India’s Union Cabinet has approved the fifth phase of the Emergency Credit Line Guarantee Scheme (ECLGS 5.0), aiming to provide additional financial support to businesses affected by the ongoing West Asia conflict.
The scheme will extend extra credit to both micro, small and medium enterprises (MSMEs) and larger firms with existing working capital limits. MSMEs will receive loans with a 100% government guarantee, while non-MSMEs, including airlines, will be covered by a 90% guarantee. Eligible borrowers can access additional credit of up to 20% of their peak working capital utilisation in the fourth quarter of the 2025–26 financial year, capped at ₹100 crore. For airlines, the cap has been set at ₹1,500 crore per borrower.
The government expects the programme to generate total additional credit flow of ₹2.55 lakh crore, including ₹5,000 crore earmarked for the aviation sector.
Analysts say the move is designed to cushion businesses from rising costs and demand uncertainty linked to geopolitical tensions. In aviation, higher aviation turbine fuel (ATF) prices—accounting for up to 40% of operating costs—and reduced passenger traffic have placed pressure on profitability. Metro routes have seen fare increases of between 35% and 52%, reflecting these challenges.
According to banking data, outstanding credit to the aviation sector stood at ₹526 billion in March 2026, up 14% year-on-year. The proposed credit support would amount to roughly 9.5% of that total if fully utilised.
Earlier versions of the ECLGS, introduced during the Covid-19 pandemic, were credited with stabilising MSMEs by improving liquidity, preserving jobs and limiting non-performing assets. Research suggests the scheme also contributed to stronger credit growth in the sector.
MSME lending is estimated to have grown by around 27% in the 2025–26 financial year, raising its share to 18.5% of total bank credit, while asset quality indicators continued to improve.
Economists expect ECLGS 5.0 to deliver similar outcomes, reinforcing business resilience and supporting economic stability.
