Indian govt announces loan guarantee & incentives to boost exports

29 Jun '21
4 min read
Pic: Shutterstock
Pic: Shutterstock

With an aim to provide relief to businesses affected by the 2nd wave of COVID-19 pandemic, the Indian government yesterday announced a total of 17 measures amounting to ₹6,28,993 crore. The measures include a ₹1.10 lakh crore loan guarantee scheme, a ₹88,000 crore boost to export insurance cover, and a policy for speedy clearance of infrastructure projects.

Of the ₹1.10 lakh crore that will flow to the businesses under the 'Loan guarantee scheme for COVID affected sectors', ₹50,000 crore is for health sector and the remaining ₹60,000 crore is for other sectors, including textiles and apparel. Loans for other sectors will be available with an interest cap of 8.25 per cent per annum. Thus, the loans available under the scheme will be much cheaper compared to the normal interest rates without guarantee of 10-11 per cent.

The government has also decided to expand the Emergency Credit Line Guarantee Scheme (ECLGS), launched as part of Aatma Nirbhar Bharat Package in May, 2020, by ₹1.5 lakh crore. ECLGS has got a very warm response with ₹2.73 lakh crore being sanctioned and ₹2.10 lakh crore already disbursed under the scheme, including the amount disbursed to the textile and apparel sector. "Under the expanded scheme, limit of admissible guarantee and loan amount is proposed to be increased above existing level of 20 per cent of outstanding on each loan. Sector wise details will be finalised as per evolving needs. The overall cap of admissible guarantee is thus raised from ₹3 lakh crore to ₹4.5 lakh crore," an official statement said.

For the benefit of small businesses who are served by the network of micro finance institutions, the government has announced a completely new scheme 'Credit Guarantee Scheme for Micro Finance Institutions'. Under this scheme, guarantee will be provided to Scheduled Commercial Banks for loans to new or existing NBFC-MFIs or MFIs for on lending upto ₹1.25 lakh to approximately 25 lakh small borrowers. Loans from banks to be capped at MCLR plus 2 per cent. Maximum loan tenure will be 3 years, and 80 per cent of assistance to be used by MFI for incremental lending. Interest rates will be at least 2 per cent below maximum rate prescribed by RBI.

The scheme focuses on new lending, and not on repayment of old loans. MFIs will lend to the borrowers in line with extant RBI guidelines such as number of lenders, borrower to be member of JLG, ceiling on household income & debt. Another feature of the scheme is that all borrowers (including defaulters upto 89 days) will be eligible. Guarantee cover will be available for funding provided by MLIs to MFIs/NBFC-MFIs till March 31, 2022 or till guarantees for an amount of ₹7,500 crore are issued, whichever is earlier. Guarantee will be provided upto 75 per cent of default amount for upto 3 years through National Credit Guarantee Trustee Company (NCGTC).

To incentivise the export sector, the government will infuse equity in Export Credit Guarantee Corporation (ECGC) over 5 years to boost export insurance cover by ₹88,000 crore. ECGC promotes exports by providing credit insurance services. Its products support around 30 per cent of India’s merchandise exports.

Moreover, in view of the long process for approval of Public Private Partnership (PPP) projects at present, the government has also announced that it will formulate a new policy for appraisal and approval of PPP proposals and monetisation of core infrastructure assets, including through Infrastructure Investment Trusts (InvITs). "The policy will aim to ensure speedy clearance of projects to facilitate private sector’s efficiencies in financing construction and management of infrastructure," according to Indian finance minister Nirmala Sitharaman.

With the government coming up with policies to boost India's international trade, it is natural that many domestic businesses are searching for buyers. F2FMart is a fashion and apparel B2B marketplace that provides a complete solution for Indian exporters,  seeking growth in international marketing for their brands.

Fibre2Fashion News Desk (RKS)

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