Govt Plans ₹2.5 Lakh Cr Credit Guarantee Scheme to Shield Businesses from West Asia War

The Centre is working on a new credit guarantee scheme worth up to ₹2–2.5 lakh crore to protect businesses from the economic fallout of the West Asia conflict, the Economic Times reported, citing sources.

The scheme is expected to be announced within two weeks and is being modelled on the Emergency Credit Line Guarantee Scheme (ECLGS) launched during the Covid-19 pandemic in 2020. Like its predecessor, it could offer 100% collateral-free guaranteed loans to eligible businesses, including MSMEs, to help them manage short-term cash shortfalls.

The government has also begun an internal exercise to assess the war's economic impact and has reached out to industry to report disruptions in production and supply chains in real time, the report added.

According to the report, there is no immediate alarm, but the government is acting pre-emptively to prevent stress from building up. Higher input costs and logistics disruptions caused by the conflict are reportedly beginning to weigh on some sectors, particularly export-oriented units and even if the conflict ends soon, a full recovery could take a quarter or more.

The new scheme, likely to be called the "Guaranteed Emergency Credit Line (GECL)", is expected to cap interest rates at 9.25% per annum for banks and 14% for non-banking financial companies.

It is to be noted that the original ECLGS issued guarantees worth ₹3.62 lakh crore, benefiting nearly 1.19 crore borrowers. A 2022 State Bank of India research report estimated that the scheme prevented MSME loans worth ₹1.8 lakh crore from turning bad and helped over 13.5 lakh small businesses survive the pandemic.

This comes at a time when India will be participating in discussions on the situation in the Strait of Hormuz with multiple nations. The United Kingdom invited India to participate in discussions on the situation in the Strait of Hormuz, MEA spokesperson Randhir Jaiswal informed on April 2.

While attending the weekly briefing, he added that the Foreign Secretary Vikram Misri will attend the meeting.

Earlier, UK Prime Minister Keir Starmer announced plans to bring nearly 40 countries amid escalating tensions in West Asia and growing concerns over the safety of one of the world’s most critical oil and gas transit routes.

Starmer said that the meeting will assess all viable diplomatic and political measures that could be taken to "restore freedom of navigation, guarantee the safety of trapped ships and seafarers and resume the movement of vital commodities".

He said that post the meeting, they will also convene military planners to look at how to marshal their our capabilities and make the strait accessible and safe after the fighting has stopped.

Britain, France, Germany, Italy, Japan and the Netherlands are among those to have signed it. Notably, the US will not be participating in this meeting, set to happen virtually.