are available from the authors on request.

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