New Delhi: The Indian government is actively considering a major ₹2.5 lakh crore credit guarantee scheme to provide relief to businesses, especially micro, small and medium enterprises (MSMEs), affected by the ongoing West Asia crisis stemming from the US-Iran conflict, sources said.
Under the proposed plan, lenders would receive a credit guarantee of approximately 90 per cent on loans of up to ₹100 crore in the event of borrower defaults linked to the conflict. The guarantee on bank loans would be extended by the National Credit Guarantee Trustee Company (NCGTC), which is a wholly-owned subsidiary of the government. Officials estimate that the Centre would need to allocate between ₹17,000 crore and ₹18,000 crore to support the scheme.
Sources familiar with the discussions highlighted that a similar initiative proved highly effective during the Covid-19 pandemic. In May 2020, as part of the Aatmanirbhar Bharat Abhiyaan, the government introduced the Emergency Credit Line Guarantee Scheme (ECLGS) to help eligible MSMEs and other businesses meet operational liabilities and resume activities disrupted by the pandemic.
The ECLGS offered a 100 per cent guarantee to member lending institutions and covered nearly all sectors of the economy. It allowed pre-approved additional credit based on existing outstanding amounts without requiring fresh appraisal. Interest rates were capped to reduce borrowing costs, and loans were sanctioned without processing fees, prepayment charges or guarantee fees. The scheme remained in operation until March 31, 2023.
The latest proposal comes amid significant economic pressures caused by the conflict. Global crude oil prices have surged by nearly 50 per cent since the United States and Israel began military strikes against Iran on February 28, prompting strong retaliation from Tehran. This has disrupted shipping routes and increased costs for India, a major importer of crude, fertilisers and natural gas.
In recent weeks, the government has implemented several measures to ease the burden on citizens and industries. On March 26, it slashed excise duty on petrol and diesel by ₹10 per litre. Currently, excise duty stands at ₹3 per litre on petrol and zero on diesel. The government has also imposed export duties on diesel and aviation turbine fuel while exempting critical petrochemical imports from customs duty to ensure supply stability.
The proposed credit guarantee scheme is expected to help businesses stay afloat and manage dues amid these challenges, mirroring the support extended during the Covid-19 crisis, particularly to sectors like travel and tourism.
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