A Deep Dive into the Government’s Emergency Line of Credit Guarantee Scheme
The Emergency Line of Credit Guarantee Scheme (ECLGS) was one of the most significant government announcements at the height of the COVID-19 lockdown.
Over the past two and a half years, the regime has seen regular changes. Follow us as we review its performance:
Aviation, hospitality and tourism are the sectors most affected by the pandemic. But so far, including all extensions, the total amount of guaranteed loans used and ECLGS 2.0 represent less than 21% of total government guarantees, with sectors such as real estate and textiles being the main beneficiaries.
ECLG 3.0 has even fewer takers. Specially designed for sectors such as civil aviation, hospitality, travel and tourism, sports and leisure. This was first announced on March 30, 2021, almost a year after the nationwide lockdown, but before the disastrous Delta wave.
However, drawdowns under the ECLGS 3.0 were almost negligible and less than 4%. The finance minister has increased the allocation for this program by around Rs 50,000 crore in the budget. However, the total levy is less than Rs 12,000 crore.
The reason for the low uptake under this window – Waves of COVID have become less deadly, especially with the vaccination campaign gaining momentum. So businesses and cash flows in these sectors have recovered, although their recovery has been a bit slow. But restaurants and hotels have called on the government to simplify the application process and tweet out eligibility criteria to make it less restrictive.
Now, the ECLGS 1.0 was announced in May 2020 and subsequently upgraded by more than Rs 1 lakh crore in June last year in response to the Delta wave. A whopping 76% of government guaranteed loans under the overall ECLGS were registered under this window, with government guarantees touching nearly Rs 2.7 lakh crore. It is interesting to note that most of the beneficiaries of this program come from the community of traders and entities belonging to the textile, service and agribusiness sectors.
The main reason for the success of ECGS 1.0 is that it was announced at the height of the national COVID-19 lockdown. And it specifically targets micro and small businesses. Now, with Rs 1.5 lakh crore of collateral still available, there has been speculation of another extension of this scheme. But it may not be on the cards.
Our government sincerely believes that despite the slow and uneven economic recovery, there is always a recovery. Thus, retaining this key beyond the end of the fiscal year may not be justified. The final call, of course, will be taken by the Minister of Finance, in the next budget.
First post: STI