Indian cabinet approves bailout scheme for MSMEs, airlines hit by Middle East war

The Indian cabinet yesterday (5 May) approved a new phase of the Emergency Credit Line Guarantee Scheme with an outlay of Rs18,100 crore to support micro, small and medium enterprises (MSMEs), airlines and other businesses facing rising costs amid the ongoing Middle East war.

The first edition of the scheme was launched in May 2020 during the Covid-19 pandemic.

The latest version, cleared at a cabinet meeting chaired by Prime Minister Narendra Modi, is expected to unlock additional credit flow of Rs2.55 trillion for the aviation sector.

In a social media post, Modi said the approval underscores the government's intent to shield businesses, particularly MSMEs, from global economic turbulence.

According to an official statement, the scheme is designed to help firms sustain operations, protect jobs and stabilise supply chains.

"The proposed credit guarantee scheme is a major step to support businesses, particularly MSMEs and the airline sector, by ensuring their additional working capital needs are met by banks and financial institutions," the statement said.

"By providing timely liquidity, the scheme will help sustain businesses and prevent job losses. It will also promote uninterrupted domestic production and maintain the resilience of the ecosystem," it added.

Under the scheme, banks will be able to extend additional loans backed by a government guarantee, covering 100% of losses for MSMEs and 90% for larger firms and airlines through the National Credit Guarantee Trustee Company Limited.

This is intended to reduce lending risks and ease short-term liquidity constraints.

Businesses will be eligible to receive additional loans of up to 20% of their peak working capital utilisation in the January-March quarter of FY26, capped at Rs100 crore.

Airlines, which are facing acute financial stress, will be allowed to borrow up to 100% of their requirement, subject to a ceiling of Rs1,500 crore per borrower and certain conditions.

The scheme also outlines different repayment tenures: five years for most sectors, including a one-year moratorium, and seven years for airlines, with a two-year moratorium.

The Federation of Indian Airlines recently warned the Civil Aviation Ministry of an existential crisis in the sector.

Pressure on airlines has increased as Pakistan's airspace remains closed to Indian carriers following the India-Pakistan military standoff in May last year, while the Middle East conflict has forced longer flight paths on key international routes, significantly raising fuel consumption.

Fuel costs have surged, with airlines burning more aviation turbine fuel per international flight even as prices rise.

Jet fuel now accounts for nearly 40% of operating costs, prompting carriers to scale back international operations.