India is considering a proposal to guarantee as much as 3 trillion rupees ($39 billion) of bank loans to small businesses as part of a plan to restart Asia’s third-largest economy reeling under the impact of a 40-day lockdown, people with knowledge of the matter said.
Under the proposal, small businesses will be eligible for an additional 20% of their outstanding credit limit, which will be fully backed by Prime Minister Narendra Modi’s administration, the people said, asking not to be identified as the discussions are private. The loans will be extended by banks, financial institutions and shadow lenders, the people said. The government will set up a special fund to pay for any defaults, the people said.
India’s government and regulators are slowly coming out with programs as everyone from companies to fund managers struggle under the world’s biggest stay-at-home restrictions, which has halted manufacturing and wiped out consumption. With the economy set to contract for the first time in four decades, Modi’s endorsement is the only way to make it attractive for banks, which are concerned about rising delinquencies, to lend to small businesses.
A finance ministry spokesman was not immediately available for a comment.
Earlier on Monday, the country’s central bank offered 500 billion rupees credit line to mutual funds to avoid distress sale of assets and calm investor concerns after Franklin Templeton shut six of them last week citing a lack of liquidity.
Small businesses, which form the bedrock of the $2.7 trillion economy, have been the worst hit by the lockdown with their activity coming to a halt. An estimated 100 million workers in mining, construction, manufacturing and services sectors have been rendered jobless due to the lockdown, Subhash Chandra Garg, a former top bureaucrat in the finance ministry, wrote in a blog.
Governments across the world are rushing to help small businesses. The U.S., earlier this month said it would provide $320 billion to make new loans under the Paycheck Protection Program, which provides forgivable loans to such companies that keep employees on the payroll for eight weeks, while the Philippines plans to give 35 billion pesos ($690 million) to workers of shuttered small businesses.
This story has been published from a wire agency feed without modifications to the text.