Centre plans Rs 2.5 lakh crore credit guarantee and $1.5 billion reinsurance support to cushion businesses from West Asia war impact and rising shipping risks.
Government readies ECLGS-like credit scheme for MSMEs and reinsurance fund for ships as war-driven disruptions push up costs and strain liquidity.
Stepping up fiscal support to West Asia war-hit businesses, the Centre will soon unveil two schemes, a Rs 2.5 lakh crore credit guarantee scheme similar to the Covid period’s ECLGS and another $1.5 billion guarantee fund to support reinsurance cover to Indian ships operating through war zones.
The move comes as several employment-intensive sectors, already weighed down by high tariffs in the US market for much of FY26, face fresh pressure from the ongoing conflict. Micro, small and medium enterprises (MSMEs), especially, are expected to be at the centre of this support package, though the coverage may extend across industries.
According to government sources, the proposed credit scheme could guarantee up to 90% of loans of as much as Rs 100 crore, providing lenders the confidence to extend fresh credit.
The programme will likely be managed by the state-run National Credit Guarantee Trustee Company (NCGTC), with the government expected to set aside around Rs 18,000 crore based on past scheme experience. The guarantee cover may run for four years and span a wider set of sectors than before.
Alongside this, the Cabinet is expected to consider the $1.5 billion reinsurance support fund, which will help insurers manage elevated risks and ensure liquidity as shipping costs surge. An additional $300 million pool, funded partly by insurers, is also being planned to help settle rising claims, sources said.
Marine insurance premiums
Marine insurance premiums have surged sharply amid escalating tensions in the Middle East, with war risk rates jumping between 200% and 1,000% in some cases. Increased threats to key shipping routes such as the Strait of Hormuz and the Red Sea have led insurers to reprice risk and, in some instances, scale back coverage, significantly raising costs for shipping companies.
On the other hand, the Rs 2.5 lakh crore credit guarantees scheme is expected to help businesses stay afloat, meet fixed expenses such as rent and utilities, and avoid layoffs by ensuring continued access to credit.
“The idea is to extend support across sectors, including aviation, MSMEs and other businesses facing liquidity pressures,” an official said, noting that the aviation sector has been particularly affected by route disruptions and higher operating costs linked to the Iran crisis.
The earlier ECLGS, launched in 2020, provides a useful template. It was extended until March 2023 and facilitated 11.9 million guarantees worth Rs 3.68 lakh crore, largely benefiting MSMEs. The scheme offered a full government guarantee on loans, helping firms manage operational liabilities during the pandemic. Preliminary estimates suggest the Centre’s eventual cost could be around Rs 25,000 crore, well below initial projections.
A State Bank of India report in January 2023 noted that the scheme helped save at least 1.46 million MSME accounts and prevented about 12% of outstanding MSME credit from turning into non-performing assets, while preserving millions of jobs.
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