India Plans Sovereign Loan Guarantees to Support Firms Hit by Middle East Crisis

India is preparing to introduce sovereign credit guarantees on loans worth about $26.7 billion to help businesses affected by disruptions linked to the Middle East conflict, according to government sources. Industries such as textiles and glass manufacturing have faced supply-chain challenges due to tensions involving Iran, while rising oil risks threaten to push inflation higher and slow economic growth in the country.

Under the proposed plan, the government will provide guarantees to banks for loans extended to businesses over a four-year period, similar to emergency measures introduced during the COVID-19 pandemic. The scheme is expected to cost the government between 170 billion and 180 billion rupees, with lenders receiving protection if borrowers struggle to repay amid ongoing geopolitical uncertainty.

Sources said the government may guarantee about 90% of loans worth up to 1 billion rupees per borrower, encouraging banks to continue lending despite elevated risks. The initiative aims to stabilize affected sectors, support business operations, and prevent liquidity stress as companies navigate supply disruptions and higher input costs caused by the crisis.

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