The Union government is looking at a possible extension of the Emergency Credit Line Guarantee Scheme, amid global economic uncertainty and expectation of slower domestic growth next fiscal.

The scheme, which was started in May 2020 amid the covid pandemic to support micro, small and medium enterprises (MSMEs), will come to an end on March 31.

According to sources, the government is looking at an extension of the scheme by another six months although a final decision is still to be taken.

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The thinking arises at a time when the economy has recovered from the pandemic but small and medium enterprises are seen to require more support and handholding as many of them are still struggling. Further export intensive sectors are expected to be impacted by the slowdown in global demand.

However, another source pointed out that the scheme has served its purpose with the pandemic now behind us and there are adequate channels of liquidity available for small businesses. The Union Budget 2023-24 also did not broach the issue but did announce a fresh set of measures to help MSMEs.

The finance ministry is understood to have also discussed issues with banks on the implementation and efficacy of the scheme and a final decision may be announced soon.

Announced as part of the Atmanirbhar Bharat initiative, the Emergency Credit Line Guarantee Scheme (ECLGS) aimed at providing additional liquidity to MSMEs to meet their operational liabilities and restart their businesses in the aftermath of the disruption caused by the pandemic.

The scheme has however, been extended twice already –the first time in September 2021 by a six-month period. It was then against extended in the Union Budget 2022-23 until March 31, 2023 with its guarantee cover expanded by Rs 50,000 crore to total cover of Rs 5 lakh crore and the additional amount earmarked for hospitality and related industries.

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According to data with National Credit Guarantee Trustee Company Limited (NCGTC), which is the agency operating the scheme, guarantees amounting to Rs 3.61 trillion were issued, benefitting 11.9 million borrowers as on January 31, 2023. Of these, 95.18% of the loans guaranteed amounting to Rs 2.39 trillion or 66.16% in value terms, were to the MSME sector.

An SBI Ecowrap report in January this year said that its analysis showed that trading sector such as kirana shops benefitted the most from the scheme, followed by food processing, textiles and commercial real estate.

Private limited companies benefitted the most followed by proprietorship firms, it further said. Among states, Gujarat has been the biggest beneficiary followed by Maharashtra, Tamil Nadu and Uttar Pradesh.

Industry experts, however, noted that extending the scheme without addressing some design issues will not help the MSMEs.

KE Raghunathan, national chairman, Association of Indian Entrepreneurs, said, “Extending the ECLGS with an additional amount or an additional time period makes no sense unless the eligibility criteria are more relaxed. Industry associations had at the time of the launch of the scheme itself had pointed out that the rider conditions relating to account status and outstanding loan criteria make it difficult for many MSMEs to avail the scheme. Further, banks insisted on additional security for the facility. A number of banks did not give the loan to the beneficiary but are adjusting it against the moratorium dues and outstanding statutory payments.”