Scaling Success, Sustaining Growth: How PMEGP Empowers Entrepreneurs

“Until a few years ago, I struggled to keep my small tailoring shop running. I had the ability but not the capital and equipment. So, I could only make ends meet. Today, my business is successful, and I can employ workers too. Today, I can envision a future that I could not have imagined a few years ago.”— Abhay Kumar, PMEGP Beneficiary, Hazaribagh.

Abhay Kumar’s story, although one of many, is a powerful illustration of the successes of the Prime Minister’s Employment Generation Program (PMEGP). Despite his talent and determination, Kumar, a tailor, could not scale up his business to ensure financial stability. Like many rural entrepreneurs, he faced major roadblocks, such as uncertain cash flows and limited market access, which in turn inhibited their ability to invest in expensive—but critical—machinery or create a sizeable stock of raw materials.

However, things changed as Kumar was able to secure a PMEGP loan through the help of Grant Thornton Bharat under their Atmanirbhar Hazaribagh initiative. As we shall discuss in the following section, the structure of the loan under the program not only meets the immediate capital needs but also has a revolving component that ensures the cyclicity of an entrepreneur’s business needs is met.

Since it began in 2008, PMEGP has benefitted over 10 lakh microenterprises and created over 80 lakh jobs. In recent years, however, the program has experienced a concerning downturn—in the current financial year, 2024-25, the volume of loans sanctioned under the program has declined by 45%. Given the scale of its impact and our experience interacting with the woodworking and textile artisans under the Atmanirbhar Hazaribagh initiative, we propose that the Union Government consider expanding and continuing PMEGP beyond FY 2026, when it is set to expire.

Understanding PMEGP: The Structure of the Program

PMEGP is a union government program implemented by the Khadi and Village Industries Commission (KVIC) to promote micro-enterprises in rural and semi-urban locations. Individuals aged 18 and above with at least an eighth grade education are eligible to obtain a PMEGP loan for projects with a maximum project cost of 50 lakhs for manufacturing units and 20 lakhs for services units.

It consists of both a conventional term loan component as well as a working capital component in the form of cash credit. Additionally, the term-loan component is significantly subsidized—up to 35% of the project cost. This combination of term and working capital loans makes PMEGP particularly attractive compared to more traditional loan schemes, as it identifies both the lumpsum infrastructure investment needs as well as the cyclic and flexible working capital needs of an enterprise. Beneficiaries are also trained to develop their capacities in financial and business management, ensuring that they are equipped to scale up and sustain their enterprise.

How the Revolving Loan Facility Sets PMEGP Apart

The revolving loan component of the PMEGP sets the program apart from other government schemes as it accounts for the cyclical nature of business and rewards good repayment behavior. By breaking from the rigid repayment structure and high interest rates that characterize conventional loans, PMEGP helps entrepreneurs, such as Abhay, to reinvest their earnings into their business without the stress of immediate full repayments, ensuring better cash flow management.

This model is particularly effective for businesses that experience seasonal demand fluctuations, such as textile and woodwork. For example, Abhay’s tailoring business experiences higher demand during festive and wedding seasons. The flexibility of PMEGP financing allows him to stock up on raw materials during the off-peak seasons and keep operations running smoothly during the cut-throat peak seasons.

A Push Towards Local Economic Transformation

By catering to the capital needs of micro-enterprises, PMEGP not only creates individual success stories such as that of Abhay Kumar but also contributes to the transformation of the local economy. The economic shocks of the COVID-19 pandemic, as well as the lethargic recovery of the manufacturing sector, have pushed millions of workers back into agriculture—in 2019, 42.5% of India’s labor force was engaged in agriculture, while in 2024, the share is 46.1%. Therefore, programs such as the PMEGP play a crucial role in helping workers transition away from agriculture. As rural entrepreneurs scale up their enterprises, they create both permanent and ad-hoc job opportunities for workers who would otherwise be underemployed in agriculture.

Our experience in Hazaribagh also shows the special potential of the program in smaller, less industrialized states such as Jharkhand. Public data from the NSSO and the Ministry of MSMEs shows that the majority of manufacturing units are concentrated in western and southern states. On the other hand, states in the eastern and northern parts of the country have overwhelming dependence on agriculture, with the growth of traditional craftworks being stymied due to capital and capacity constraints. As a result, PMEGP has a vast potential to transform the local economy in these regions.  Given that the scheme, as it stands, is valid till 2026, expansion or continuation, if any, should consider regional disparities and beneficiary targets should be larger for states with smaller MSME and manufacturing sectors.

However, PMEGP is not without its challenges. A major concern is its complex application process that either creates delays or discourages potential applicants. Although program guidelines specify that an online application process must be followed, the banks responsible for processing the applications continue to require in-person approvals and document submissions. This approval chain must be streamlined for the program to realize its potential. Additionally, banks should be incentivized to align their commercial interests with the program’s emphasis on boosting the MSME sector and transforming the local economy.

Atish Padhy – Deputy Research Manager, Sambodhi

Manmeet Kaur – Research Manager, Sambodhi

Tanu Sarathe – Deputy Research Manager, Sambodhi