ABSTRACT. This paper addresses policy issues concerning rural industrial clusters in India, highlighting the missing inclusive innovation dimension. The predominance of micro and informal enterprises in the huge number of rural clusters spread across the country has been a major challenge in planning for strategies to ensure the widest possible reach of formal support (whether finance, technology or marketing related) to these firms. An overemphasis upon the global market, neglecting the domestic market potential, has also reduced chances of many clusters to prosper as these primarily produce for sub-national and local consumers. The state policies have been insensitive to needs of rural clusters in terms of better business infrastructure, linking with innovation systems and accessing wider markets. Even the database on rural clusters is in a shambles. An uninnovative sectoral approach to rural cluster development has undermined the spatial infirmities of business. The policy efforts have been deeply embedded in a mode of ‘technology generation’ from formal and, at times, ‘elite’ organizations, without recognizing the dynamics of informality which is more a reflection of the existence of skewed income distribution helping thrive large low-end markets. This has been exasperated by the severe inadequacy or absence of institutions to carry forward a certain ‘technological’ change that could be broad-based. pp. 283–301
JEL: L52, L23, O17, O31

Keywords: Rural clusters, innovation, informality, India