Khadi and Village Industries Commission

Indian Economy glossary

Also called: KVIC · Topic: Industrial Policy, Public Sector, MSMEs and Disinvestment · NCERT: Beyond NCERT

Meaning

The Khadi and Village Industries Commission (KVIC) is a statutory body set up under the KVIC Act, 1956 (a law passed by Parliament) and placed under the Ministry of MSME. Its job is to plan, promote and support khadi (cloth that is hand-spun and hand-woven) and village industries (small rural units that use local raw materials, simple tools and family labour).

KVIC matters because it is the national body that carries Gandhian rural industry into the planned economy. Today it is also the national implementing agency for PMEGP, India's main credit-linked subsidy scheme for new micro-enterprises.

Explanation

Why it was created: rural industry as a route to jobs

  • The Karve Committee (Village and Small-Scale Industries Committee, 1955) saw small and village industry as a route to rural development.
  • The KVIC Act followed in 1956. In the same year, IPR 1956 put the state in charge of heavy industry.
  • The logic: two tracks for industry
  • The Mahalanobis strategy made big industry capital-intensive, meaning it used many machines but few workers per unit of output.
  • That kind of industry could not absorb India's large rural labour force.

  • So labour-intensive cottage and village industries were meant to create jobs where people already lived.

  • Cottage industry means household production that uses family labour, simple tools and local materials. KVIC is the main support body for it.

What KVIC does: its functions

  • Promotion and planning: it plans programmes for khadi and village industries and runs them.
  • Finance: it routes government money to rural units as subsidy and assistance.
  • Scheme delivery: it implements central schemes for rural non-farm enterprise. The two main ones are:
  • PMEGP, as the national nodal agency;

  • SFURTI, the cluster scheme for traditional industries, which it runs together with the Coir Board.

  • Multi-agency delivery: KVIC works through the following bodies:

  • KVIBs (State Khadi and Village Industries Boards);
  • DICs (District Industries Centres, set up in 1978);
  • the Coir Board;
  • banks, which sanction the loans.

KVIC and PMEGP: how the money flows

  • PMEGP began in 2008 when two older schemes were merged:
  • REGP (Rural Employment Generation Programme), which KVIC ran;

  • PMRY (Prime Minister's Rojgar Yojana), which the DICs ran.

  • It is a credit-linked subsidy. The bank sanctions a loan first. Then the government's margin money (MM) subsidy (a share of project cost the government pays) is added on top of that loan.

  • It covers only new units in the non-farm sector.
  • Subsidy rates:
  • General category: 25% in rural areas, 15% in urban areas;

  • Special category: 35% rural, 25% urban.

  • Own contribution (the share the entrepreneur pays): 10% for General category, 5% for Special category.

  • Maximum project cost: ₹50 lakh for manufacturing and ₹20 lakh for services. These limits were raised from ₹25 lakh and ₹10 lakh for the 2021-22 to 2025-26 cycle.

Worked example (illustration using the rates above)

  • A woman sets up a ₹10 lakh manufacturing unit in a village. She is in the Special category.
  • Her own contribution is 5%, which is ₹50,000.
  • The bank loan covers the rest, which is ₹9.5 lakh.

  • The MM subsidy is 35% of ₹10 lakh, which is ₹3.5 lakh. It is adjusted against the bank loan, so she repays much less.

  • A General-category urban applicant with the same project would pay ₹1 lakh (10%) and get only ₹1.5 lakh (15%) as subsidy.

What makes KVIC's work succeed or fail

  • Bank behaviour: banks reject about 40–50% of PMEGP applications. One reason is heavy reliance on CIBIL scores (a credit score built from a person's past loans), and first-time borrowers have no such history.
  • Tracking: physical checks are required only for a unit's first three years. In a check up to 2011-12, the CAG found about 13% of units were not working or could not be traced.
  • New checks: KVIC now geo-tags units, meaning it records their map location. Since a KVIC–India Post MoU (20 Aug 2024), postal staff verify a unit before the next instalment of money is released.

In India

  • Law: KVIC Act, 1956. KVIC is a statutory body under the Ministry of MSME.
  • Place in the support system for small industry:
Body Year Role
NSIC 1955 Support for small industries
KVIC 1956 Khadi, village and cottage industries
DICs 1978 District-level support for industry
SIDBI 1990 Finance for small industry
  • PMEGP record:
  • more than 8.38 lakh micro-enterprises set up since FY 2014-15;

  • about 80% of units are rural, about 50% of beneficiaries are SC/ST/OBC, and about 40% of units are owned by women.

  • Funding: PMEGP's outlay for 2021-22 to 2025-26 was ₹13,554.42 crore. Total MM subsidy paid out up to 2023 was ₹21,509 crore.

  • Second loan (from 2018-19): well-performing PMEGP, REGP or MUDRA units can borrow up to ₹1 crore to expand, with a 15% subsidy (20% in NER and hilly areas).

Don't confuse with

  • Ministry of MSME vs KVIC: the Ministry administers PMEGP (it owns and funds the scheme). KVIC implements it on the ground. KVIC is a statutory commission, not a ministry.
  • KVIBs: these are State boards set up under State laws. KVIC is the national body created by a central Act. KVIBs are among KVIC's partner agencies.
  • PMEGP vs KVIC Act: KVIC rests on a law, but PMEGP has no law behind it. It is an executive Central Sector scheme (a scheme run by government order, not by statute).
  • PM Vishwakarma (2023): this is a separate MSME scheme for traditional artisans. PMEGP is a credit-linked subsidy for setting up new non-farm micro-enterprises.

Prelims Hooks

  • KVIC is a statutory body under the KVIC Act, 1956, under the Ministry of MSME. It came the year after the Karve Committee (1955).
  • KVIC is the national implementing agency for PMEGP. Its partners are KVIBs, DICs and the Coir Board.
  • PMEGP (2008) merged REGP, which KVIC ran, and PMRY, which the DICs ran. The trap is to swap the two.
  • MM subsidy is 25% rural / 15% urban for General category and 35% / 25% for Special category. Own contribution is 10% / 5%.
  • Maximum project cost under PMEGP is ₹50 lakh (manufacturing) / ₹20 lakh (service). PMEGP covers only new, non-farm units.
  • Trap: "PMEGP" means Prime Minister's Employment Generation Programme, not "Employment Guarantee Scheme".

Mains Points

  • Rural non-farm jobs vs capital-intensive growth:
  • KVIC is the state's labour-intensive answer to a capital-intensive industrial legacy.
  • It also helps move rural workers out of agriculture, since about 80% of PMEGP units are rural.

  • Use it in GS-III answers on jobs and inclusive growth.

  • Jobs promised vs jobs counted:

  • Job figures are estimated when the loan is sanctioned, not counted later.
  • The CAG found about 13% of units not working or untraced, and the Ministry had no system to collect real performance data on units.

  • Suggested reform: KVIC should track units beyond three years and publish how many survive. Its geo-tagging and India Post checks already give it the tools to do this.

  • Design reforms:

  • Banks reject 40–50% of applications, and CIBIL-based screening shuts out first-time borrowers.
  • The Standing Committee on Industry (333rd Report) wants the ₹50 lakh project-cost ceiling raised and indexed to inflation, and eligibility opened beyond proprietary (single-owner) firms.
  • Weak demand for the second loan shows that few units grow beyond micro size. This links to the wider "missing middle" problem of Indian firms.

Read more