₹2.5 lakh crore credit guarantee scheme cleared by EFC, awaits Cabinet approval
Likely expansion of Covid-era ECLGS to support MSMEs, aviation, and stressed sectors
Aims to ease liquidity stress, prevent defaults, and stabilise credit flow amid global uncertainty
Govt Plans ₹2.5 Lakh Cr Credit Backstop Amid Iran War Stress
Finance ministry moves Cabinet note after EFC nod; MSMEs, aviation among sectors likely to get relief
An MSME manufacturing unit in India
Summary
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The finance ministry has prepared a Cabinet note for a proposed ₹2.5 lakh crore credit guarantee scheme aimed at supporting sectors facing liquidity stress due to the ongoing West Asia conflict, Moneycontrol reported citing sources.
The proposal has already been cleared by the Expenditure Finance Committee (EFC), marking a key step before it is taken up by the Union Cabinet. The EFC, which evaluates major government spending proposals, has vetted the scheme’s structure, fiscal implications, and overall design.
“After the Expenditure Finance Committee (EFC) meetings are completed and recommendations are finalised, the proposal moves into the Cabinet process. That involves preparing a Cabinet note and conducting inter-ministerial consultations. It is currently at that stage,” Moneycontrol reported citing a senior finance ministry official.
The scheme is expected to extend support to sectors such as micro, small and medium enterprises (MSMEs), aviation, and other businesses impacted by geopolitical disruptions.
Its final rollout, however, will depend on Cabinet approval.
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Proposed as an expansion of the Emergency Credit Line Guarantee Scheme (ECLGS) introduced during the Covid-19 pandemic, the framework aims to provide government-backed credit support to ease liquidity constraints, particularly to MSMEs.
The objective is to ensure continued credit flow and prevent financial stress from translating into widespread defaults.
As part of the scheme, sector-specific measures are also being considered. This includes a dedicated credit guarantee window for the aviation sector under the ECLGS framework, given the pressure on airlines from elevated fuel costs and operational disruptions.
The government is looking to deploy ₹2.5 lakh crore to cushion the impact of supply disruptions, rising input costs, and heightened global uncertainty.
The move comes at a time when the West Asia crisis has sent global commodity prices to skyrocket, restrict trade flows, and adversely impact broader financial conditions.
Officials indicated that while the previous financial year closed in ‘Goldilocks’ period for the Indian economy, evolving geopolitical developments are likely to pose increasing challenges in the current year.
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