Job creation under PMEGP dips as bad loans swell

Rising NPAs in micro and small industries and growing reluctance among banks to provide finance likely reasons

After the initial growth in job creation under the Prime Minister’s Employment Generation Program (PMEGP) since its launch in 2008-09, the numbers have been on a decline after 2011-12. Nodal agencies for the program such as KVIC attribute the fall to rising non-performing assets (NPAs) in micro and small industries and growing reluctance among banks to provide finance.

Currently, NPAs in micro and small enterprises sector stand at about 6-7%. According to data from nodal agencies, annual job creation under PMEGP declined from 428,221 persons in 2012-13 to 378,907 in 2013-14 and 138,728 persons in 2014-15.

“Banks are not easily financing small projects as they find it risky now. (The) Number of projects under PMEGP decreased mainly due to slow process of loan sanctions by banks which translated into weak result in employment generation,” said Arun Kumar Jha, chief executive officer of KVIC.

Earlier, the Ministry of Micro, Small and Medium Enterprises (MSME) had asked the Finance Ministry regarding slower sanctions of bank loans and delay in disbursement of margin money that had put pressure on progress of the scheme.

The maximum cost of the project admissible under manufacturing sector is Rs 25 lakh and for business and services sector it is Rs 10 lakh.

As per the data, in the year 2011-12 under PMEGP 55,135 projects had been financed by the government while the same decreased to 18,141 in 2014-15. Till 2013-14, government had approved over 50,000 projects after which the progress has been drastically hit.

According to sources in the MSME department, slowed bank sanctions have been affecting release of funds by the government. As a result, there have been cuts in funds due to non-utilisation at the rate set by the Finance Ministry.

While the target for year-on-year growth in credit to MSEs is set at 20%, the growth in MSE credit during 2014-15 in respect of public sector banks, private banks and foreign banks stood at 13.13%, 15.6% and 4.56%, respectively indicating shortfalls.

According to industry experts, small businessmen are not prepared for contingencies. Moreover, for the success of such a programme, the government needs to involve industry at the time of implementation as well.

Ajoy Bhattacharya, vice president, All India Confederation of Small & Micro Industries Associations (AICOSMIA) said, "Most of the time MSMEs are not so prepared to tackle problems that occur all of sudden which make them defaulter in banks. Industry and government both have to work on it."

PMEGP scheme, which is a flagship program of Ministry of MSME, was announced by Prime Minister of India on August 15. The scheme is implemented in rural areas through KVIC as well as states and union territories' khadi and village industry boards. In urban and rural areas the same is done through District Industries Centres (DIC) of states.

"It is also necessary to include industry personnel to implement such projects as they can be a bridge between government and industry who understand the both," Bhattacharya added.

The PMEGP applicant is required to bring in his own contribution of 10 per cent of the project cost (5 per cent for SC/ST and other weaker sections) with banks sanctioning loan for the balance 90 or 95 per cent of the project cost. After sanction of the credit by the bank, the beneficiary has to undergo EDP training and the eligible amount will be kept in a term deposit for three years in the account of the borrower.