UPSC Prelims Practice Questions — Small and Medium Enterprises Growth Fund

Q1. With reference to the classification of enterprises as micro, small or medium in India, consider the following statements: Which of the statements given above is/are correct?

  1. Because the investment test counts investment in equipment as well as plant and machinery, a services enterprise can be classified as an MSME.
  2. If the investment and turnover ceilings are raised, an existing enterprise can move into a smaller category even though its own investment and turnover have not changed.
  3. Revising the investment and turnover ceilings requires Parliament to amend the parent MSME statute each time.
  • A. 1 and 3 only
  • B. 1, 2 and 3
  • C. 1 and 2 only
  • D. 2 and 3 only

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

  1. An enterprise whose investment in plant and machinery is within the ceiling for a small enterprise may nevertheless be classified as a medium enterprise.
  2. The MSME classification applies the investment and turnover ceilings jointly, so an enterprise falls in a category only if it is within both limits of that category.
  • 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 Alternative Investment Funds (AIFs) in India, consider the following statements: Which of the statements given above is/are correct?

  1. An AIF is a privately pooled investment vehicle, and every AIF must be registered with SEBI irrespective of the strategy it follows.
  2. AIFs that are classified as SME funds may borrow freely to magnify their equity investments in small enterprises.
  3. AIFs that trade for short-term returns may use leverage, including through investment in listed or unlisted derivatives.
  • A. 1 only
  • B. 1 and 3 only
  • C. 1, 2 and 3
  • D. 2 and 3 only

Q4. Consider the following statements: Which of the following is correct in respect of the above statements?

  1. The total equity that the Self-Reliant India (SRI) Fund can deploy into MSMEs is several times the Government of India's own contribution to it.
  2. Under the SRI Fund, the mother fund invests directly in micro enterprises and reinvests the profits it earns from them to enlarge its corpus.
  • 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

Q5. A medium enterprise that already carries substantial bank borrowing raises its expansion capital through an equity investment by the SME Growth Fund, instead of taking a credit-guarantee-backed term loan. Compared with the loan route, which of the following consequences are likely?

  1. The enterprise's debt-to-equity ratio falls instead of rising.
  2. The enterprise takes on a fixed obligation to pay periodic interest on the capital received.
  3. The fund shares in the loss if the expansion fails.
  4. The promoters' percentage ownership of the enterprise is diluted.
  • A. 1, 3 and 4 only
  • B. 2 and 4 only
  • C. 1, 2, 3 and 4
  • D. 1 and 2 only

Q6. Consider the following data on India's MSME sector: Udyam and Udyam Assist Platform registrations total about 9.78 crore, of which about 4.08 crore are in trading, 3.77 crore in services and 1.93 crore in manufacturing; MSMEs account for 35.4% of manufacturing output and 48.58% of exports. Which of the following inferences can validly be drawn from the above?

  1. Manufacturing enterprises make up less than a quarter of registered MSMEs by number.
  2. Trading MSMEs contribute more to India's exports than manufacturing MSMEs.
  3. Enterprises above the MSME ceilings produce the larger share of India's manufacturing output.
  4. A fund that allocates most of its capital to manufacturing is directing it to the activity with the largest number of registered MSMEs.
  • A. 1, 3 and 4 only
  • B. 2 and 4 only
  • C. 1, 2 and 3 only
  • D. 1 and 3 only