The Finance Ministry has prepared a Cabinet note for a ₹2.5 lakh crore credit guarantee scheme. A top government official said consultations between ministries have been completed, and the cabinet is expected to consider the proposal soon. The Expenditure Finance Committee (EFC) of the Finance Ministry has already approved the scheme for MSMEs, airlines and other businesses facing liquidity stress due to the war in West Asia.
EFC approval means that the outline, financial impact and design of the scheme have been internally scrutinized. This is an important step before cabinet approval. The EFC examines major government spending proposals, estimates their cost, structure and financial impact, and approves them for Cabinet consideration.
A senior finance ministry official, on condition of anonymity, told Money Control that after the Expenditure Finance Committee (EFC) meeting is completed and the recommendations are finalised, the proposal goes to the cabinet process. This includes preparation of cabinet notes and consultation between ministries. Once it goes into the cabinet process, it is handled at that level, and it is at that stage right now. The proposal includes sectors such as aviation, micro, small and medium enterprises (MSMEs) and other businesses affected by geopolitical turmoil. When it will finally be implemented will depend on Cabinet approval.
Large Scale Credit Support Scheme
The proposed scheme is expected to be designed as an extension of the Emergency Credit Line Guarantee Scheme (ECLGS). ECLGS was launched in 2020 to support Micro, Small and Medium Enterprises (MSMEs) during the COVID-19 pandemic. The scheme is designed as a large-scale credit guarantee mechanism to mitigate the cash crunch in various sectors affected by the ongoing crisis in West Asia. It is expected that it will act as a government-backed credit support framework like in previous economic crises.
The government intends to use this ₹2.5 lakh crore fund to ease the financial pressure arising from supply disruptions, rising input costs and geopolitical uncertainty. The move is aimed at ensuring that loans do not default due to financial stress and that credit continues to flow to weaker sectors.
This proposed scheme has come at a time when there is increasing uncertainty in the global market due to the West Asia crisis. This crisis has affected commodity prices, trade flows and financial conditions. Officials said that the last financial year was good on the financial front, but changing geopolitical developments are creating challenges for this year.
Special focus on aviation sector
Under this scheme, the government is working on targeted support measures for specific sectors. This includes a proposed credit guarantee facility for the aviation sector under the Emergency Credit Line Guarantee Scheme (ECLGS). The aviation sector is under pressure due to rising fuel prices and operational difficulties due to global tensions. Additionally, import-dependent MSMEs and other businesses vulnerable to sudden shocks in external demand are also facing liquidity crunch.
