STUDY ON IMPACT OF EMERGENCY CREDIT LINE GUARANTEE SCHEME ON PERFORMANCE OF INDIAN MSME

Abstract

Micro, Small, and Medium Enterprises (MSMEs) are the backbone of India's economic framework, contributing approximately 30% to the overall national GDP and providing employment to more than 110 million people (as per MSME annual report 2024-25). MSMEs are vital for inclusive growth, entrepreneurial development, and geographical balance. The COVID-19 pandemic had a huge economic impact, causing severe damage to the MSME sector in the form of liquidity shortfalls, supply chain failures, and lack of labour. The Government of India, in turn, introduced the Emergency Credit Line Guarantee Scheme (ECLGS) under the Atmanirbhar Bharat Abhiyan in May 2020. The scheme was aimed at providing government-backed collateral-free credit to COVID-hit MSMEs in order to enable them to resume operations and maintain jobs. This thesis's main goal is to assess how the Emergency Credit Line Guarantee Scheme (ECLGS) has affected the productivity and financial success of Micro, Small, and Medium-Sized Enterprises (MSMEs) in India, especially in the wake of the COVID-19 pandemic. The analysis utilizes two econometric models: Generalized Least Squares (GLS) and Fixed Effects (FE). GLS accounts for heteroscedasticity in the panel data (for period 2016-2023) and provides the most efficient estimates across firms and states with different characteristics. The Fixed Effects model controls for firm-specific, time- invariant factors— like internal practices firms utilized, or local idiosyncrasies—by examining variation within a firm over time. The main independent variable is an interaction of state-level ECLGS disbursement per registered MSME (indicating intensity of scheme) and a dummy variable for firm eligibility. The dependent variable of interest, firm-level value added, was calculated using financial data from 427 MSMEs obtained from the CMIE Prowess IQ database. This approach provided the best measure of the effect of the ECLGS on firm performance. Initial observations show that ECLGS has played a crucial role in preventing extensive closures of businesses by MSMEs, especially in industrially high-activity states. Inflow of liquidity enabled enterprises to service working capital needs, maintain workers, and resume operations at a gradual pace. However, uneven access persists, vi with micro and informal units encountering more difficulties. The repayment ability of enterprises is still a concern, with a possibility of increasing NPAs. This research highlights the importance of continuous assessment and flexible policy design that acknowledges the heterogeneity of MSMEs and their contribution to economic rejuvenation.