Government plans credit guarantee scheme to support businesses affected by Iran war

India is planning to introduce sovereign credit guarantees on loans worth $26.7 billion to support businesses affected by the West Asia crisis, two government sources told Reuters.

The proposed move is aimed particularly at small firms facing disruptions linked to the US-Israeli war with Iran.

Businesses including textile and glass manufacturers have been impacted by supply disruptions from the West Asia. At the same time, India, the world’s third-largest oil importer, faces the risk of rising inflation and slower economic growth.

The government is considering providing sovereign guarantees to banks for a period of four years on loans extended to businesses, similar to measures introduced during the deadly Covid-19 pandemic, both the sources told Reuters.

The plan is expected to cost the government about 170 billion to 180 billion rupees ($1.83 billion to $1.94 billion), the sources said.

Under the proposal, India may offer a guarantee of about 90 per cent on loans of up to 1 billion rupees ($10.75 million) to lenders in case of defaults following the crisis in the West Asia, both the sources told Reuters.

In 2020, India introduced credit guarantee schemes to support bank lending to businesses, including travel and tourism firms that were among the hardest hit by the Covid-19 pandemic, to help them resume operations and repay debt.