India clears $1.9 billion loan guarantee plan as Iran war hurts firms, airlines
While the government maintains a 6.8%-7.2% projection, Goldman Sachs predicts 5.9% growth. In response, India approved a 181 billion rupee credit guarantee plan to support businesses affected by the conflict.
India’s federal cabinet on Tuesday approved a credit guarantee plan with capital allocation of 181 billion rupees ($1.9 billion) to help businesses and airlines cushion the impact of the war in Iran.
The government will provide sovereign guarantees to lenders that extend additional loans to eligible borrowers, according to a statement. The program is expected to “help businesses maintain their operations, protect jobs, and sustain supply chains,” it said.
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1What is India's new credit guarantee plan?⌵
India's federal cabinet approved a credit guarantee plan with a capital allocation of 181 billion rupees ($1.9 billion) to help businesses and airlines manage the impact of the war in Iran. The government will provide sovereign guarantees to lenders for additional loans to eligible borrowers.
2How does the Iran war affect India's economy?⌵
The war in the Middle East, particularly the conflict involving Iran, has roiled global markets and disrupted commerce. India, being a significant energy importer, is particularly vulnerable to rising crude oil prices and potential supply chain issues, threatening its economic growth trajectory.
3What financial support is being provided to Indian airlines?⌵
A ₹5,000 crore emergency credit line guarantee scheme (ECLGS) has been approved for passenger airlines. This aims to provide liquidity support, with eligibility for up to 100% of peak credit up to ₹1,500 crore per borrower, offering a seven-year repayment window with a two-year moratorium.
4Why has the Indian government introduced an emergency credit line guarantee scheme?⌵
The government introduced the Emergency Credit Line Guarantee Scheme (ECLGS 5.0) to help businesses, including MSMEs and airlines, tide over short-term liquidity mismatches caused by geopolitical disruptions like the West Asia crisis. It aims to facilitate additional credit flow and sustain operations.
5What is the potential impact of high crude oil prices on India's GDP growth?⌵
Elevated crude oil prices due to the Middle East conflict can negatively impact India's current account deficit, inflation, and GDP growth. Some economists have downgraded growth projections, with estimates suggesting a potential reduction of 25-35 basis points off GDP growth if disruptions are prolonged.
The emergency credit line guarantee across all sectors is similar to the relief that was provided during the Covid-19 pandemic to micro, small and medium firms, in the form of collateral-free automatic loans. Government data shows that more than 11 million guarantees worth 2.42 trillion rupees were given until March 2023.
The US and Israel’s conflict with Iran has roiled the global economy and upended commerce. For India, the impact is particularly damaging given its reliance on energy imports — it’s the world’s third-largest oil consumer and gets about 90% of its gas shipments from the Middle East. This may make the Iran war as disruptive as the Covid pandemic six years ago, officials in New Delhi earlier said.
The crisis in the Middle East threatens to knock India off its growth trajectory. Although the government is sticking to its forecasts of 6.8%-7.2% gross domestic product growth for the fiscal year through March 2027, several economists have already started to downgrade their projections. Goldman Sachs Group Inc. predicts 5.9% for 2026, while Oxford Economics Ltd. expects 6.2%.