Centre Plans ₹2.5 Lakh Crore Credit Shield for Businesses Facing Iran Conflict Fallout

In a move reminiscent of the pandemic-era relief package, the Centre is preparing a substantial credit guarantee scheme worth ₹2-2.5 lakh crore to cushion domestic businesses from the economic ripple effects of the escalating West Asia conflict, The Times of India reported citing sources.

The government is expected to announce the scheme in next fortnight.

The proposed scheme aims to ease liquidity pressures by enabling easier access to collateral-free, fully guaranteed loans-particularly for Micro, Small and Medium Enterprises (MSMEs). The objective is to help firms manage soaring input and transport costs without slipping into a debt trap. Modelled on the successful Emergency Credit Line Guarantee Scheme (ECLGS) from the COVID-19 crisis, the new mechanism is expected to offer a lifeline to sectors facing temporary cash flow disruptions.

While bankers maintain that loan defaults have not yet spiked dramatically, early signs of stress are visible in export-oriented industries. Even if the conflict de-escalates soon, recovery may take at least a quarter, they caution. For context, the earlier ECLGS extended guarantees worth ₹3.62 lakh crore to nearly 1.19 crore borrowers, saving countless MSMEs from turning into non-performing assets and helping over 13.5 lakh businesses stay afloat.

Meanwhile, the Centre has already launched a multi-pronged relief package to protect Indian industry and consumers. The Finance Ministry has announced customs duty concessions on key raw materials and petrochemical products, critical for sectors like plastics, textiles, pharmaceuticals, and auto components, to offset supply chain disruptions. Special Economic Zone units can now sell goods domestically at concessional duties of 5-12.5%, down from full import-equivalent rates, according to a report in the IANS.

To keep airfares in check, the government has limited the pass-through of a 25% hike in aviation turbine fuel. Petrol and diesel excise duties have been cut by ₹10 per litre to prevent a retail price shock. A 'war risk pool' or Bharat P&I fund is also under consideration to shield shipping and trade.

On the export front, a relief scheme offers ₹497 crore in credit cover, with MSMEs as the primary beneficiary. The RoDTEP benefits have been fully restored to 100%, including for the labour-intensive textiles sector. Officials stress these are calibrated, evolving responses-with more banking and financing measures expected as the geopolitical situation unfolds. For now, Indian businesses have been asked to report urgent production issues, even as the government maintains there is no immediate crisis.