The MSME Paradox in the Northeast

The MSMEs (Micro, Small and Medium Enterprises) are the new engines of economic growth for a region like the Northeast. As a dearth of land and fragile ecology pose hurdles for the establishment of big industries for accelerating industrialization, the micro-enterprises play a crucial role in generating employment and stirring up the rural economy in the region. The decline in the number of micro-enterprises assisted under the flagship Prime Minister Employment Generation Programme (PMEGP) in some of the states in the region, including Tripura, Arunachal Pradesh and Mizoram, is a striking paradox that cannot be ignored. The worrying trend demands a review of the strategy for PMEGP implementation and a rearticulation of it to address regional issues. The recommendation by the Parliamentary Standing Committee on Industry for developing a state-specific implementation framework for PMEGP in the region is pragmatic and deserves urgent attention by the government. The parliamentary panel has observed that while PMEGP provides enhanced financial incentives and sectoral flexibilities for beneficiaries in the region, the decline in MSMEs supported by the flagship scheme indicates that existing provisions are not yielding uniform results across the region and that structural and operational challenges may be limiting uptake and impact. This reality highlights the limitations of an overarching framework in bringing about transformative changes in a region where the strength of each state often lies in diversities rather than on commonalities. Weaving as a traditional and cultural practice is a commonality observed among the people in all the states of the region. Yet, different indigenous communities have different cultural significance of this traditional practice, with some communities being content with only meeting their own household needs for clothes rather than commercialising their age-old cultural practice to increase household income. The PMEGPs-supported weaving enterprises in the region, therefore, cannot have the same yardstick of commercial success or failure. The parliamentary committee’s recommendation that the framework should include quarterly performance benchmarks, localised outreach strategies, and capacity-building partnerships tailored to tribal communities, youth, and women entrepreneurs is crucial in the backdrop of this social reality. Developing the training and mentorship programmes run for PMEGP-assisted units needs to suit unique socio-economic requirements in each state or different indigenous communities within a state. Review and formulation of a new state-specific framework for PMEGP implementation in the region must be completely free from a one-size-fits-all approach for various components of the flagship programme and for various micro units. Some of the concessions provided to entrepreneurs in the Northeast region and other special category states to set up MSMEs under PMEGP include a margin money subsidy of 35% in rural areas and 25% in urban areas, as opposed to 25% in rural areas and 15% in urban areas in the case of general category states, and the own contribution of beneficiaries belonging to the region is 5% of the project cost, as opposed to 10% in general category states. The committee’s recommendation for the creation of a digital monitoring dashboard, a dedicated coordination platform involving state governments, district-level MSME offices, and financial institutions to streamline approvals, accelerate project execution, and improve last-mile delivery, is essential to address structural deficiencies and for an integrated approach. It is pertinent to find out whether the problem behind the decline in MSME units in the region lies in administrative bottlenecks, financial constraints, market linkage or the community’s inertia towards commercial-scale production. With significant improvement in connectivity in the region and the spread of digital technology bringing the markets closer to the MSME owners in the region, the market linkage has also improved significantly. Flooding of machine-made replicas of handloom and handicraft items from the region supplied from other states is indicative of the widening gap between demand and supply of traditional handloom and handicraft items. This implies that MSMEs in this sector in different Northeastern states have not been able to tap the market potential that exists within the region when they are facing hurdles in reaching out to more consumers in the domestic markets or consumers abroad. While government support systems, including financial assistance and incentives, play the catalyst role in MSME growth, any business enterprise, be it a micro unit or a large unit, must be able to offer products or services that have a competitive advantage over a similar product range from other enterprises. Apart from cost-effectiveness, the uniqueness of the product, marketing strategies, packaging and branding play the crucial role for the sustainability of an MSME unit, as they create a lasting impression among consumers. The challenges of MSME growth and sustainability lie in entrepreneurs gradually building capacity to reduce dependence on government assistance after the initial incubation period and identifying core strengths of their organic business ideas and aligning them with market dynamics. Review of government assistance to MSMEs should focus more on creating the ecosystem for smooth bank finance, simplification of licensing, and infrastructural support than on routine review of fund release and utilisation.