Overview
The Union Government is evaluating a ₹2.5 lakh‑crore credit guarantee scheme aimed at cushioning MSMEs affected by the ongoing West Asia crisis. The proposal mirrors the successful ECLGS that helped businesses during the COVID‑19 pandemic.
Key Developments
- Credit guarantee of up to 90% on loans not exceeding ₹100 crore per borrower.
- Guarantee to be provided by NCGTC.
- Government’s fiscal outlay estimated at ₹17,000–₹18,000 crore.
- Scheme designed to address defaults arising from the US‑Iran conflict and related supply‑chain disruptions.
- Continuation of broader relief measures such as the reduction of excise duty on petrol and diesel and duty‑free import of critical petrochemical inputs.
Important Facts
- The earlier Aatmanirbhar Bharat Abhiyaan introduced the ECLGS, covering almost all sectors with 100% guarantee to Member Lending Institutions.
- Under ECLGS, loans were pre‑approved based on existing credit, with no fresh appraisal, and interest rates were capped; processing, pre‑payment and guarantee fees were waived.
- The scheme remained operational until 31 March 2023.
- In response to rising crude prices (up ~50% after February 2026 strikes), the government cut excise duty on petrol to ₹3 per litre and set diesel duty at zero, while imposing export duties of ₹21.50 (diesel) and ₹29.50 (ATF) per litre.
- On 2 April 2026, India exempted imports of critical petrochemical products from customs duty to stabilise supply amid disrupted shipping routes.
UPSC Relevance
The proposal touches upon several GS‑3 themes: credit guarantee mechanisms, fiscal implications of large‑scale guarantee schemes, and the impact of external shocks on domestic finance. Understanding the role of NCGTC helps answer questions on government‑backed financial instruments. The link between geopolitical events (the West Asia crisis) and macro‑economic policy is a recurring UPSC topic.
Way Forward
- Define clear eligibility criteria for borrowers to prevent moral hazard.
- Monitor the fiscal exposure of the guarantee fund and set caps to safeguard public finances.
- Coordinate with the Ministry of Finance and RBI to ensure liquidity support aligns with broader monetary policy.
- Complement credit guarantees with supply‑chain interventions, such as continued duty exemptions for essential inputs.
- Periodically assess the scheme’s impact on MSME revival and adjust guarantee percentages accordingly.