Cabinet Proposal for ₹2.5 Lakh Crore Credit Guarantee Scheme Moves Ahead

The Union finance ministry has prepared a Cabinet note proposing a ₹2.5 lakh crore credit guarantee scheme aimed at easing liquidity stress across key sectors, according to a Moneycontrol report. Inter‑ministerial consultations on the proposal have been completed, clearing the path for Cabinet consideration.

The scheme addresses financial strain arising from the ongoing geopolitical situation in West Asia. Its objective is to ensure continued credit flow and limit the risk of defaults.

Expenditure Finance Committee Clears the Proposal

The Expenditure Finance Committee has approved the proposed credit guarantee scheme in principle. This clearance indicates that the scheme’s fiscal implications, structure, and overall design have been internally assessed by the finance ministry.

The EFC evaluates major government spending proposals before they move to the Cabinet stage. Its approval marks a critical procedural step in the scheme’s approval process.

Structure Linked to ECLGS Framework

The proposed programme is expected to be structured as an expansion of the Emergency Credit Line Guarantee Scheme. The ECLGS was originally introduced in 2020 to support MSMEs during the Covid‑19 pandemic.

Under the new proposal, the framework would be adapted to address liquidity stress arising from external geopolitical disruptions. The scheme would function as a government‑backed credit guarantee, similar to earlier crisis‑response interventions.

Sectors Covered Under the Scheme

The proposal covers a broad range of sectors affected by the West Asia conflict. These include micro, small and medium enterprises, the aviation sector, and other businesses facing higher costs or supply disruptions.

MSMEs dependent on imports or external demand are experiencing tighter liquidity conditions. Airlines have also faced pressure due to elevated fuel prices and operational challenges.

Liquidity Support and Economic Rationale

The government plans to deploy the ₹2.5 lakh crore guarantee to mitigate financial stress caused by volatile commodity prices and trade disruption. Rising uncertainty in global markets has increased financing risks for vulnerable sectors.

The objective is to prevent temporary stress from turning into widespread defaults. Officials have indicated that while the previous financial year closed on a stable fiscal footing, current geopolitical developments pose fresh challenges.

Read More: India May Roll Out $26 Billion Sovereign Guarantees to Support Business Liquidity.

Conclusion

The proposed credit guarantee scheme represents a targeted response to evolving global economic risks. By expanding an existing framework, the government aims to provide timely liquidity support without creating direct fiscal outgoes upfront.

Cabinet approval will determine the final design and implementation timeline. The proposal reflects a broader effort to safeguard credit availability and financial stability amid continued global uncertainty.

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