Prime Minister's Employment Generation Programme (PMEGP)

The Prime Minister's Employment Generation Programme (PMEGP) is a central government scheme that helps people start their own small business, instead of looking for a job. A person who wants to set up a small factory or service unit takes a loan from a bank, and the government pays a part of the project cost as a subsidy (money that does not have to be repaid).

This subsidy is called margin money. The goal is to create jobs, especially in villages and small towns, by turning job-seekers into job-creators.

Why does it exist?

India has a huge number of young people who need work every year, and there are not enough salaried jobs for all of them. Many people have a business idea and some skill, like making furniture, running a flour mill or a tailoring unit, but they lack money. Banks are cautious about lending to someone with no business history and no property to pledge. PMEGP solves this in two ways:

• the government's subsidy reduces the loan the person has to repay; and
• the person needs to put in only a small share of their own money.

It also aims to slow the migration of rural youth to cities by creating work close to home, and to support traditional artisans.

Where did it come from?

PMEGP was launched in August 2008 (financial year 2008-09) by merging two older schemes:

• the Prime Minister's Rojgar Yojana (PMRY), started in 1993 for educated unemployed youth, mainly run through District Industries Centres; and
• the Rural Employment Generation Programme (REGP), started in 1995 and run by the Khadi and Village Industries Commission (KVIC) for village industries.

The merger created one stronger scheme with one set of rules. It was continued in later plan periods and revised in 2021-22, when the Union Cabinet extended it for five years, 2021-22 to 2025-26, with an outlay of ₹13,554.42 crore. The aim then was to set up about 4 lakh projects and create about 30 lakh jobs (about 8 persons per unit). The 2021 revision also roughly doubled the maximum project cost.

Who runs it?

• Ministry: Ministry of Micro, Small and Medium Enterprises (MoMSME).
• Type: a Central Sector Scheme, which means the Union government pays the full cost and the states do not share it.
• National nodal agency: the Khadi and Village Industries Commission (KVIC), a statutory body set up under the KVIC Act, 1956.
• At the state and district level: State Khadi and Village Industries Boards (KVIBs) and District Industries Centres (DICs), along with KVIC's state offices. The Coir Board helps for coir-based projects.
• Banks: public sector banks, private banks, regional rural banks and cooperative banks give the actual loans.

How does it work, step by step?

1. The applicant applies online on the PMEGP e-portal with a project proposal (for example, a small bakery).
2. A district-level task force, with the implementing agency, checks the proposal and forwards it to a bank.
3. The bank checks whether the business can succeed (appraisal) and sanctions the loan.
4. The applicant completes a short Entrepreneurship Development Programme (EDP) training on how to run a business.
5. The government releases the margin money subsidy to the bank. It is kept in the applicant's name as a fixed deposit (Term Deposit Receipt) for three years. If the unit is still running after three years, the subsidy is adjusted against the loan, which reduces what the person owes.

A simple example: Ravi from a village belongs to the general category and wants to set up a ₹10 lakh manufacturing unit. He puts in 10% (₹1 lakh). The bank lends the rest. The government gives a 25% rural subsidy (₹2.5 lakh), which is later adjusted against his loan. So Ravi finally repays a much smaller loan than the ₹9 lakh he borrowed.

The key numbers

• Special category includes SC, ST, OBC, minorities, women, ex-servicemen, transgender persons, persons with disabilities, and applicants from the North Eastern Region, hill and border areas and aspirational districts.
• Maximum project cost: ₹50 lakh for manufacturing units and ₹20 lakh for service or business units (raised in 2021-22 from ₹25 lakh and ₹10 lakh).
• Eligibility: any individual above 18 years of age. There is no income ceiling. Self-help groups, registered societies, production cooperatives and charitable trusts can also apply.
• Education: at least Class VIII pass for manufacturing projects above ₹10 lakh and service projects above ₹5 lakh.
• Only new units: existing units, or units that already got a government subsidy under another scheme, cannot apply for the first loan.
• Negative list: some activities are not allowed, such as businesses linked to meat processing, intoxicants like liquor and tobacco, and some plantation crops.
• Second loan for growth: a successful existing PMEGP (or earlier REGP or MUDRA) unit can get a second loan to expand: up to ₹1 crore for manufacturing and ₹25 lakh for services, with a 15% subsidy (20% in the North East and hill states).
• Collateral: loans up to ₹10 lakh need no collateral; PMEGP loans are covered by credit guarantee schemes, such as that of the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), which pays the bank part of the loss if a borrower fails to repay.

India's experience and results

• Most PMEGP units are in rural areas, which matches the scheme's goal of creating work near home.
• The scheme has a high share of women entrepreneurs.
• Common units include food processing, garments, furniture, agro-based industries, repair services and small engineering workshops.
• PMEGP is one of several government tools for self-employment. Others include the Pradhan Mantri MUDRA Yojana (loans without subsidy), Stand-Up India and PM Vishwakarma.

Commonly confused concepts

• PMEGP vs MUDRA: PMEGP gives a capital subsidy (margin money) on a bank loan for a new unit. Pradhan Mantri MUDRA Yojana (launched 2015) gives loans without any subsidy, under the categories Shishu, Kishore, Tarun and Tarun Plus, for new or existing small businesses.
• PMEGP vs Stand-Up India: Stand-Up India (2016) helps SC, ST and women entrepreneurs get bank loans between ₹10 lakh and ₹1 crore for a greenfield (brand-new) enterprise. It has no general subsidy like PMEGP.
• PMEGP vs PM Vishwakarma: PM Vishwakarma (2023) supports traditional artisans in 18 trades (like carpenters, potters, blacksmiths) with skill training, a toolkit incentive and cheap loans at 5% interest. PMEGP is open to almost any new micro-enterprise.
• PMEGP vs PMRY and REGP: PMRY and REGP were the two older schemes that were merged into PMEGP in 2008. They no longer exist separately.
• Central Sector vs Centrally Sponsored Scheme: PMEGP is Central Sector (100% Union funding). In a Centrally Sponsored Scheme, the Centre and states share the cost.
• KVIC vs KVIB: KVIC is the national statutory body under the Union government. KVIBs are state-level boards set up by state governments.

Issues, criticism and the way forward

• Paperwork and delays: Applicants, especially first-time and rural ones, often find the documents and bank procedures hard. Applications can wait a long time in banks.
• Collateral demands: Even when rules say no collateral is needed for small loans, some bank branches still ask for it, which keeps out poor applicants.
• Bank rejections: A large share of applications forwarded by agencies are rejected or not sanctioned by banks, because banks worry about bad loans.
• Survival of units: Some units shut down within a few years. Physical verification of units, before and after sanction, and their geo-tagging have been suggested to check that real businesses are being funded.
• Low awareness: Many potential beneficiaries, including members of self-help groups, do not know about the scheme. Industry bodies have suggested using digital platforms and intermediaries to bring them in.
• Way forward: Simpler online processing, wider use of credit guarantees instead of collateral, better handholding (guidance after the loan, such as marketing and accounts help), and linking units to e-commerce and government buying platforms like GeM (Government e-Marketplace).

Concepts to Know

• Subsidy: Money given by the government to reduce someone's cost, which does not have to be repaid.
• Margin money: The part of a project's cost that a borrower must cover from sources other than the bank loan. Under PMEGP, the government pays most of this as a subsidy.
• Collateral: Property or valuables, like land, a house or gold, that a borrower pledges to the bank. If the loan is not repaid, the bank can take it.
• Credit guarantee: A promise by a fund to pay the bank part of its loss if a borrower does not repay. This makes banks more willing to lend without collateral.
• Statutory body: An organisation created by a law passed by Parliament or a state legislature. KVIC is one.
• Term Deposit Receipt (TDR): A fixed deposit in a bank for a set period.
• Outlay: The total amount of money the government plans to spend on a scheme over a period.
• Appraisal: The bank's check of whether a business plan is practical and the loan can be repaid.