Context:
Recently, The Union Cabinet has approved the Government’s ₹10,000-crore commitment towards establishing the SME Growth Fund (SGF) to provide long-term growth capital to promising Small and Medium Enterprises (SMEs), particularly those engaged in manufacturing.
About SME Growth Fund:
The SME Growth Fund will provide direct equity investment through an Alternative Investment Fund (AIF). Unlike conventional bank loans, equity capital does not create an immediate repayment burden and can therefore provide patient capital to enterprises seeking to expand. The fund is expected to support manufacturing enterprises in expanding production capacity, adopting advanced technologies, improving productivity, entering international markets and integrating into global value chains. It will also encourage the development of industrial clusters, including those located in Tier-II and Tier-III cities, thereby promoting more balanced regional industrialisation.
Significance for the Indian Economy:
The initiative is significant because MSMEs form the backbone of India’s non-farm economy. They contribute around 31.1% of India’s GDP, 35.4% of manufacturing output and 48.58% of exports. MSMEs also function as important suppliers of components, raw materials and sub-assemblies to major sectors such as automobiles, textiles and pharmaceuticals. By providing growth-stage equity capital, the SME Growth Fund can help enterprises scale up, modernise machinery, adopt new technologies and improve their productivity. This can strengthen domestic supply chains, enhance export competitiveness and generate employment.
MSME Classification:
Under the revised MSME classification, enterprises are categorised on the basis of investment and annual turnover, without distinguishing between manufacturing and service enterprises. A micro enterprise is defined by investment of up to ₹2.5 crore and turnover of up to ₹10 crore; a small enterprise has investment of up to ₹25 crore and turnover of up to ₹100 crore; while a medium enterprise has investment of up to ₹125 crore and turnover of up to ₹500 crore. The higher thresholds allow enterprises to expand their operations while continuing to access government support.
Major Challenges:
Despite their importance, MSMEs face several structural challenges. Limited access to formal credit, collateral requirements and working-capital shortages constrain business expansion. Delayed payments from large companies and government agencies further weaken their cash flows. MSMEs also face technology and infrastructure gaps, shortage of skilled workers, regulatory compliance burdens and difficulties in meeting emerging environmental, social and governance standards and carbon-related requirements in international markets. Therefore, access to equity capital needs to be accompanied by broader institutional and infrastructural reforms.
Government Initiatives:
The government has undertaken several measures to address these challenges. CGTMSE facilitates credit guarantees for eligible micro and small enterprises, while PM MUDRA Yojana provides institutional credit to micro enterprises. TReDS helps MSMEs obtain financing against trade receivables and address delayed-payment problems. Udyam Registration promotes digital formalisation, while the RAMP Scheme seeks to improve MSME performance, market access and Centre-State linkages. The Public Procurement Policy provides for 25% annual procurement from MSEs by Central Ministries and Public Sector Enterprises. Other initiatives such as GeM, PM Vishwakarma, SFURTI and the CHAMPIONS Portal support market access, traditional artisans, cluster development and grievance redressal.
Way Forward:
The SME Growth Fund can become an important instrument for transforming high-potential Indian SMEs into globally competitive enterprises. However, its success will depend on transparent beneficiary selection, professional fund management and effective monitoring. Equity support must be complemented by better infrastructure, technology adoption, skill development, timely payments and easier market access. India therefore needs an integrated “capital + technology + skills + markets + infrastructure” approach to strengthen its MSME ecosystem.
