Syllabus: GS– III & V: Inclusive Growth

Why in the News?

The Parliamentary Standing Committee on Industry has flagged a decline in project support under the Prime Minister’s Employment Generation Programme in several Northeastern states since 2021–22, indicating underutilisation of a key employment-generation scheme in a region facing large-scale youth migration.

Why PMEGP Matters for the Northeast

• The Northeast region continues to depend largely on subsistence agriculture, with slow transition to commercial farming and allied activities.
• Limited local employment opportunities force lakhs of rural youth to migrate outside the region for work.
• Strengthening Micro, Small and Medium Enterprises through PMEGP offers a practical pathway to:
  • Local job creation
  • Value addition in agriculture and allied sectors
  • Reduction in distress migration
    

What is PMEGP?

• • Prime Minister’s Employment Generation Programme is a credit-linked subsidy scheme administered by the Ministry of MSME, implemented by the Khadi and Village Industries Commission.

• Objective:

• • To promote self-employment
  • To generate sustainable jobs through micro-enterprises in manufacturing, services and allied sectors.
• The scheme is demand-driven, with project sanction and loan disbursement handled by banks.

Special Incentives for the Northeast

• PMEGP provides enhanced benefits to Northeastern states:
  • Higher Margin Money Subsidy:
    • Rural Areas: 35% (compared to 25% for general category states).
    • Urban Areas: 25% (compared to 15% for general category states).
  • Beneficiary contribution: It is the entrepreneur’s own contribution to the project cost.
    • Only 5% of project cost (vs 10% elsewhere)
  • Second loan up to one crore rupees for expansion of well-performing units with 20% subsidy (compared to 15% in other areas).
  • No ceiling on transport sector projects, unlike the 10% cap in other regions
    

Key Concerns Highlighted by Parliament

• Despite incentives, subsidy allocation increased marginally from ₹180 crore in 2021–22 to ₹231 crore in 2024–25, indicating weak demand. Major bottlenecks include:
• Banking Outreach and Connectivity Gaps: Persistent barriers like limited banking outreach and poor connectivity, discourage potential applicants.
• Procedural Delays and Scrutiny: Extensive scrutiny and load of paperwork, particularly for small-value loans, which discourages many first-time entrepreneurs.
• Bank Rejection Issues: Grounds for rejection by banks were often not valid, revealing a critical gap in the financial institution’s cooperation.
• Implementation Gaps: Delay/Non-receipt of margin money subsidy and technical glitches in the PMEGP portal.

Recommended Reforms

• Streamlining the Application Process: Introduction of self-certification mechanism for loans up to ₹10 lakh to reduce delays.
• Addressing Banking Gaps: Random sample verification instead of full scrutiny for small loans.
  • Stronger monitoring of banks to ensure fair appraisal and timely release of subsidy.
• Linguistic Support: Wider publicity of offline PMEGP applications now accepted in 12 scheduled languages, including Assamese, to overcome language barriers.
• Technological Support: Automation of application scrutiny by the Khadi and Village Industries Commission.
• Boosting Backward Linkages: For the sustainability of MSME units, the availability of raw materials locally is crucial. 
  • This necessitates that state governments in the NER prioritise boosting production in agriculture and allied sectors to supply the MSMEs established under PMEGP.

Way Forward

• State governments must treat PMEGP as a core employment strategy, not merely a subsidy scheme.
• Focus should shift from targets and statistics to handholding, credit facilitation and enterprise mentoring.
• Reviving PMEGP effectively can transform the Northeast from a migration-driven economy to a local enterprise-led growth model.
  

Exam Hook: Key Takeaways

• PMEGP as Migration Reversal Tool: PMEGP’s success is vital to stem the large-scale youth migration from the Northeast by creating local self-employment opportunities.
• Dual Challenge: The NER faces a dual challenge: having significant financial incentives but low scheme uptake due to administrative and procedural bottlenecks, particularly at the bank level.

The PMEGP is a well-designed scheme, but its true success in the Northeast hinges on replacing procedural bottlenecks and manual scrutiny with efficient, language-friendly, and transparent implementation practices.

Mains Question:

“Despite special incentives, the Prime Minister’s Employment Generation Programme has underperformed in the Northeast. Examine the reasons and suggest reforms to make it an effective tool for employment generation.”

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