Government Approves Loan Guarantee Scheme to Support Struggling Businesses Amid Ongoing Conflict

India Approves Credit Guarantee Plan to Mitigate Economic Impact of Iran War

The Union cabinet has approved a credit guarantee plan with a capital allocation of 181 billion rupees ($1.9 billion) to support businesses and airlines in cushioning the impact of the war in Iran. The government will provide sovereign guarantees to lenders that extend additional loans to eligible borrowers, as stated in a recent announcement. This program is expected to aid businesses in maintaining their operations, protecting jobs, and sustaining supply chains.

The emergency credit line guarantee across all sectors bears resemblance to the relief provided during the Covid-19 pandemic to micro, small, and medium firms in the form of collateral-free automatic loans. According to government data, over 11 million guarantees worth 2.42 trillion rupees were given until March 2023.

The conflict between the US, Israel, and Iran has severely impacted the global economy and disrupted commerce. For India, the effects are particularly crippling due to its reliance on energy imports, as it is the world's third-largest oil consumer and receives approximately 90% of its gas shipments from the Middle East. This may make the Iran war as damaging as the Covid pandemic six years ago, according to officials in New Delhi.

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The crisis in the Middle East poses a significant threat to India's growth trajectory. Although the government is sticking to its forecasts of 6.8%-7.2% gross domestic product growth for the fiscal year through March 2027, several economists have already begun to downgrade their projections. For instance, Goldman Sachs Group Inc. predicts 5.9% growth for 2026, while Oxford Economics Ltd. expects 6.2% growth.