Government plans ₹2.5 lakh cr credit guarantee scheme for businesses affected by West Asia crisis

The government is considering a ₹2.5 lakh crore credit guarantee scheme to support businesses, especially MSMEs impacted by the West Asia crisis, sources said.

Under the scheme, a credit guarantee of about 90% on loans of up to ₹100 crore would be provided to lenders in case of default by borrowers due to the ongoing US-Iran conflict.

The guarantee on bank loans would be provided by the National Credit Guarantee Trustee Company (NCGTC), a wholly-owned subsidiary of the government.

The government would have to provide about ₹17,000 crore to ₹18,000 crore for the scheme.

Sources said the scheme was a huge success during the COVID-19 pandemic and helped many businesses across various sectors to stay afloat and clear their dues.

The government in May 2020 announced the Emergency Credit Line Guarantee Scheme (ECLGS) as part of the Aatmanirbhar Bharat Abhiyaan to support eligible Micro, Small and Medium Enterprises (MSMEs) and other eligible business enterprises in meeting their operational liabilities and restarting their businesses in the context of the disruption caused by the COVID-19 pandemic.

ECLGS covered almost all the sectors of the economy, and a 100 per cent guarantee was provided to Member Lending Institutions (MLIs) in respect of the credit facility extended by them under the scheme to eligible borrowers.

The structure of the scheme permitted easy access to credit as the lenders offer pre-approved loans based on the borrower’s existing credit outstanding, and there is no fresh appraisal undertaken by lenders since additional credit was sanctioned over and above the credit facilities already assessed.

Further, the interest rate was also capped with a view to lowering the cost of credit and loans are sanctioned without any processing charges, pre-payment charges and guarantee fees. The Scheme continued till March 31, 2023.

Besides, the government has taken a slew of measures in the recent past to mitigate the hardship of the common man, including slashing of excise duty on petrol and diesel.

India has reduced the excise duty on diesel and petrol, and specific exemptions were given on critical petrochemical products and SEZs to operate in the Domestic Tariff Area.

The government had on March 26 slashed excise duty on petrol and diesel by ₹10 a litre as it looked to shield consumers from the impact of rising global crude prices amid the ongoing war.

Global crude prices have risen by almost 50% since the United States and Israel launched military strikes against Iran on February 28, triggering sweeping retaliation from Tehran.

The government also imposed an export duty of ₹21.50 per litre on diesel and ₹29.50 per litre on aviation turbine fuel (ATF). Excise duty on petrol has been slashed to ₹3 a litre, while on diesel it is zero currently.

On April 2, India exempted the import of critical petrochemical products from customs duty to ensure supply stability and provide relief to consumers of final products amid disruption in shipping routes due to the West Asia conflict.

Besides crude, India is a major importer of fertiliser and natural gas.