Context:

Recently, the Department for Promotion of Industry and Internal Trade (DPIIT), under the Ministry of Commerce and Industry, has officially notified the expansion of the Credit Guarantee Scheme for Startups (CGSS). This reform is aimed at increasing capital mobilization for startups, reducing credit-related risks for lenders, and reinforcing India’s mission to become an innovation-driven, self-reliant economy.

Key Features of the Expanded CGSS:

The expansion of the CGSS introduces several crucial enhancements that significantly improve the scheme’s utility and attractiveness:

Increased Guarantee Cover Ceiling

• The maximum guarantee cover per borrower has been doubled, rising from ₹10 crore to ₹20 crore.

Revised Guarantee Cover Percentages

• For loan amounts up to ₹10 crore, the government will now cover 85% of the defaulted amount.
• For loan amounts exceeding ₹10 crore, the coverage will be 75% of the defaulted amount.

Reduced Annual Guarantee Fee (AGF) for Champion Sectors

• The AGF has been slashed from 2% to 1% per annum for startups operating in 27 identified Champion Sectors under the ‘Make in India’ initiative.
• These sectors are critical to strengthening India’s manufacturing base, technological advancement, and export potential.

Benefits of the Expanded Scheme:

·        Increased Access to Credit: The improved guarantee terms are expected to encourage more banks and financial institutions to offer debt funding to startups. This will expand the capital pool available for early-stage and innovation-driven ventures.

·        Lower Lending Risks: By sharing the credit risk with lenders, the government reduces the hesitation of financial institutions in funding startups, which are often viewed as high-risk due to their limited track records and lack of collateral.

·        Boost to R&D and Innovation: Startups will now have greater financial runway to invest in research, development, and product innovation, helping India produce cutting-edge solutions and become a global innovation hub.

·        Enhanced Support for Priority Sectors: By lowering the AGF for Champion Sectors, the government is making credit more affordable and directing capital toward strategic areas that are vital to India's growth story and global competitiveness.

About CGSS:

The Credit Guarantee Scheme for Startups (CGSS) was launched on October 6, 2022, as part of the broader Startup India initiative, which was inaugurated by Prime Minister Narendra Modi on January 16, 2016. The scheme’s core objective is to facilitate collateral-free debt funding for startups via instruments such as:

• Working capital loans
• Term loans
• Venture debt

CGSS covers loans extended by:

• Scheduled Commercial Banks
• All India Financial Institutions (AIFIs)
• Non-Banking Financial Companies (NBFCs)
• SEBI-registered Alternative Investment Funds (AIFs)

Conclusion:

This expansion aligns with the Union Budget 2025–26, which emphasized the need to catalyze entrepreneurship by improving credit access and reducing capital costs. It also reflects the government's commitment to turning India into a Viksit Bharat (Developed India) through innovation, startup empowerment, and economic self-reliance.