UPSC Prelims Practice Questions — Cabinet approves ₹10,000-crore SME growth fund

Q1. With reference to the financing of an expanding enterprise, consider the following statements: Which of the statements given above is/are correct?

  1. Financing an expansion through fresh equity, rather than through additional borrowing, lowers the firm's debt-to-equity ratio.
  2. Unlike a term loan, an equity investment imposes no contractual obligation on the firm to make fixed repayments of principal and interest.
  3. Interest subvention on bank loans is a form of equity support, since it lowers the firm's cost of capital.
  • A. 1, 2 and 3
  • B. 2 and 3 only
  • C. 1 and 2 only
  • D. 1 only

Q2. Consider the following statements: Which of the following is correct in respect of the above statements?

  1. A credit guarantee scheme makes it easier for micro and small enterprises to obtain bank loans without pledging collateral.
  2. Under a credit guarantee, the guarantor bears a part of the lender's loss if the borrower defaults, which reduces the lender's need for security.
  • A. Both Statement-I and Statement-II are correct and Statement-II explains Statement-I
  • B. Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I
  • C. Statement-I is correct, but Statement-II is incorrect
  • D. Statement-I is incorrect, but Statement-II is correct

Q3. With reference to the criteria for classifying enterprises as micro, small or medium in India, consider the following statements: Which of the statements given above is/are correct?

  1. An enterprise that crosses the ceiling for its present category on either investment or turnover moves to the next higher category, even if it remains within the other ceiling.
  2. Manufacturing enterprises face lower investment ceilings than service enterprises in the same category.
  3. Turnover from exports is not counted when computing an enterprise's turnover for classification.
  • A. 1 and 2 only
  • B. 1 and 3 only
  • C. 2 only
  • D. 1, 2 and 3

Q4. In 2025, the investment and turnover ceilings used to classify enterprises as micro, small and medium were raised for all three categories. Other things remaining the same, which one of the following is the most likely consequence?

  • A. Some enterprises earlier classified as small would now fall within the micro category.
  • B. Fewer enterprises would qualify for benefits meant for the MSME sector as a whole.
  • C. Some enterprises earlier classified as micro would now fall within the small category.
  • D. Enterprises would have to raise their investment to remain within their existing category.

Q5. With reference to a fund-of-funds model of public equity support for enterprises, such as the Self-Reliant India Fund for MSMEs, consider the following statements: Which of the statements given above is/are correct?

  1. A mother fund puts money into several daughter funds, and the daughter funds invest in individual enterprises.
  2. Decisions on which individual enterprises receive investment are taken by the daughter funds, not directly by the government.
  3. The mother fund of the Self-Reliant India Fund is registered with the Securities and Exchange Board of India as an Alternative Investment Fund.
  • A. 2 and 3 only
  • B. 1 only
  • C. 1 and 2 only
  • D. 1, 2 and 3

Q6. Consider the following statements: Which of the following is correct in respect of the above statements?

  1. A fund-of-funds structure allows a given government contribution to support a larger total volume of investment in enterprises.
  2. In a fund-of-funds, the government's contribution is lent to the daughter funds at a fixed rate of interest, and they must repay it whatever their investment returns.
  • A. Both Statement-I and Statement-II are correct and Statement-II explains Statement-I
  • B. Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I
  • C. Statement-I is correct, but Statement-II is incorrect
  • D. Statement-I is incorrect, but Statement-II is correct

Q7. With reference to an economy's participation in global value chains (GVCs), consider the following statements: Which of the statements given above is/are correct?

  1. An Indian garment SME that imports synthetic fibre to make garments for export adds to India's forward participation in GVCs.
  2. An Indian auto-component SME that exports gearboxes to a foreign car-maker, which then exports the finished cars, adds to India's forward participation in GVCs.
  3. A rising share of foreign value added in a country's gross exports shows deepening forward participation in GVCs.
  • A. 1 and 3 only
  • B. 2 only
  • C. 2 and 3 only
  • D. 1 and 2 only