Credit Guarantee Scheme Gets Finance Ministry Nod For Rs 2.5 Lakh Crore Outlay; Cabinet Approval Soon

The much-awaited emergency credit guarantee scheme by the central government is on the verge of Cabinet approval.

A Cabinet note has been prepared by the finance ministry for a Rs 2.5 lakh crore credit guarantee scheme, with inter-ministerial consultations completed and the proposal expected to be taken up by the Cabinet soon, Moneycontrol reported on Tuesday.

The finance ministry’s Expenditure Finance Committee (EFC) has approved the scheme for MSMEs (micro, small and medium enterprises), airlines, and other businesses facing liquidity challenges after the supply chain disruption of the West Asian war.

The EFC examines a scheme’s contours, its fiscal implications, and design before the proposal can be placed before the Cabinet for approval.

During its examination, the committee assesses the spending proposal, evaluates the scheme’s cost, structure, and fiscal impact, and clears it for Cabinet consideration.

“After the 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,” a government source was quoted as saying.

On the lines of the Emergency Credit Line Guarantee Scheme (ECLGS) launched to support MSMEs during the Covid-19 crisis, the latest credit guarantee scheme seeks to provide credit support to Indian businesses facing the heat of supply chain disruption after the Iran war.

Some of the key sectors to be supported under the scheme could be aviation and MSMEs, along with other businesses.

The credit support would allow companies to face the impact of heightened energy costs and a spike in raw material prices after the war.

During the Covid-19 pandemic, industries across sectors were struggling to start production because of a liquidity crunch after a months-long lockdown.

Back then, the government had given credit support of about Rs 3.62 lakh crore.

Most of the loans (about 80 percent) were disbursed at an interest rate of 8 percent or less.