Bridging credit gaps for Northeast MSMEs

Agricultural distress and slow industrial growth drive large-scale outmigration of youth from the northeast region, as the limited employment scope in both sectors is unable to absorb the growing workforce. Micro, Small and Medium Enterprises (MSMEs) play a crucial role in generating employment, absorbing unemployed youth in sectors like food processing, handloom and textiles, tourism and hospitality services, cane and bamboo products, etc., but inadequate credit linkage and weak marketing support have remained persistent challenges for MSMEs in the region to scale up their operations and market. The Prime Minister’s Employment Generation Programme (PMEGP) is an innovative policy response to address the challenges in MSME growth, as it helps aspiring entrepreneurs establish micro-enterprises in the non-farm sectors. Official data highlights an upward trend in actual expenditure under the scheme “Promotion of MSMEs in NER and Sikkim” over the last three consecutive financial years, yet interstate variation in PMEGP-supported units lays bare the harsh realities behind low-employment avenues, pushing more youth from the region to outside in search of alternative livelihoods. The MSME ministry attributes the interstate variation to low demand from some NE states. The Parliamentary Standing Committee on Industry views that such disparities reflect underlying institutional and banking constraints, including low sanction rates, inadequate project facilitation and uneven implementation capacity across states, and deserves far greater attention. Addressing these systemic gaps is essential to ensure that MSME interventions translate into real employment generation across all states in the region and units are able to absorb the growing number of youths joining the country’s labour force. The ministry’s argument that the utilisation under the PMEGP scheme continues to vary in different states, as it is a demand-driven state, may be logically correct, but it offers no real way forward, as it does not acknowledge the institutional bottleneck and instead shift the responsibility to aspiring entrepreneurs and their respective states. The parliamentary panel’s observation that while Assam continues to account for the highest number of assisted units, several states such as Manipur, Mizoram, Meghalaya and Sikkim show fluctuating or declining trends in recent years calls for a decisive shift from a passive demand-driven initiative to an active capacity-building approach which seeks to strengthen handholding support to aspiring entrepreneurs in project preparation, credit facilitation and the market linkage. There is little scope for complacency over individual success stories, as they cannot mask structural gaps and catalyse broader transformation to benefit the wider youth workforce. A key recommendation made by the Committee to overcome the challenge of inter-state variation was that the MSME Ministry fix state-wise PMEGP targets linked to past performance and absorptive capacity, provide focused handholding through Khadi and Village Industries Commission (KVIC), State Khadi and Village Industries Boards (KVIBs) and District Industries Centres (DIC) in consistently low-performing States, and conduct quarterly State-specific reviews to ensure timely grounding of projects and equitable distribution of benefits across all States in the region. The Ministry, however, expressed an inability, according to the Committee’s report, to implement it on the ground that, being a demand-driven scheme wherein financial assistance depends on the sanction of loans by financing banks based on their independent assessment of the technical and financial viability of each PMEGP project proposal, no state-wise budgetary allocation is made. The Committee reiterating its earlier recommendation that the Ministry adopt a focused strategy for improving PMEGP implementation in under-performing states of the region that includes state-specific action plans developed in coordination with lending institutions, the KVIC, KVIBs and DICs to improve the quality of project proposals, enhance credit sanction rates and strengthen post-sanction project facilitation is a pragmatic suggestion to foster uniform MSME growth. If PMEGP-assisted MSMEs grow more in number in Assam when the scheme implementation remains poor in neighbouring states, then migration of youth seeking employment opportunities from these states to Assam will only increase. Despite the significant increase in number, the capacity of MSME units in Assam still remains far less compared to growing unemployment, most of them from rural areas and farm families. The mismatch between demand and supply of the labour force in the state on account of the migration of youth from states where MSME growth is slow is likely to create social tension due to stiff competition over limited employment opportunities in the sector. The new PMEGP 2.0 portal enables end-to-end tracking of applications, including sanction and release of Margin Money subsidy, with real-time monitoring and system-generated alerts to the concerned stakeholders in case of delays, but more than technicalities, the Ministry and the States need to focus on impressing upon the banks to support MSME growth. The banks adhering to Reserve Bank of India directions that loan applications of first-time borrowers should not be rejected just because they do not have a credit history is crucial to remove bottlenecks in credit facilitation for MSME growth in the region.