Blitz Bureau
NEW DELHI: The Centre has approved a Rs 5,000 crore lifeline for India’s aviation sector under the Emergency Credit Line Guarantee Scheme (ECLGS) 5.0, stepping in as airlines grapple with mounting financial stress triggered by the West Asia crisis.
The move comes amid a sharp surge in aviation turbine fuel (ATF) prices, currency volatility and airspace restrictions in the wake of the Iran war, all of which have significantly raised operating costs and disrupted international routes. The strain has already begun to show, with Air India announcing a trimming of its international operations for June and July, citing certain routes as financially “unviable”.
According to the Ministry of Civil Aviation, the scheme is designed to provide targeted credit support and immediate liquidity relief. Each eligible airline can avail loans of up to Rs 1,000 crore, with an additional Rs 500 crore linked to an equivalent equity infusion.
The Government said the scheme also allows up to 50 per cent of the interest to be converted into a Funded Interest Term Loan (FITL), further easing repayment burdens in the short term and improving liquidity.
Civil Aviation Minister Ram Mohan Naidu said the decision reflects the Centre’s intent to support airlines through a challenging global environment.
“By approving ECLGS 5.0, airlines will be enabled to navigate short-term liquidity challenges and maintain seamless operations amid global disruptions. It will help safeguard jobs, sustain connectivity and strengthen the aviation ecosystem, while also supporting MSMEs,” he said.
The Government noted that Indian carriers, despite global headwinds, have remained relatively resilient due to timely interventions such as capping ATF prices and reducing airport charges. The latest measure, it added, aims to cushion the impact of rising fuel costs, exchange rate fluctuations and operational disruptions that continue to weigh on the sector.
Benefit for MSMEs
The newly approved ECLGS 5.0 would also benefit nearly 1.1 crore MSME accounts by providing additional credit support to businesses affected by the ongoing West Asia conflict, according to a report by the State Bank of India (SBI).
The Union Cabinet last week approved ECLGS 5.0 to offer extra working capital support to existing standard MSMEs and select non-MSME sectors, including airlines.
According to the SBI report, “our preliminary estimates indicate that ~1.1 crore MSME accounts (~45 per cent of total MSME portfolio) will be eligible to get benefit from the scheme with per account an average additional credit flow of Rs 2 to 2.3 lakh.”
Under ECLGS 5.0, eligible borrowers can avail additional credit of up to 20 per cent of the peak working capital utilised during the fourth quarter of FY26, with a cap of Rs 100 crore.
For airlines, the support can go up to 100 per cent of eligible credit, capped at Rs 1,500 crore per borrower.
The Government has targeted an overall additional credit flow of Rs 2.55 lakh crore under the scheme, including Rs 5,000 crore earmarked for the aviation sector.
Highlighting the impact of the move, the report said, “The timely intervention will ensure liquidity support, protect jobs, sustain supply chains, and strengthen the resilience of the Indian economy.”
SBI Research noted that previous versions of the ECLGS scheme, introduced during the Covid-19 pandemic, played a key role in stabilising MSMEs and improving their financial health.
According to the report, earlier schemes helped prevent at least 13.5 lakh MSME accounts from slipping into non-performing asset (NPA) status.
The report also said MSME gross NPAs declined sharply to 3.3 per cent in September 2025 from 11 per cent in March 2020, supported by measures such as ECLGS.
The aviation industry is also expected to benefit from the scheme significantly amid rising fuel prices and pressure on passenger traffic due to geopolitical tensions in West Asia.
SBI Research said outstanding bank credit to the aviation sector stood at Rs 526 billion as of March 2026, marking a 14 per cent year-on-year increase.
The report added that if the full Rs 5,000 crore allocation for aviation is disbursed, it would account for nearly 9.5 per cent of the sector’s outstanding bank credit.
SBI Research further highlighted strong MSME credit growth during FY26, estimating that MSME credit expanded by around 27 per cent. This pushed the sector’s share in total bank credit to 18.5 per cent, the report added.