India May Roll Out $26.7 Billion Sovereign Guarantees to Support Business Liquidity

India is planning to introduce sovereign credit guarantees on loans worth $26.7 billion to support businesses impacted by the ongoing Middle East crisis. The move aims to ensure continued access to credit, particularly for small and medium enterprises facing supply disruptions.

According to the Reuters reports, the scheme is designed to stabilise business operations amid rising geopolitical risks. The proposal comes as India faces potential inflationary pressures and slower economic growth due to external shocks.

Proposed Credit Guarantee Framework

The government is considering a sovereign guarantee mechanism for loans extended by banks to affected businesses. The scheme is expected to run for a duration of 4 years, providing risk coverage to lenders.

Under the proposal, the government may offer guarantees similar to those introduced during the COVID-19 pandemic. This framework aims to encourage banks to continue lending despite heightened economic uncertainty.

Coverage and Financial Implications

India is planning to provide a guarantee of up to 90% on loans of up to ₹1 billion extended to eligible borrowers. The total value of loans covered under the scheme is estimated at $26.7 billion.

The fiscal cost to the government is expected to range between ₹170 billion and ₹180 billion. This reflects the potential liability in case of borrower defaults under the guarantee programme.

Impact of Middle East Crisis on Businesses

Several industries, including textiles and glass manufacturing, have been affected by disruptions in supply chains linked to the Middle East. The crisis, involving geopolitical tensions related to the U.S.-Israeli war with Iran, has impacted the flow of key inputs.

India, being a major oil importer, is also exposed to rising energy costs. These factors contribute to inflation risks and increased operational challenges for businesses.

Comparison with Previous Support Measures

The proposed scheme is similar to credit guarantee programmes introduced during 2020 to support businesses affected by the pandemic. At that time, sectors such as travel, tourism, and small enterprises received targeted financial assistance.

The guarantees helped businesses maintain liquidity and continue operations during periods of economic disruption. The current proposal reflects a comparable approach to managing crisis-driven economic stress.

Read More: Govt Operationalises E-Commerce Export Reforms, Removes ₹10 Lakh Cap and Introduces RTO Framework.

Conclusion

India’s proposed sovereign credit guarantee scheme aims to support businesses affected by external geopolitical disruptions. The plan focuses on maintaining credit flow and reducing lending risks for banks.

With significant coverage and fiscal backing, the scheme targets sectors facing supply and cost pressures. The initiative reflects a policy response to stabilise economic activity amid global uncertainties.

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