Stacking Schemes: How Much Subsidy Can Aarti Actually Take?
Aarti, 34, lives in a village in Aurangabad district and wants to set up a ₹28 lakh flour-milling and spice-packing unit. She can raise ₹5 lakh of her own; a shed is available on a ten-year lease at ₹3,000 a month. Her bank has sanctioned term loans only against collateral and has asked for security worth ₹23 lakh, which she does not have. She has read about PMEGP, CGTMSE, Stand-Up India, the Maharashtra Package Scheme of Incentives and a district-industry-centre "Mahila" margin-money scheme, and wants to apply to all of them to maximise the money she receives. A friend has advised her to show the project cost as ₹35 lakh so that the subsidy amount comes out larger. She has no prior business experience and no formal training certificate.
1. Work out the PMEGP structure for the ₹28 lakh project and compare it with the Stand-Up India route.
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PMEGP route (rural woman = special category):
- Margin money (subsidy) at 35% of project cost = ₹9,80,000
- Own contribution at the special-category rate of 5% = ₹1,40,000
- Bank term loan = 28,00,000 − 9,80,000 − 1,40,000 = ₹16,80,000
- She has ₹5 lakh, so ₹3.6 lakh is left over for working capital - useful, because PMEGP funds fixed capital only.
Two conditions matter more than the arithmetic: the margin money is not cash. It is parked in a term deposit in her name for three years and adjusted against the loan only on satisfactory repayment; if the unit fails early, the subsidy is withdrawn. And PMEGP requires mandatory EDP training before the loan is released - she currently has no certificate, so this is the first task, not the last.
Stand-Up India route: a composite loan of ₹10 lakh to ₹1 crore, at least one such borrower per branch being a woman or SC/ST entrepreneur, collateral-free under the CGTMSE guarantee. It carries no margin-money subsidy. She would borrow the full ₹23 lakh and repay principal plus interest on the entire amount.
Comparison: PMEGP reduces her debt by about ₹9.8 lakh and therefore her EMI substantially, at the cost of a three-year lock-in and training. Stand-Up India is faster and covers working capital, but costs full interest. On a ₹28 lakh project where debt service is the biggest killer, PMEGP is the better primary route, provided she can meet the training and TDR conditions.
2. Which of the schemes can she combine, and what should she do about the advice to inflate the project to ₹35 lakh?
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Judge each component, do not stack whole schemes. The general rule in Indian subsidy administration is that the same fixed-capital asset cannot receive two capital subsidies. So:
- PMEGP margin money and Stand-Up India: treat as alternatives, not add-ons. A project claiming margin money under PMEGP cannot also claim the Stand-Up India loan for the same assets.
- CGTMSE: a guarantee cover, not a subsidy - it protects the bank, not her. It is exactly what solves her real problem (no collateral) and is compatible with a term loan, but most banks will not layer it over the PMEGP margin-money structure. Ask the branch which of the two it will use for collateral relief.
- State PSI capital subsidy: usually not admissible on assets already subsidised by a central scheme; but non-overlapping components - power tariff subsidy, quality-certification reimbursement, interest subvention on working capital - often are, because they are not capital subsidies. The DIC, not the internet, is the authority on this.
- "Mahila" margin-money scheme: verify whether it is a top-up or an alternative. If it is another capital subsidy, choose the larger one.
On inflating the project to ₹35 lakh: this is the most dangerous piece of advice she has received. Banks and the DIC verify quotations and valuations; margin money is computed on eligible actual cost, so inflated figures are simply disallowed, while the loan is sanctioned on the inflated figure - leaving her with a larger EMI on assets she never bought. False quotations on a subsidised project are subsidy fraud, with blacklisting and recovery consequences. Her genuine risk is the opposite one: under-costing working capital. Keep the project at ₹28 lakh and fund working capital separately.
3. What execution risks should she plan for in the first three years?
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The risks that actually sink first-time PMEGP units:
- Debt service from month one. The term loan is ₹16.8 lakh; the moratorium is short and the mill must generate cash from the first grinding season. She should build a month-wise cash-flow statement before signing, not after.
- TDR lock-in and subsidy withdrawal. If instalments slip, the margin money is adjusted or withdrawn instead of being a cushion. Treat the first 36 months as the real test period and never divert the EMI reserve.
- Working capital gap. PMEGP does not fund raw grain purchases, packaging stock or the credit she must give retailers. Her ₹3.6 lakh surplus plus a separate working-capital limit must be arranged before commissioning, otherwise the plant runs at half load.
- Leased shed and collateral. A ten-year lease at ₹3,000 is not mortgageable; confirm the bank accepts it and that the lease is registered and long enough to cover the loan tenure.
- Compliance stack: Udyam registration, FSSAI for the spice packing line, GST, MPCB consent and factory registration as the workforce grows. Missing Udyam costs her the 45-day payment protection she will need with wholesale buyers.
- Market risk: flour milling is a low-margin, high-volume, locally competitive business. Secure two or three institutional buyers (hostels, bakeries, retailers' associations) with written monthly offtake before drawing the full loan.