Project Report

On

Whether PMEGP Is Beneficial for Employment Generation

Submitted By: Pratik Jhaveri eMBA Fin(B &I) Roll No.34

Objectives of the Programme PMEGP was launched to generate employment opportunities by establishing micro enterprises in urban as well as in rural areas. Here are the objectives of this program: 1. Increase artisans wage earning capacity and contribute to raise the growth rate of urban and rural employment. 2. Provide sustainable and continuous employment to a huge portion of prospective and traditional artisans as well as urban and rural unemployed youth to help arrest rural youth to urban areas migration. 3. To bring widely dispersed traditional artisans/urban and rural unemployed youth together in order to give them opportunities for selfemployment. 4. To generate employment opportunities for both urban and rural country areas by setting up new self-employment micro enterprises/projects/ventures. Nature of Financial Assistance The approval of this proposal came from Cabinet Committee on Economic Affairs. The subsidy levels or cost limit of units or projects that could be established was extended to the rural areas as well. To ensure inclusive growth, higher subsidy levels are given to those beneficiaries that belong to marginalized society sections like Schedule Tribes, Schedule Castes, Women, Minorities, Other Backward Classes, Physically Handicapped, etc. Eligibility of Beneficiaries Here is a list of eligibility conditions for those who want to be beneficiaries of this program: 1. Any individual as long as he or she is 18 years old and above. 2. For setting up PMEGP projects, no income ceiling is required for assistance. 3. Beneficiaries should have a standard pass educational qualification at least for setting up project in the manufacturing section costing over Rs.10 lakh and in the service/business sector above Rs. 5 lakh. 4. Only new projects specifically sanctioned under PMEGP is available for assistance under the scheme.
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5. Self Help Groups that have not availed of any benefit from other schemes are also eligible for this assistance. 6. Charitable Trusts 7. Production Co-operative Societies 8. Institutions registered under the Societies Registration Act 1860 9. Those existing units (under REGP, PMRY, or other schemes under State Government or Government of India) as well as those units that have previously availed any Government Subsidy are not eligible here. Other Eligibility Conditions Include the Following: PMEGP is also applicable to new viable micro enterprises including the projects of Village industries except those listed in negative activities.

For application of institutions, certified copy of bye-laws is required to be attached to Margin Money (subsidy) claim. Certified copy of community/caste certificate or other relevant document thats issued by any competent authority. In case of special categories, this is required to be produced to the branch of the concerned bank along with Margin Money (subsidy) claim. Project cost will include one cycle of Working Capital and Capital Expenditure. Projects costing over Rs. 5 lakh does not require working capital and does not need clearance from Bank Branch Controller or Regional Office claims are required and should be submitted with a copy of certified approval from Controller or Regional Office. Take note that projects without Capital Expenditure will not be eligible under this financing scheme. The cost of the land should be included in Project cost. Rental or long lease Workshop/Workshed as well as ready built land is calculated for a 3-year maximum period only.

Implementing Agencies This scheme will be implemented through KVIC (Khadi and Village Industries Commission), Mumbai this is a statutory body thats created by KVIC Act 1956 with a single nodal agency at national level. The scheme is implemented
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through District Industries Centres, KVIBs (Khadi and Village Industry Boards), and State Directorates of KVIC in rural areas. On the other hand, urban areas implementation will be in coordination with DICs (State District Industries Centres) only. As of today, KVIC is coordinating with State DICs/State KVIBs to monitor performance in urban and rural areas. To identify beneficiaries under PMEGP, DICs and KVIC will also involve Udyami Mitras empanelled under RGUMY (Rajiv Gandhi Udyami Mitra Yojana), NSIC, Panchayati Raj Institutions and other reputable NGOs (NonGovernment Organizations). Financial Institution (i) 27 Public Sector Banks. (ii) All Regional Rural Banks. (iii) Co-operative Banks approved by State Level Task Force Committee headed by Principal Secretary(Industries)/Commissioner (Industries) (iv) Private Sector Scheduled Commercial Banks approved by State Level Task Force Committee headed by Principal Secretary(Industries)/Commissioner (Industries). (v) Small Industries Development Bank of India (SIDBI). Identification of beneficiaries: The identification of beneficiaries will be done at the district level by a Task Force consisting of representatives from KVIC/State KVIB and State DICs and Banks. The Task force would be headed by the District Magistrate / Deputy Commissioner / Collector concerned. The Bankers should be involved right from the beginning to ensure that bunching of applications is avoided. However, the applicants, who have already undergone training of at least 2 weeks under Entrepreneurship Development Programme (EDP) / Skill Development Programme (SDP) / Entrepreneurship cum Skill Development Programme (ESDP) or Vocational Training (VT) will be allowed to submit applications directly to Banks. However, the Banks will refer the application to the Task Force for its consideration. Exaggeration in the cost of the project with a view only to availing higher amount of subsidy should not be allowed. KVIC will devise a score card in consultation with SBI and RBI, and forward it to the District Level Task Force and other State/District functionaries .This score board will form the basis for the selection of beneficiaries.This score card will also be displayed on the websites of KVIC and Ministry. The selection process should be through a transparent, objective and fair process and Panchayati Raj Institutions should be involved in the process of selection .

Bank Finance The Bank will sanction 90% of the project cost in case of General Category of beneficiary/institution and 95% in case of special category of the beneficiary/institution, and disburse full amount suitably for setting up of the project.

Bank will finance Capital Expenditure in the form of Term Loan and Working Capital in the form of cash credit. Project can also be financed by the Bank in the form of Composite Loan consisting of Capital Expenditure and Working Capital. The amount of Bank Credit will be ranging between 60-75% of the total project cost after deducting 15-35% of margin money (subsidy) and owners contribution of 10% from beneficiaries belonging to general category and 5% from beneficiaries belonging to special categories. This scheme will thus require enhanced allocations and sanction of loans from participating banks. This is expected to be achieved as Reserve Bank of India (RBI) has already issued guidelines to the Public Sector Banks to ensure 20 % year to year growth in credit to MSME Sector. SIDBI is also strengthening its credit operations to micro enterprises so as to cover 50 lakh additional beneficiaries over five years beginning 2006-07, and is recognized as a participating financial institution under PMEGP besides other scheduled/ Commercial Banks. Though Banks will claim Margin Money (subsidy) on the basis of projections of Capital Expenditure in the project report and sanction thereof, Margin Money (subsidy) on the actual availment of Capital Expenditure only will be retained and excess, if any, will be refunded to KVIC, immediately after the project is ready for commencement of production. Working Capital component should be utilized in such a way that at one point of stage it touches 100% limit of Cash Credit within three years of lock in period of Margin Money and not less than 75% utilization of the sanctioned limit. If it does not touch aforesaid limit, proportionate amount of the Margin Money (subsidy) is to be recovered by the Bank/Financial Institution and refunded to the KVIC at the end of the third year. Rate of interest and repayment schedule Normal rate of interest shall be charged. Repayment schedule may range between 3 to 7 years after an initial moratorium as may be
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prescribed by the concerned bank/financial institution. It has been observed that banks have been routinely insisting on credit guarantee coverage irrespective of the merits of the proposal. This approach needs to be discouraged. RBI will issue necessary guidelines to the Banks to accord priority in sanctioning projects under PMEGP. RBI will also issue suitable guidelines as to which RRBs and other banks will be excluded from implementing the Scheme. Village Industry Any Village Industry including Coir based projects (except those mentioned in the negative list) located in the rural area which produces any goods or renders any service with or without the use of power and in which the fixed capital investment per head of a full time artisan or worker i.e. Capital Expenditure on workshop/ workshed, machinery and furniture divided by full time employment created by the project does not exceed Rs. 1 lakh in plain areas and Rs.1.50 lakh in hilly areas. Rural Area (i) Any area classified as Village as per the revenue record of the State/Union Territory, irrespective of population. (ii) It will also include any area even if classified as town, provided its population does not exceed 20,000 persons.

Queries About Whether PMEGP is Beneficial in Employment Generation ? Queries about Prime Minister's Employment Generation Programme (PMEGP). Brief details about the scheme and also how MSMEs can benefit from this programme? PMEGP is one of the important schemes of Ministry of MSME which is a credit linked scheme implemented by Khadi and Village Industries Commission (KVIC) as the nodal agency at national level while at the field level, the State Offices of KVIC, State Khadi and Village Industries Boards (KVIBs), District Industries Centres (DICs) are the Principal implementing agencies. KVIC/ KVIBs are implementing the Scheme in rural areas and DICs in urban as well as rural areas with the involvement of Banks. The applications received by implementing agencies are placed before the District Task Force Committees at the district level where the applications are screened and beneficiaries interviewed and the applications recommended to Banks for sanction of loan. The Scheme provides financial assistance to the first generation entrepreneurs in the form of margin money subsidy for setting up of micro enterprises for which loan is provided by banks. Assistance under PMEGP is available for setting up of new micro enterprises under the MSME sector. The margin money subsidy levels under PMEGP are as under: Categories of beneficiaries Area ( Location of project/unit) General 10% Owners contribution Rate of Subsidy ( of cost of project) Urban 15% 25% Rural 25% 35%

Special (including SC/ ST/ 05% OBC/ Minorities/ Women, Exservicemen, PHs, NER, Hill and Border Areas)

A total of Margin Money outlay of Rs. 4735 crore has been earmarked for four years beginning 2008-09 till 2011-12 for PMEGP which will enable around 3.74 lakh micro enterprises to be set up during this period helping generate estimated employment opportunities for 37.38 lakh persons. State-wise targets for setting up of projects, utilization of margin money and
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generation of employment opporotunites for PMEGP allocated to States/UTs for 2008-09 and targets announced for 2009-10. The details are as under:Year 2008-09 2009-10 No of projects 61227 61697 Margin Money (Rs. crore) 737.17 740.33 Employment (lakh persons) 612245 616937

PMEGP is a big task and we have queries about the implementation of scheme. How is the ministry mplementing PMEGP? During the first year of implementation of PMEGP evoked massive response, 2.18 lakh applications were received up to 31.03.2009, of which a total of 36,287 projects were sanctioned by Banks which involved margin money subsidy of Rs. 506.03 crore helping generate estimated employment to 3.63 persons.

MSMEs are complaining that banks are not doing their job as per the scheme. There have been some instances where beneficiaries have complained of difficulties in getting their loans sanctioned. Immediate action was taken by the Ministry with the CMDs of the concerned Banks to remedy the situation. KVIC in this regard with all Banks to ensure that there is no delay or problem in sanctioning loans under PMEGP. Efforts in this regard will continue to be made by the Ministry through monitoring committee meetings with Senior Officers of State Govt., State KVIBs and KVIC and representatives of banks. CEO, KVIC at his level is also regularly reviewing the performance of PMEGP with the implementing agencies. KVIC has also taken up the matter with RBI to impress upon banks to provide loans under PMEGP without delay. Some small businessmen claim that DICs are not entertaining new applications saying that their target of loans have already been met. DICs are not the only implementing agencies under PMEGP in rural areas. The beneficiaries in such a situation can approach KVIC/ State KVIBs with their applications. Targets have been distributed among KVIC/ KVIBs and DIC in the ratio of 60:40. However, if specific instances are brought to the notice of the CEO, KVIC and the Ministry, immediate action will be taken in consultation with the Principal Secretary (Industries) of the concerned State to ensure that applicants do not face problems. The ministry has finalized Rs. 160 crore worth of stimulus package for the IT industry,some details about the package One of the components under the National Manufacturing Competitiveness Programme relates to "Promotion of Information & Communication Tools (ICT)" in Indian MSME sector. The programme envisages identification of some of those clusters of SMEs, which have quality production and export potential, for assisting them in adopting ICT applications to achieve competitiveness in the national and international markets. The total GoI contribution is stipulated as Rs.160 crore for this scheme. The broad activities planned under the scheme include identifying target clusters for ICT intervention, setting up of e-readiness infrastructure, developing web portals for clusters, skill development of MSME staff in ICT applications, preparation of local software solutions for MSMEs to enhance their competitiveness, construction of e-catalogue, e-commerce, etc. and networking of MSME cluster portals on the National Level Portals.
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