look news india
The Micro, Small and Medium Enterprises (MSME) sector, considered the backbone of the Indian economy, is soon going to get a big financial support from the Central Government. According to reports quoting official sources, the formal proposal of the much-awaited ₹ 10,000 crore ‘SME Growth Fund’ may be given final approval in the upcoming meeting of the Union Cabinet chaired by Prime Minister Narendra Modi. Finance Minister Nirmala Sitharaman had presented the outline for the establishment of this ambitious fund in the Union Budget. Now after completion of detailed discussions between the concerned ministries and NITI Aayog, the cabinet note has been prepared. This decision could prove to be a game changer for the major industrial centers of Uttar Pradesh—Lucknow, Kanpur, Aligarh, Bhadohi—to the MSME clusters of Gujarat, Maharashtra and Tamil Nadu. The fund will provide direct capital support to enterprises that are working towards expansion and adoption of modern technologies.
It is often seen that small enterprises get conventional loans from banks, but they lack long-term equity capital or risk capital. The proposed ₹10,000 crore SME Growth Fund is designed to bridge this fundamental gap.
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Fund of Funds Model: This fund will be operated under the ‘Fund of Funds’ structure. It will be managed by Small Industries Development Bank of India (SIDBI) or National Credit Trustee Company.
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Crowding-in Private Capital: Based on this Rs 10,000 crore seed fund from the government, private capital will be raised from Alternative Investment Funds (AIFs) and venture capital firms, taking the total available financial pool to ₹40,000 to ₹50,000 crore.
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Equity and Quasi-Equity Investments: Fast-growing small enterprises (Fast-Growing SMEs) will be given money in the form of share capital or quasi-equity, so that they will not be pressured to pay monthly interest or EMIs immediately and will be able to take their business on a larger scale.
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Preparation for IPO: This fund will financially strengthen those MSME units which want to launch a public issue in future by getting listed on BSE SME or NSE Emerge platform.
At present there are more than 6.3 crore MSME units operating in the country, which contribute more than 30% to the country’s GDP and about 45% to the total exports. Despite this, the sector faces significant difficulties in raising affordable and timely capital through formal banking channels. Many promising enterprises are unable to realize their full potential due to lack of collateral and stringent credit rating processes. The proposed growth fund will specifically focus on sectors that are high-growth and job creation-oriented, such as advanced manufacturing, auto components, textiles and garments, pharmaceuticals, electronics hardware, agri-processing and green energy solutions. Through the fund, enterprises will be able to get long-term capital to adopt automation, robotics, CNC machinery and digital supply chain.
The primary aim of the government is not only to provide financial help but also to generate quality employment on a large scale for the youth of the country. Under the ‘Make in India’ and ‘Atmanirbhar Bharat’ vision, small industries creating import substitutes domestically will be given priority from this fund. If a small scale industry has large export orders but does not have the capacity for working capital and plant expansion, this fund will help it to double-triple its capacity by purchasing stake in it. This will not only open up new employment opportunities for skilled and semi-skilled workers at the local level, but will also curb uncontrolled migration from tier-2 and tier-3 cities to metros.
According to sources, the Union MSME Ministry and the Department of Financial Services (DFS) will issue its detailed operational guidelines and eligibility criteria soon after getting the green signal from the Union Cabinet. Under this, a high-level steering committee will be formed, which will monitor the fairness and speed of fund allocation. The entire process of application, approval and monitoring through digital portal will be kept paperless and transparent so that red tape can be avoided. The approval of this fund by the government just before Diwali and the upcoming festive season will act as a big booster dose for small businessmen, due to which the country’s Industrial Production Index (IIP) is also expected to rise.