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3. Coming Soon: Government Guarantee on Small Business Loans?
India is considering a proposal to guarantee as much as Rs 3 lakh crore ($ 39 billion) of loans to small businesses as part of a plan to restart Asia’s third-largest economy, which is teetering under the impact of a blockade of 40 days, people with knowledge of the matter told BloombergQuint.
- Under the proposal, small businesses will be eligible to borrow an additional 20 percent of their credit limit, the people said, asking not to be identified since the discussions are private.
- The additional debt will be fully backed by Prime Minister Narendra Modi’s administration, the people said.
- The government will establish a special fund to pay for any default, they said.
With the economy poised to contract for the first time in four decades, Modi’s backing is the only way to make it attractive for banks to lend.
India’s central bank governor Shaktikanta Das underscored the need for fiscal measures to support the economy, saying a slippage in the budget gap target was inevitable amid the coronavirus crisis.
- The government is working on an economic package to address the impact of the virus, Das told Cogencis Newswire in an interview the transcript of which was published Monday by the Reserve Bank of India.
- Meeting the fiscal gap target for the financial year that began April 1 – 3.5 percent of gross domestic product – was very challenging and expects the government to make a judicious call on deficit management.
Whether in relation to deficit or liquidity, Das said any measure will have to be timely.
