The Government of India has expanded the Credit Guarantee Scheme for Startups (CGSS) to provide better financial support for early-stage companies. Announced by the Department for Promotion of Industry and Internal Trade (DPIIT), this initiative aims to boost innovation and strengthen the national economy. For students preparing for competitive exams, this topic is vital for current affairs and economic policies. This post simplifies the scheme’s updates for easy understanding.
What is the Credit Guarantee Scheme for Startups?
Supporting Startup Funding
Launched in October 2022 under the Startup India initiative (started in January 2016), the CGSS facilitates collateral-free debt funding for startups. It supports financial instruments like working capital and term loans, helping startups access funds for growth and innovation.
Key Features of the Expanded CGSS
Enhanced Guarantee Cover
The updated CGSS includes:
- Doubled guarantee cover: From ₹10 crore to ₹20 crore per borrower.
- 85% coverage for loans up to ₹10 crore in default.
- 75% coverage for loans exceeding ₹10 crore.
These changes reduce lender risks and encourage investment in startups.
Reduction in Guarantee Fees
Lower Costs for Startups
The Annual Guarantee Fee (AGF) for startups in 27 Champion Sectors has been halved from 2% to 1%. This makes financing more affordable, especially for startups aligned with the Make in India initiative, fostering growth in key industries.
Champion Sectors Under CGSS
Focus on Critical Industries
The Champion Sectors include:
- Manufacturing: Aerospace and Defence, Automotive Components, Pharmaceuticals, Biotechnology, Chemicals, Electronics.
- Services: Information Technology, Tourism, Medical Value Travel, Audio-Visual Services.
These sectors are prioritized to drive innovation and economic progress.
Impact on Financial Institutions
Encouraging Lending
The expanded CGSS reduces perceived risks for financial institutions, making them more likely to provide credit support to startups. This increased financial flow will support research and development, experimentation, and the creation of innovative technologies.
Government’s Vision for Startups
Building a Self-Reliant Economy
The expansion of the CGSS aligns with Prime Minister Narendra Modi’s vision of a Viksit Bharat (Developed India). It promotes a self-reliant and innovation-driven economy by strengthening the startup ecosystem, which contributes to economic growth and technological advancement.
Operational Reforms
Stakeholder Collaboration
The updated CGSS framework incorporates operational reforms developed with input from startup ecosystem stakeholders. These reforms enhance the scheme’s appeal to both lenders and startups, ensuring a more effective financial support system.
Why This Matters for Competitive Exams
Questions on economic policies, startup ecosystem, and current affairs are common in exams like UPSC, SSC, Banking, and Railways. Understanding the Credit Guarantee Scheme for Startups, its role in the Make in India initiative, and the Champion Sectors can help students excel in general awareness and essay sections.
Post Date: May 10, 2025