The Central government is preparing a major credit guarantee scheme worth ₹2–2.5 lakh crore to help businesses manage the economic impact of ongoing tensions in West Asia. The initiative will focus mainly on micro, small, and medium enterprises (MSMEs), which are more vulnerable to disruptions like rising costs, supply chain delays, and trade uncertainties.
Officials say the scheme will provide government-backed guarantees on loans extended by banks and financial institutions. By covering most of the risk for lenders, the plan aims to encourage banks to continue lending to businesses facing temporary financial stress. Under the proposed framework, the government could guarantee up to 75–90% of the loan, meaning that if a borrower defaults, most losses will be absorbed by the government, making lending safer for banks.
The scheme may also include limits on loan size and interest rates to ensure loans remain affordable. Implementation is likely through a government-backed agency that will manage the credit guarantees, supported by a financial buffer to protect lenders against defaults.
The new programme is expected to follow the model of the Emergency Credit Line Guarantee Scheme (ECLGS), which was launched during the COVID-19 pandemic. That scheme helped businesses access collateral-free loans and continue operations during a period of severe economic disruption.
The scheme comes as global tensions in West Asia continue to affect the economy indirectly, with volatile oil prices, rising transportation costs, and potential trade disruptions. While India’s domestic economy remains stable, policymakers are taking preemptive measures to protect businesses and prevent stress from spreading across sectors.
The credit guarantee scheme is a proactive step to ensure that MSMEs can continue to operate smoothly even amid global uncertainty, helping maintain employment and economic stability.
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