Credit on the cards: Govt may revive covid-era scheme to boost manufacturing, exports

The idea is to support not only large manufacturers but also small businesses that face funding constraints in an uncertain global economic environment.
New Delhi: In a move aimed at pushing manufacturing and exports, the Centre is exploring introducing an expanded version of the Emergency Credit Line Guarantee Scheme (ECLGS)–extending the pandemic-induced scheme amid the current uncertain global climate.
The proposal is part of a broader effort to ease financing for manufacturers, particularly those aligned with the Atmanirbhar Bharat scheme, four people familiar with the matter told Mint.
The plan includes enhancing credit flow to the collateral-free Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), that will offer bespoke loans for units approved under the production linked incentive (PLI) scheme.
It will also expand cluster-based financing to support emerging manufacturing hubs.
The idea is to support not only large manufacturers but also small businesses that face funding constraints in an uncertain global economic environment.
“The revival of a calibrated ECLGS-type scheme is being considered for critical sectors that are capital-intensive or export-linked but remain credit-starved," said one of the four people mentioned above.
“Simultaneously, we are looking at ways to make credit guarantees more seamless under CGTMSE and extend support to high-potential PLI beneficiaries," this person added.
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The modified ECLGS would offer lower interest rates to push manufacturing in electronics, medical devices and defence production, which are part of the PLI framework, this person added.
The government’s effort is to ease access to working capital and long-term financing for both large manufacturers and MSMEs, which continue to face funding constraints.
Pandemic saviour
Launched in May 2020 during the pandemic as part of the Atmanirbhar Bharat package, the Emergency Credit Line Guarantee Scheme was designed to help eligible businesses meet operational liabilities and resume activities disrupted by covid-19. It ended on 31 March 2023. As of that date, nearly 12 million guarantees amounting to ₹3.65 trillion were issued under the scheme.
Of this, MSMEs received 11 million guarantees totalling ₹2.41 trillion. According to a State Bank of India (SBI) report published on 23 January 2023, nearly 1.46 million MSME accounts were saved as a result of the scheme, including restructured accounts. About 98.3% of these belonged to micro and small enterprises.
“The average loan sanctioned under the ongoing CGTMSE scheme, which was around ₹11.76 lakh, is now about ₹22 lakh, which is far from sufficient for an MSME aiming to enter the export market. Export-oriented units require a much higher credit flow, and while the CGTMSE coverage goes up to ₹5 crore, the practical ceiling hasn’t moved. Banks start demanding collateral beyond ₹1 crore, which defeats the purpose," said Vinod Kumar, President, India SME Forum.
“The government should consider offering export credit to incentivize exports and support exporters, to cover the cost of finance in India which remains prohibitively high. While exporters globally get funds at 2% to 3.5%, Indian exporters often borrow at 10% or more—making us uncompetitive in global markets," Kumar said.
Targeted support
The new measures will not follow a one-size-fits-all model but instead focus on providing credit to specific sectors that need it most. “Right now, the economic situation requires targeted support—especially for sectors linked to exports or those under the PLI scheme, which can grow faster and deliver better returns if they get timely funding," said the second person.
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Under the existing CGTMSE scheme, the government provides collateral-free loans of up to ₹5 crore to MSMEs, with guaranteed coverage of up to 85%.
“It is now proposed to raise the credit guarantee cover to 90% for select manufacturing sectors and to lower guarantee fees for MSMEs, particularly those aligned with key industrial and export-linked initiatives," said a third person.
“The contours of these proposals are expected to be discussed among the ministries of finance, commerce and industry, and MSMEs to build consensus," the third person added.
“The aim is to expand coverage, increase financial outlays, support manufacturing, and tap into export opportunities."
Queries sent to the three ministries remained unanswered at press time.
Sectors in focus
The sectors in focus for enhanced credit include toy manufacturing, textiles and garments, engineering goods, auto components, electronics and electrical equipment, marine products, gems and jewellery, leather and footwear, pharmaceuticals, and agricultural products.
The focus is on increasing exports of high-demand goods and diversifying export destinations globally, instead of relying solely on traditional markets.
“Custom loan products under discussion for PLI units include working capital support linked to production cycles, longer-term capex financing, and pre-shipment credit lines, especially in sectors like electronics, pharmaceuticals, and textiles," said the fourth person.
In January this year, the government took a step to help out MSMEs by mandating a 45-day payment rule to improve cash flow and curb delayed payments to small businesses.
MSMEs contribute about 45% of India’s total exports, playing a key role in sectors like textiles, engineering goods, pharmaceuticals, and gems and jewellery.
As of 31 January 2025, the total number of MSMEs registered on the Udyam Registration Portal and Udyam Assist Platform was nearly 59 million, while between 1 July 2020 and 31 January 2025, 71,178 units were deregistered because they had shut down. The data also indicates that as of 16 July 2024, 203 million people are employed in MSMEs.
Credit for startups
Recently, the government also doubled the guarantee cover under its Credit Guarantee Scheme for Startups (CGSS), raising the limit per borrower from ₹10 crore to ₹20 crore, a move aimed at easing credit access for startups and fueling innovation in priority sectors, as reported by Mint on 9 May.
“Enhancing credit limits under key manufacturing schemes, including the PLI, demonstrates the government’s proactive approach to addressing financial constraints and accelerating industrial growth," said Shridhar Kamath, partner and engineering & industrial products industry leader at Grant Thornton Bharat.
“These initiatives can generate employment, formalize more businesses, and boost exports by breathing new life into stressed units. However, challenges such as potential credit misuse, over-leverage, and cautious lending by banks cannot be overlooked. With effective monitoring and focused financial literacy programmes, these risks can be mitigated, ensuring that enhanced credit availability translates into sustained industrial development and stronger economic self-reliance," he added.
The Union Budget 2025-26 allocated ₹23,168.15 crore to micro and small enterprises, up from ₹17,306.70 crore in the revised estimate for FY25, with a focus on startups and export-oriented MSMEs.
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