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 reeling under the impact of a 40-day lockdown, people with knowledge of the matter told BloombergQuint.
- Under the proposal, small firms will be eligible to borrow an additional 20 percent of their credit limit, the people said, asking not to be identified as the discussions are private.
- The extra debt will be fully backed by Prime Minister Narendra Modi’s administration, the people said.
- The government will set up a special fund to pay for any defaults, they said.
With the economy set to contract for the first time in four decades, Modi’s endorsement is the only way to make it attractive for banks to lend.
India’s central bank Governor Shaktikanta Das underlined the need for fiscal measures to support the economy, saying a slippage in budget gap target was unavoidable amid the coronavirus crisis.
- The government is working on an economic package to tackle the impact of the virus, Das told Cogencis newswire in an interview whose transcript was released by the Reserve Bank of India Monday.
- Meeting the fiscal gap goal for the financial year started April 1 — 3.5 percent of gross domestic product — was very challenging and he expects the government to make a judicious call on managing the deficit.
Whether relating to the deficit or liquidity, Das said any measure will have to be timely.
