ANALYSIS OF MSME FINANCE IN CONTEXT OF PMEGP: LAW AND ECONOMICS APPROACH TO PROSPECTIVE NPA
In practice and in some cases, it has been observed that the Prime Minister Employment Generation Programme (PMEGP) is being utilized to avail subsidy amounts. On the other side, Government agencies like Khadi and Village Industries Commission (KVIC) and banks both institutions are both working to achieve targets provided by the GOVT. Therefore, the effectiveness of this programme depends not on target achievement but also on how far public funds/subsidies are utilized and benefitted to the targeted MSMEs. Also, in practice, there are concerns about free rider and rent-seeking activities, which may be due to inappropriate incentives being in place and costs/liabilities not being correctly placed. Even this programme lacks infrastructure bottlenecks and enforcement bottlenecks. On other side, year-on-year data and reports are published and seem impressive, but if it is verified and evaluated, how many MSME units have existed since the scheme came into force? The data will be thought-provoking that a significant percentage of such units were closed and do not have existence presently. Provision to finance extra funds to firms, if needed, there is the loan tenure in KVIC. Regular joint follow-up, interest subsidy, ease of compliance guidelines, increasing and implementing digital compliance tools, the introduction of geolocation marking for the financed firm and ensuring the proper utilization of public funds with employment generation are the keys to fulfilling PMEGP scheme objectives and development of the MSME sector. From the point of view of banking and financial institutions, the rent-seeking subsidy/incentive will not produce/contribute to ground-level outputs or employment generation. Because of it, the enterprise/manufacturing unit may become prospective insolvent or bankrupt at a later stage or post-subsidy period, which may create a problem of Non-Performing Assets (NPAs). However, Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) provide credit guarantees up to 50%, 75%, 80% and 85% depending upon different types of categories, which in fact, provide confidence to Banks and Financial Institutions to give loans and complete their set target loans. On the other side, there are chances of efficient/inefficient insolvency and bankruptcy cases in the MSMEs with the back plan of fund recovery through a credit grantor in case of genuine default. Therefore, the law and economics approach of PMEGP needs to be evaluated in the context of behaviour response from the stakeholders in the MSMEs.
Prime Minister Employment Generation Programme (PMEGP); MSMEs; Rent Seeking Activities; Incentives; Insolvency And Bankruptcy; Non-Performing Assets (NPAs); Law And Economics Approach.