CII Urges Finance Ministry To Explore Emergency Loan Guarantee Scheme For Stressed Sectors
Indian rupee banknotes are counted in India. (Photographer: Dhiraj Singh/Bloomberg)

CII Urges Finance Ministry To Explore Emergency Loan Guarantee Scheme For Stressed Sectors

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The Confederation of Indian Industry has written to the Finance Ministry, urging to explore an Emergency Loan Credit Guarantee Scheme to support the stressed sectors and argued that prolonged strain on employment-intensive sectors could impede economic recovery.

The industry chamber on Sunday said it has recommended this intervention to assist the stressed segments, primarily in the services sectors like hospitality, tourism, aviation and retail, as this would not have any impact on the fiscal deficit this year but will provide the much needed liquidity to these sectors which employ a large number of people.

"CII appreciates the revenue constraints faced by the government and its impact on the widening fiscal deficit. This intervention, similar to what has been done for the MSMEs will be a win-win for all," Chandrajit Banerjee, Director General CII, said.

The Emergency Loan Credit Guarantee Scheme announced in May by the government as part of the 'Aatmanirbhar Bharat' package earmarked Rs 3 lakh crore collateral free automatic loans for businesses including micro, small and medium enterprises.

The scheme has made disbursals of Rs 1.48 lakh crore against sanctions of Rs 2.03 lakh crore. The scheme which was to end on Oct. 31 has now been extended to Nov. 30.

"It is likely that the scheme will utilise around Rs 2 lakh crore. The unutilised amount of around Rs 1 lakh crore, and an additional Rs 50,000 crore, if need be, could be used to extend support to corporates in the stressed sectors, which were earlier not eligible for the current ECLGS scheme," CII said.

This will help the sectors tide over the cash crunch and working capital issues, it added.

According to CII, one of the key challenges faced by the stressed sectors is severe liquidity crunch in the wake of low demand and an ECLGS scheme could help provide interim liquidity support, till demand recovers.

The services sector which contributes 63% to India's GDP has been affected disproportionally by the pandemic. The sector shrunk by 24.3% year-on-year in first quarter of FY21, CII said.

The stressed sectors (construction, trade, hotels and transport) contributed a whopping 83.4% to this contraction. Not only has the contraction been severe, the recovery in these sectors is slower than that in manufacturing, the chamber said.

According to industry estimates travel and tourism, civil aviation and retail employ about 9.5 crore people, including direct and indirect employment. Prolonged stress in these employment intensive sectors can lead to a self-reinforcing downward spiral of job losses and demand contraction, endangering the overall economic recovery, said CII.

Citing the fiscal constraints faced by the government on one hand limiting its capacity for direct support, it said with the crying need for help from stressed sectors, a loan guarantee scheme like ECLGS with cap on interest rates could help meet some of the needs of stressed sectors, without any immediate strain on the fiscal position.

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