The move comes amid tightening funding conditions, with startups calling for stronger institutional support as private capital flows dry up.
The revised scheme, notified by the Department for Promotion of Industry and Internal Trade (DPIIT) on Friday, also increases the extent of guarantee cover to 85% for loans up to ₹10 crore and 75% for loans above that threshold. The government is positioning the expanded coverage as a way for startups to secure working capital, term loans, and venture debt, key to sustaining R&D and product development.
“With increased collateral-free credit support and enhanced guarantee cover, this move is set to boost startup growth. Additionally, to foster domestic manufacturing and Aatmanirbharta, 27 champion sectors under Make in India will benefit from a reduced annual guarantee fee,” Piyush Goyal, union minister for commerce and industry, said in a post on X.
The Annual Guarantee Fee (AGF) for startups in 27 identified champion sectors has been slashed from 2% to 1% per annum. These sectors, identified under the ‘Make in India’ initiative, include advanced manufacturing, electronics, defence, food processing, and clean energy.
“The reduced guarantee fee and expanded cover will make formal credit more accessible and attractive for startups, especially those innovating in critical sectors. This will not only reduce dependence on equity capital but also deepen the debt ecosystem,” said Sanjiv Singh, joint secretary, DPIIT, told Mint.
The CGSS expansion follows consultations with startup stakeholders and was part of the Union Budget announcements for FY26. The government expects the changes to encourage more banks and financial institutions to lend to early-stage ventures, which often struggle to secure funding due to their high-risk profiles.
The latest revision aligns with a broader policy shift to strengthen the startup sector as global macroeconomic uncertainties tighten private capital flows.
For many young firms in deep-tech, hardware, and industrial innovation, accessing timely credit remains a challenge despite promising business models. The DPIIT said the scheme has been tweaked to address operational bottlenecks and make it more accessible for both borrowers and lenders.
Industry experts see the expanded coverage as a timely intervention for India’s MSME sector.
“The revisions to CGSS…will help spur further lending to sectors that are of critical importance for India, particularly in manufacturing. Crucially, it will boost MSME lending at a time when credit demand…is expected to rise in light of global tariff uncertainties,” said Utkarsh Sinha, managing director, Bexley Advisors, a boutique investment bank.
“These measures will not only bolster MSME competitiveness but also catalyse the ‘Make in India’ initiative, positioning India as a formidable player in the global manufacturing and supply chain landscape,” Sachdev said.
“Enhanced access to collateral-free debt is reshaping how the government enables startups to utilise resources more effectively. This not only strengthens their contribution to economic growth and technological progress, but also lays the foundation for a resilient and future-ready startup ecosystem,” said Nilay Patel, founder & MD, EasyPay, a fintech company.
As of 30 2024, the DPIIT has recognized 140,803 entities as startups. Since the launch of the Startup India initiative in 2016, these startups have generated over 1.55 million direct jobs, according to a government statement.