Expanded Credit Guarantee Scheme for Startups
The Government of India has recently expanded the Credit Guarantee Scheme for Startups (CGSS) to enhance financial support for early-stage companies. This initiative aims to facilitate access to debt funding and encourage innovation across various sectors. The Department for Promotion of Industry and Internal Trade (DPIIT) announced changes to the scheme, designed to encourage startups and boost the national economy.
Key Features of the Expanded CGSS
- The ceiling on guarantee cover has doubled from ₹10 crore to ₹20 crore per borrower.
- The guarantee coverage for loans up to ₹10 crore is now set at 85% of the amount in default.
- For loans exceeding ₹10 crore, the coverage is 75%.
- These changes are intended to mitigate risks for lenders and stimulate investment in startups.
Reduction in Guarantee Fees
The Annual Guarantee Fee (AGF) for startups in 27 Champion Sectors has been halved from 2% to 1%. This reduction aims to make financing more attractive, particularly in sectors crucial to India’s manufacturing and services landscape, as outlined in the Make in India initiative.
Champion Sectors Under the Scheme
- The identified Champion Sectors include both manufacturing and services.
- Manufacturing sectors include aerospace and defence, automotive components, pharmaceuticals, biotechnology, chemicals, and electronics.
- The services sectors encompass Information Technology, tourism, medical value travel, and audio-visual services. This classification marks the government’s focus on promoting innovation in critical industries.
Impact on Financial Institutions
The expanded scheme is expected to attract more financial institutions to provide credit support to startups. By reducing perceived risks, established lenders are more likely to extend loans. This increased financial flow will support research and development, experimentation, and the creation of innovative technologies.
About CGSS
The CGSS was initially launched in October 2022, following the Startup India initiative, which began in January 2016. The scheme is designed to facilitate collateral-free debt funding for eligible startups through various financial instruments, including working capital and term loans.
Government’s Vision for Startups
The expansion of the CGSS aligns with the government’s broader vision of creating a self-reliant and innovation-driven economy. Prime Minister Narendra Modi’s vision of a “Viksit Bharat” puts stress on the importance of encouraging a robust startup ecosystem that contributes to economic growth and technological advancement.
Operational Reforms
The updated CGSS framework incorporates operational reforms developed in consultation with stakeholders from the startup ecosystem. These reforms aim to enhance the scheme’s appeal to both lenders and startups, ensuring a more effective financial support system.
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