Multi-pronged strategy in works to tide over West Asia war impact

This may include a ₹2.5 trillion credit guarantee scheme to help businesses

Comprehensive measures are underway to help the economy tide over the ongoing impact of the West Asia crisis, cutting across a wide range of sectors including micro, small and medium enterprises (MSMEs) that are taking the hit of the geopolitical tensions, government sources told Business Standard. 

Without stating the amount of relief, a top official said the plans were in the process of being finalised for several sectors and industries, and were not limited to just MSMEs. It’s not immediately clear whether it would be one mega relief package or several of them in tranches. 

A PTI report said the government was considering a ₹2.5 trillion credit guarantee scheme to support businesses, especially MSMEs impacted by the West Asia crisis. Under the scheme, a credit guarantee of about 90 per cent on loans of up to ₹100 crore would be provided to lenders in the case of default by borrowers due to the ongoing US-Iran conflict. The guarantee on bank loans would be provided by the National Credit Guarantee Trustee Company. 

The government is gearing up not just for the immediate fallout of the Iran war but also the long-term impact that the situation could have on the Indian economy, sources indicated. The government is staying alive to the current crisis on a daily basis in a manner akin to the Covid-19 pandemic period, a top source explained when asked about the similarity of the two situations. 

But, dealing with Covid19 was about both life and livelihood, the source pointed out. On whether any emergency measures, like in the pandemic time, were being planned just in case the war was to stretch on, the source said: ‘’Not as of now.’’ 

The uncertainty of the current situation has triggered industry demand for relief packages that the government had announced during Covid19. The suggestions to the finance ministry include  cushioning business from the ongoing crisis with time-bound conflict-linked Emergency Credit Line Guarantee Scheme similar to the one during the pandemic, rationalisation of the tax and duty structure on energy inputs and extending delivery timelines for central and state PSU contracts. 

In 2020, the government had announced a Rs 1.7 trillion package under Pradhan Mantri Garib Kalyan Yojana (PMGKY)  and a stimulus of Rs 20 trillion under Atmanirbhar Bharat Abhiyan. In 2021, another relief package of Rs 6.28 trillion was announced to support the economy and the health infrastructure that was left fractured by the pandemic. 

In the near term, the finance ministry is expecting a decline in remittances due to the workers not being able to send money home. However, in case of a prolonged war, the return of labour forces back to India could also be challenging, the source said. However, at present, the labour migration was not an issue and the government was monitoring the movement of workers on 11 major railway stations where such activity takes place, the source added. “There is no unusual movement there yet.” 

The monthly economic review issued by the Department of Economic Affairs in March said that given that Gulf Cooperation Council (GCC) economies account for about 38 per cent of India’s total remittances in 2023-24 and host nearly half of Indian migrants worldwide, any sustained rise in crude oil prices could weigh on fiscal conditions in these economies and, in turn, moderate remittance growth in the near term. 

Finance Minister Nirmala Sitharaman in an address on Monday had said that India had the fiscal space to continue capital expenditure and offer targeted support to affected sectors. Talking about the West Asia crisis, the FM had said, “This current year is even more challenging as we move from a landscape of  'shocks' to one of 'permanent volatility’.” 

To meet any sudden economic shocks, the finance ministry had doubled the allocation for the Economic Stabilisation Fund to Rs 1 trillion as part of the second Supplementary Demands for Grants for FY26. The unutilised amount under the Fund would be carried forward to the current financial year 2027 to provide government some leeway in undertaking any relief measures, according to a government source. 

The government on March 27 had announced a mega bonanza for oil companies, cutting additional excise duty on petrol and diesel by Rs 10 per litre in order to protect the consumers from price rise. Export duties on diesel and aviation turbine fuel (ATF) were reintroduced to ensure adequate availability of these fuels in the domestic market. A duty of Rs 21.5 per litre has been levied on diesel exports, while ATF exports will attract a duty of Rs 29.5 per litre from nil. 

Among other measures, on April 2, the finance ministry announced a full customs duty exemption on critical petrochemical products in response to the continuing war.