The Central government is set to introduce a large credit guarantee scheme worth around ₹2–2.5 lakh crore to help businesses cope with the economic impact of the ongoing West Asia crisis. The initiative is aimed primarily at supporting micro, small and medium enterprises (MSMEs), which are more vulnerable to global disruptions such as rising costs and supply chain uncertainties.
Officials familiar with the development said the scheme will provide government-backed guarantees on loans extended by banks and financial institutions. By reducing the risk for lenders, the plan is expected to encourage banks to continue lending to businesses facing temporary financial stress.
Under the proposed framework, the government may guarantee a significant portion of the loan amount, possibly up to 75–90%. This means that if a borrower fails to repay, most of the losses would be covered by the government, making it safer for banks to extend credit. The scheme could also include limits on loan size and interest rates to ensure affordability for borrowers.
The programme is likely to be implemented through a government-backed agency that manages credit guarantees. The Centre may allocate a financial buffer to support the scheme, ensuring that lenders are protected against defaults.
The design of the new scheme is expected to follow the model of the Emergency Credit Line Guarantee Scheme (ECLGS), which was launched during the COVID-19 pandemic. That programme helped businesses access collateral-free loans and maintain operations during a period of severe economic disruption.
The latest move comes as global tensions in West Asia continue to create economic uncertainty. India is facing indirect effects such as fluctuating oil prices, increased transportation costs, and potential trade disruptions. While the domestic economy remains stable, policymakers are taking precautionary steps to prevent stress from spreading across sectors.
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