Government Credit Scheme: 2 lakh crore ‘Credit Guarantee’ scheme to give strength to industries; Who will benefit?
- The rising tension in the Middle East has implications for the entire world
- Above all, the Government of India is preparing to launch a scheme
- Government scheme to reduce the impact on the Indian economy
Government Credit Scheme: The conflict between Iran, the US and Israel and the rising tensions in the Middle East are all affecting the entire world. In all this, the Government of India is preparing to launch a scheme. Under this initiative, the government has created a special Credit Guarantee Scheme of ₹2 lakh crore to mitigate the impact of the ongoing conflict on the Indian economy.
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What is this scheme?
This new scheme is based on the ‘Emergency Credit Line Guarantee Scheme’ (ECLGS) launched during the Covid-19 pandemic. The scheme, which is currently being prepared by the Department of Financial Services, is expected to be launched in the next 15 days.
Collateral-free loans with government guarantee
Citing sources in the Finance Ministry, a news agency report stated that loans will be made available to businesses under the scheme. This, in particular, is likely to provide for provision of credit to ‘Micro, Small and Medium Enterprises’ (MSMEs) only on government guarantees without any collateral. Sources further said that this will provide easy access to funds to these industries and they will not have to face liquidity squeeze. The government is taking this decision at a time when global trade disruptions are causing stress in export-oriented sectors. Micro, Small and Medium Enterprises (MSMEs), which are sensitive to interest rate fluctuations and depend heavily on stable cash flows, can be the main beneficiaries of this scheme.
What is the exact strategy of the government?
Under this ₹2 lakh crore scheme, the government will facilitate loans through banks at concessional rates. The modus operandi of this initiative will be largely similar to the strategy adopted during the Covid-19 pandemic to support businesses and curb the rise in ‘overdue loans’.
Officials noted that although there is no immediate stress in the financial system, the government is creating a precautionary safety net to back up liquidity in case the situation worsens. He further explained that even if the geopolitical tension subsides, the recovery of the affected areas may be delayed; Because supply chain disruptions and demand uncertainty are likely to continue for some time. So this scheme is very important.
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