UPSC Prelims Practice Questions — Cabinet approves Commitment of Rs.10,000 Crore towards establishment of the SME Growth Fund for direct equity investments in Small and Medium Enterprises to create future champions

Q1. With reference to two models of public support for enterprise equity, the 'fund-of-funds' model and the 'direct equity' model, consider the following statements: Which of the statements given above is/are correct?

1. In a fund-of-funds model, the anchor investor's money reaches enterprises only after passing through intermediate funds that select the investee firms.
2. In a direct equity model, the investing vehicle itself holds ownership stakes in enterprises and bears each investee's risk without an intermediate fund sharing it.
3. The direct equity model differs from the fund-of-funds model mainly in that it provides loans to enterprises which convert into shares at the investor's option.

• A. 2 and 3 only
• B. 1 and 3 only
• C. 1, 2 and 3
• D. 1 and 2 only

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

1. An infusion of equity capital into a small or medium enterprise can increase the amount of bank credit that the enterprise is able to raise.
2. Equity carries no fixed repayment obligation and absorbs an enterprise's losses before its lenders do, which enlarges the cushion that protects creditors.

• 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 classification of Micro, Small and Medium Enterprises in India, consider the following statements: Which of the statements given above is/are NOT correct?

1. Classification is based on a composite test of investment in plant and machinery or equipment and annual turnover.
2. Since the 2020 revision, the same thresholds apply to manufacturing enterprises and service enterprises.
3. An enterprise whose turnover exceeds the small-enterprise ceiling continues to be classified as small as long as its investment stays within the small-enterprise ceiling.

• A. 3 only
• B. 1 and 3 only
• C. 1 only
• D. 2 and 3 only

Q4. With reference to the Trade Receivables Discounting System (TReDS), consider the following statements: Which of the statements given above is/are correct?

1. Only MSMEs can participate as sellers whose receivables are financed on the platform.
2. Government departments and public sector undertakings can participate as buyers on the platform.
3. The platform supports reverse factoring, in which the buyer rather than the MSME seller initiates the financing of the invoice.

• A. 2 and 3 only
• B. 1 and 2 only
• C. 1, 2 and 3
• D. 1 and 3 only

Q5. Consider the following statements: Which of the following is correct in respect of the above statements?

1. Requiring Central Public Sector Enterprises to use TReDS for purchases from MSMEs can ease the working-capital stress of their MSME suppliers.
2. On TReDS, the financier retains the right to recover the discounted amount from the MSME seller if the buyer fails to pay at maturity.

• 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

Q6. A small enterprise raises finance through each of the following routes. Which one of them adds to the enterprise's net worth at the time the money is received?

• A. A working-capital overdraft sanctioned by a scheduled commercial bank
• B. Allotment of fresh shares to a growth-stage investment fund
• C. Discounting its invoices on large buyers through the TReDS platform
• D. A collateral-free term loan backed by a CGTMSE credit guarantee