Govt's DPIIT gives major boost to India's startup ecosystem, notifies credit guarantee scheme

In a major boost to India’s startup ecosystem, the Department for Promotion of Industry and Internal Trade (DPIIT) has announced a significant expansion of the Credit Guarantee Scheme for Startups (CGSS), doubling the maximum guarantee cover per borrower from ₹10 crore to ₹20 crore. The move is aimed at improving access to institutional credit for innovation-driven startups without the burden of collateral.

According to the notification released on Friday, the extent of the guarantee cover under the scheme has also been enhanced. For loans up to ₹10 crore, the government will now cover up to 85% of the default amount, up from earlier levels. For loans exceeding ₹10 crore, the cover will be 75%. The changes are expected to reduce the risk perception among lenders and bring more financial institutions into the startup credit ecosystem.

In a parallel move to incentivise key sectors, the Annual Guarantee Fee (AGF) for startups operating in 27 identified Champion Sectors under the ‘Make in India’ programme has been cut from 2% to 1% per annum. These sectors, which include critical manufacturing and service industries, are expected to benefit from lower borrowing costs, enhancing innovation and domestic capacity-building.

By increasing credit access and reducing the cost of funds, the scheme is expected to provide startups with longer financial runways to invest in research, product development, and scalable technology.

Launched in October 2022, the CGSS offers guarantees on debt instruments such as working capital loans, term loans, and venture debt, extended by Scheduled Commercial Banks, All India Financial Institutions, NBFCs, and Sebi-registered Alternative Investment Funds. The scheme supports various forms of debt, including working capital, term loans, and venture debt.

The expansion follows proposals in the Union Budget 2025-26 to enhance startup financing mechanisms and strengthen India’s MSME backbone. The Budget prioritised easing credit access for startups and MSMEs. India currently has over 59.3 million registered MSMEs supporting 250 million livelihoods.

The enhanced scheme will catalyse entrepreneurship by enabling startups to secure funding for R&D, product development, and scaling operations.