The Union Cabinet approved a ₹10,000 crore SME Growth Fund to help smaller firms scale operations. This initiative provides vital equity capital for businesses ready to expand and enter global markets. By supporting technology and growth, the fund aims to boost India’s manufacturing output and strengthen its overall export performance.
Summary
Small and midsized firms have the most potential to scale operations, raise productivity, integrate into global value chains and create high-quality domestic employment. Here's how the Centre's funding of promising enterprises can create a new generation of exporters.
The Union Cabinet's approval of a ₹10,000 crore SME Growth Fund is among the most consequential recent initiatives for India's enterprise ecosystem. At a time when SMEs are navigating an uncertain global environment, the fund provides an important source of growth capital.
The importance of this intervention becomes evident when viewed against the central role that micro, small and medium enterprises (MSMEs) play in the economy.
The sector contributes around 35.4% of manufacturing output, 48.6% of exports and 31.1% of gross domestic product, making it one of the most important drivers of growth, employment and entrepreneurship in the country.
Within the broader MSME ecosystem, SMEs constitute the segment with the most potential to scale operations, raise productivity, integrate into global value chains and create high-quality domestic employment.
SMEs are also critical to India's export ambitions. They account for more than 70% of MSME exports, serving as important links between local production networks and global markets. As India seeks to deepen its participation in global value chains, SMEs can play an increasingly important role in driving exports and innovation, while creating stronger backward linkages with millions of micro enterprises.
India has put in place a strong and steadily expanding architecture of bank and non-bank finance for MSMEs, complemented by credit guarantee mechanisms, digital lending, invoice financing and other initiatives.
Debt finance is indispensable to meeting the working capital and investment requirements of SMEs. Equity capital serves a different purpose. For enterprises seeking to undertake capacity expansion, invest in technology, enter new markets or pursue longer-gestation growth opportunities, patient equity can strengthen the balance sheet and complement conventional debt financing.
Here, the SME Growth Fund can make a big difference. Existing support mechanisms have expanded funding opportunities for smaller enterprises, although much of the equity ecosystem has historically been oriented towards startups, early-stage ventures and micro enterprises. There remains considerable scope to deepen the availability of growth-stage equity for established SMEs that have demonstrated business viability and are ready for their next phase of expansion.
By providing patient risk-bearing capital, the fund can offer such enterprises another pathway to growth. Equity can also provide firms greater flexibility to invest in technology, strengthen supply chains, undertake research and development, improve product quality, enter new markets and enhance export competitiveness.
The significance of this approach goes beyond financing. It can help address the often-discussed "missing middle" in India's enterprise landscape. India has a vast base of micro enterprises and a strong cohort of large corporations. The opportunity now is to enable many more promising SMEs to transition to larger, more productive and globally competitive enterprises.
The fund can support this transition by backing enterprises with the potential to emerge as industry leaders across manufacturing, services, technology, innovation-driven sectors and strategic value chains. In doing so, it could help create the next generation of Indian champions that can compete globally.
The timing is also important. Disruptions in West Asia have affected trade routes and increased shipping, insurance and energy costs, while supply chains adjust to these geopolitical developments. Export-oriented SMEs are further adapting to evolving compliance requirements and sustainability standards in key overseas markets. Long-term growth capital can provide enterprises with greater financial resilience to navigate such uncertainty.
The fund forms part of a broader package announced in Union budget for 2026-27. These measures seek to strengthen equity, liquidity and professional support for MSMEs. The proposed convergence between the fund and professional support mechanisms, including those for enterprises in tier-II and tier-III centres, can help create a stronger pipeline of investment-ready SMEs by improving governance, compliance capabilities and preparedness for external investment.
The fund's success will depend on speedy and effective implementation. As the government takes forward its commitment through an Alternative Investment Fund structure, a clear operational framework, professional fund management and a robust pipeline of eligible enterprises will be important. Equally, the investment approach should identify businesses with genuine potential to scale and innovate.
The fund, therefore, is more than just another financing initiative. It signals evolution in India's approach to enterprise development, from supporting the creation and survival of businesses to enabling promising enterprises to achieve scale. It can be a catalyst for enterprise growth, industrial expansion, employment and export competitiveness. It can also help India build globally competitive SMEs to anchor value chains, drive innovation and contribute meaningfully to the Viksit Bharat goal.
The author is director general, Confederation of Indian Industry.