structuring the financing.<sup>43</sup> Though bank financing still remained a difficult process, it was perceived that the scheme had made it possible where it was not before, and the support from PMCs was seen as particularly important for small to medium size firm entrepreneurs, most of whom lacked adequate financial skills and wanted to “focus on their business”.

Further, entrepreneurs in all the parks visited said grouping with peers had given them the confidence to invest more for expansion and upgrade. As mentioned above, machines in the parks visited were mostly recent or new ones, and even in the most modest units of the medium-sized Palladam weaving park in Tamil Nadu were highly automatized, high-quality ones originating mostly from Europe or Japan. From the interviews conducted, this investment behavior seemed likely due to the “riskpooling” effect of regrouping in the parks, e.g. the ability to share or delegate job work or even sell or buy machines from “neighbours”. The sharing of knowledge among entrepreneurs was also evident, and might have worked among workers too through the presence of common training facilities. In some cases this has also prompted competitive poaching, with workers more easily reallocated to more efficient users, though other parks have attempted to prevent this.<sup>44</sup> Branding may also have been made easier by the grouping into parks<sup>45</sup> , and with improved logistics has helped entrepreneurs access new markets, including internationally, especially in parks focusing on one specific part of the value chain (such as yarn in Surat, Gujarat, and weaving in Palladam, Tamil Nadu).

However, these effects in particular have been highly variable. In some parks the entrepreneurs were proactive in pursuing initiatives such as common purchasing, common order bidding, and common marketing. In others, the entrepreneurs were more passive or reactive, and such initiatives were less advanced, in several parks being an expressed wish which had not been acted upon.

Overall, there is uneven but substantial evidence that the scheme is generating agglomeration economies, though heterogeneously across parks. We postulate that some of these economies are driving the high investment/grant ratio observed, through increased risk-taking and modern machinery acquisition. If valid, agglomeration economies should also result in firms in the scheme substantially outperforming the rest of the sector in productivity, i.e., would result in meeting or at least approaching the scheme’s very ambitious productivity targets.

However, the unevenness of these effects across parks indicates some scope to do more: the scheme, through the SPV and its tasks, brings disorganized firms into a coherent group, creating a “soft” platform which can be built upon (more so than when firms simply take up space in a park built by the state or by a developer). We will return to this theme below.

_Negative side-effects on investment climate outside the park (“negative spillovers” and “crowding out”)_ There remain the risks of type (iv) failures, negative externalities. The design of the SITP consciously attempts to avoid its parks becoming instruments of “fiscal wars” that result in a “race to the bottom” among neighboring states, the most common and easiest spotted form of negative spillover. There is,

> 43 See again how IL&FS helped resolve the issue of common repayment of loans, as mentioned in section III and illustrated in Figure 3b.

> 44 A 2011 study by Grant Thortnton for FICCI mentions the case of one park member offering higher wages than others and disturbing less profitable members. To avoid conflict, in some Parks, members agreed upon a fixed salary to be offered to a new entrant for first six months and not to poach each others workers.

> 45 These initiatives can benefit from the collaboration established with PMCs. For example, IL&FS has helped the SPVs it advises choose a specific brand name and logo for their park.

22