The Finance Ministry has prepared a cabinet note for a credit guarantee scheme of Rs 2.5 lakh crore. For this, consultation between the ministries has been completed and it is expected that the cabinet will soon consider this proposal. This information was given by a top government official. 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 scheme's outline, financial implications and design have been internally vetted. This is an important step before cabinet approval. The EFC examines the government's major spending proposals, evaluates the cost, structure and fiscal impact of the plan, and approves them for Cabinet consideration.
A senior finance ministry official, speaking on condition of anonymity, told Money Control that once the Expenditure Finance Committee (EFC) meetings are completed and recommendations are finalised, the proposal goes to the Cabinet process. This involves preparation of cabinet notes and consultation between ministries. Once it goes through the cabinet process, it is handled at that stage, and at the moment it is somewhere in that stage. The proposal covers sectors like aviation, micro, small and medium enterprises (MSMEs) and other businesses affected by geopolitical turmoil. When it will be finally implemented will depend on the approval of the cabinet.
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 has been designed as a large-scale credit guarantee mechanism to address the liquidity crunch in various sectors affected by the ongoing crisis in West Asia. It is expected that it will serve as a government-backed credit support framework, as was done earlier during the economic crisis.
The government wants to use this amount of Rs 2.5 lakh crore to reduce the financial pressure arising from supply disruptions, rising input costs and geopolitical uncertainty. The objective of this step is to ensure that there are no loan repayment defaults due to financial pressure, and that vulnerable sectors continue to receive credit.
This proposed plan has come at a time when uncertainty is increasing in global markets due to the West Asia crisis. This crisis has affected commodity prices, trade flows and financial conditions. Officials said that while the last financial year ended smoothly on the financial front, changing geopolitical developments are posing challenges for the current year.
Under this scheme, the government is working on targeted support measures for certain sectors. This includes a proposed credit guarantee facility for the aviation sector under the ambit of 'Emergency Credit Line Guarantee Scheme' (ECLGS). The aviation sector remains under pressure due to operational disruptions due to rising fuel prices and global tensions. Additionally, import-dependent MSMEs and other businesses that are vulnerable to sudden shocks in external demand are also facing cash crunch.
