Government Prepares Rs 2.5 Lakh Crore Credit Guarantee Scheme, Finance Ministry Gives Approval

Government Prepares Rs 2.5 Lakh Crore Credit Guarantee Scheme to Mitigate Economic Stress

The finance ministry has prepared a proposal for a Rs 2.5 lakh crore credit guarantee scheme, with inter-ministerial consultations completed and the proposal expected to be taken up by the Cabinet soon. The scheme is designed to provide relief to micro, small, and medium enterprises (MSMEs), airlines, and other businesses facing liquidity stress due to the war in West Asia.

The finance ministry's Expenditure Finance Committee (EFC) has already approved the scheme, marking a key step before Cabinet approval. The EFC vets major government spending proposals, evaluates the scheme's cost, structure, and fiscal impact, and clears them for Cabinet consideration. The proposal covers sectors such as aviation, MSMEs, and other businesses affected by geopolitical disruptions.

The proposed scheme is expected to be structured as an expansion of the Emergency Credit Line Guarantee Scheme (ECLGS), launched in 2020 to support MSMEs during the Covid-19 pandemic. The scheme is designed as a large-scale credit guarantee mechanism to ease liquidity constraints across sectors impacted by the ongoing West Asian crisis.

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The government is looking to deploy the Rs 2.5 lakh crore to mitigate financial strain arising from supply disruptions, higher input costs, and geopolitical uncertainty. The move is aimed at preventing stress from translating into defaults and ensuring continued credit flow to vulnerable sectors.

The proposed scheme comes amid rising uncertainty in global markets due to the West Asian crisis, which has impacted commodity prices, trade flows, and financial conditions. Officials indicated that while the previous financial year closed smoothly on the fiscal front, evolving geopolitical developments pose challenges for the current year.

As a part of the scheme, the government is working on targeted support measures for specific sectors, including a proposed credit guarantee window for the aviation sector under the ECLGS framework. The aviation sector has been facing pressure due to rising fuel costs and operational disruptions linked to global tensions. MSMEs and other businesses dependent on imports or exposed to external demand shocks are also experiencing liquidity constraints.

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