Welcome to GKboard.in, your trusted source for current affairs updates tailored for competitive exams. Today, we explore the recent expansion of the Credit Guarantee Scheme for Startups (CGSS) by the Department for Promotion of Industry and Internal Trade (DPIIT), a significant boost for startup funding. This topic is vital for aspirants preparing for exams like UPSC, SSC, Banking, and other government recruitment tests.
Expansion of CGSS
Enhanced Guarantee Cover
The DPIIT, under the Ministry of Commerce and Industry, has expanded the Credit Guarantee Scheme for Startups (CGSS). The guarantee cover per borrower has increased from Rs. 10 crore to Rs. 20 crore. The coverage is now 85% of the default amount for loans up to Rs. 10 crore and 75% for loans exceeding Rs. 10 crore, making funding more accessible for startups.
Reduced Annual Guarantee Fee
Boosting Champion Sectors
The Annual Guarantee Fee (AGF) for startups in 27 Champion Sectors, identified under the Make in India initiative, has been reduced from 2% to 1% per annum. This reduction makes funding more attractive for sectors critical to India’s manufacturing and service capabilities, fostering innovation and self-reliance.
Objectives of the Expansion
Supporting Innovation-Driven Startups
Aligned with Prime Minister Narendra Modi’s vision of an innovation-driven, self-reliant economy, the expanded CGSS addresses the financing needs of startups. By increasing guarantee support, it encourages more financial institutions to provide credit support, enhancing the overall fund flow for research and development (R&D) and cutting-edge innovation.
Impact on Financial Institutions
Reducing Lending Risks
The expanded CGSS reduces perceived risks for financial institutions lending to startups. With higher guarantee coverage, more Scheduled Commercial Banks, All India Financial Institutions (AIFI), Non-Banking Financial Companies, and SEBI-registered Alternative Investment Funds (AIFs) are likely to offer collateral-free debt funding, boosting startup growth.
Operational Reforms
Enhancing Scheme Accessibility
The CGSS incorporates operational reforms based on consultations with the startup ecosystem. These reforms make the scheme more attractive for both lenders and startups, enabling a wider range of startups to access working capital, term loans, and venture debt to drive innovation and entrepreneurship.
Background of CGSS
Part of Startup India Initiative
Launched by Prime Minister Narendra Modi on January 16, 2016, the Startup India initiative aims to create a vibrant startup ecosystem. The CGSS, notified on October 6, 2022, supports this vision by providing credit guarantees for startups to access collateral-free funding. The Union Budget 2025-26 further proposed enhancing credit availability for startups.
Strategic Importance
Towards a Viksit Bharat
The expanded CGSS aligns with India’s goal of becoming a Viksit Bharat by fostering innovation and self-reliance. By supporting startups in Champion Sectors and enhancing credit access, the scheme drives economic growth and positions India as a leader in global innovation.
Why This Matters for Competitive Exams
Key Takeaways for Students
The CGSS expansion is a crucial topic for competitive exam aspirants, as questions on startup ecosystem, Make in India, and economic policies frequently appear in exams like UPSC, SSC, and Banking. Focus on the guarantee cover increase, AGF reduction, and Champion Sectors to excel in your preparation.
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Posted on: May 9, 2025