Prime Minister Modi announces a $60 billion relief plan to help small businesses in India

India, the second largest country in the world with a population of 1.35 billion people, has now been in lockdown for over 50 days. 

The impact of such a widespread stay-at-home order has had a crippling effect on the economy, with small businesses in particular struggling to survive in the face of little to no demand for their goods and services. 

With weak demand but costs still to pay, many small businesses have been forced to shut up shop for good and in doing so lay off their workers. The official unemployment rate in the country has increased from 6.8% in January to an estimated 23% in April. That figure is likely to have grown even further in the last few weeks. 

Those businesses who have been able to survive till now will welcome the news announced by Prime Minister Modi this week that $60 billion will be allocated to guarantee new loans taken out by small businesses. 

A loan guarantee essentially offers protection to the lender, in case the borrower is unable to pay back the loan. 

Under this scheme, banks in India will be willing to make loans to small businesses, knowing that if they aren’t paid back, the government will step in and return the debt themselves. 

Whilst this will free up billions of credit for small businesses, and ensure that many are able to continue operating, it must be remembered that debt is debt… and debt always needs to be repaid. Those businesses that take out the loans could find themselves still unable to pay back the loans in the future, or might have to cut costs further in order to afford the interest on repayments.

In the midst of this continued uncertainty, who knows what the future holds. On balance though, this is a positive move and the support from the government should allow thousands, if not millions, of businesses to keep afloat.