Cabinet announces ₹18,100 crore credit guarantee scheme for MSMEs, airlines
May 5, 2026
Cabinet approves ECLGS 5.0 with Rs 18,100 crore outlay to boost credit flow for MSMEs and airlines facing rising costs amid the West Asia crisis
The Union Cabinet, chaired by Prime Minister Narendra Modi, on Tuesday approved the fifth edition of the Emergency Credit Line Guarantee Scheme (ECLGS 5.0) with a total outlay of Rs 18,100 crore for Micro, Small and Medium Enterprises (MSMEs), airlines and other companies to help them meet working capital needs amid rising costs due to the West Asia crisis.
The latest scheme, which was first launched in May 2020 during the Covid pandemic, is expected to help in providing additional credit flow of Rs 2.55 trillion, including a Rs 5,000 crore carve-out for the aviation sector.
Prime Minister Narendra Modi said ECLGS 5.0 approved by the Cabinet reflects the government’s commitment to supporting India’s businesses, especially the MSME sector, in challenging global times. “By enabling additional credit flow with strong guarantee coverage, this initiative will help a wide range of sectors. Our focus remains on empowering enterprises, sustaining growth momentum and safeguarding livelihoods,” he said in a post on X.
The scheme is expected to help businesses maintain their operations, protect jobs, and sustain supply chains. “The proposed credit guarantee scheme is a major step to help businesses, particularly MSMEs and the airline sector, to ensure their additional working capital needs are catered to by banks and financial institutions. By providing timely liquidity, the scheme will sustain businesses and prevent job losses. It will also promote uninterrupted domestic production and maintain the resilience of the ecosystem,” the government said in a press statement.
The scheme allows banks to lend more to businesses affected by the West Asia crisis by offering a government-backed guarantee. If borrowers default, the government will cover 100 per cent of losses for MSMEs and 90 per cent for larger firms and airlines through the National Credit Guarantee Trustee Company Limited, reducing risk for lenders and helping businesses manage short-term cash flow problems.
Businesses can get additional loans of up to 20 per cent of the highest working capital they used in the March quarter of FY26, with a cap of Rs 100 crore. Airlines get a more generous limit — up to 100 per cent of their requirement, capped at Rs 1,500 crore per borrower, subject to conditions.
For most businesses, the loan will run for five years, including a one-year moratorium. Airlines get seven years with a two-year moratorium. The government guarantee will remain valid for the full loan period. The scheme applies to loans sanctioned from the date of notification by the National Credit Guarantee Trustee Company Limited until March 31, 2027.
The government's move came about a week after the Federation of Indian Airlines (FIA) wrote a letter to the Ministry of Civil Aviation (MoCA), warning it of a severe crisis. “The airline industry in India is under extreme stress and is on the verge of closing down or of stopping its operations,” FIA stated.
“The dire condition of the aviation sector has been exacerbated by the West Asia war and the exorbitant increase in the price of aviation turbine fuel (ATF),” it said.
FIA also talked about the impact on airline viability, noting that operations have become “completely unviable and resulting in significant losses for the aviation sector in April 2026".
While Pakistan’s airspace has remained closed to Indian airlines since Operation Sindoor in May last year, the West Asia conflict has further squeezed their international operations between key corridors, forcing longer routes and significantly higher fuel burn per flight.
Aviation industry executives stated that the government's action today will provide some relief to the battered finances of airlines. They added that the step would especially help financially weaker airlines such as SpiceJet.
"A bigger relief to the airlines would be controlling the crack spread (margins) of oil marketing companies (OMCs), which has jumped higher than even the global crude oil prices themselves," an executive mentioned. Crack spread refers to the margin that OMCs charge for converting crude oil to petroleum products such as ATF.
Moreover, airlines are burning more ATF per international flight at a time when its price has risen sharply due to the conflict. This has added to the pressure on Indian carriers, as ATF typically accounts for nearly 40 per cent of their overall operating cost under normal conditions. According to industry executives, ATF now accounts for about 50–60 per cent of an airline’s total costs.
These factors have forced Indian carriers to cut international flights. Among them, the pullback is led by the Air India Group. Air India Express has seen its international operations fall from 959 weekly flights in May last year to 451 weekly flights in May this year, a year-on-year drop of 53 per cent. Air India has reduced its weekly departures by 288 flights to 881, according to data provided by aviation analytics firm Cirium.
On a year-on-year basis, SpiceJet has cut over 60 per cent of its international operations, operating 70 weekly flights compared to 176 a year ago. Market leader IndiGo has also reduced its international frequency by 150 flights to 1,687 per week.
[The Business Standard]
