Union Cabinet approves ₹10,000 crore commitment to SME Growth Fund

The fund will provide growth capital to SMEs seeking to expand capacity, adopt technology, enter global markets, make acquisitions and join global value chains

The Union Cabinet on Tuesday approved ₹10,000-crore government commitment to an SME Growth Fund that will provide direct equity investments to small and medium enterprises (SMEs), with a focus on manufacturing. The fund is aimed at addressing a gap in growth-stage equity financing for SMEs, as existing equity funds largely focus on early-stage businesses and micro enterprises. The ₹10,000-crore commitment was announced as part of 2026-27 Union Budget.

 

The fund will be set up as an alternative investment fund (AIF) and will provide growth capital to SMEs seeking to expand capacity, adopt technology, enter international markets, undertake acquisitions and integrate into global value chains, according to the government.

 

 

A majority of the fund’s allocation will be towards SMEs. It will also consider SMEs operating in industrial clusters in Tier-II and Tier-III cities.

 

The fund is intended to address a gap in growth-stage equity financing for small and medium enterprises. Existing funds providing equity support largely focus on early-stage businesses and micro enterprises, the government said.

 

The fund will provide long-term capital to businesses with established operations and potential to scale. The government expects the investments to help SMEs expand their manufacturing capacity, improve productivity, increase exports and participate in global supply chains.

 

Investments in industrial clusters in smaller cities are also expected to support local supply chains and employment.

 

The government has also highlighted credit support, digitalisation, public procurement reforms, startup initiatives and production-linked incentive schemes as part of its broader measures for the MSME sector.

 

According to Rakesh Chhabra, president, Federation of Indian Micro and Small & Medium Enterprises (FISME), the SME Growth Fund addresses a critical gap between a viable business and a scalable enterprise. Its success will depend on patient investment terms and a systematic effort to help promising industrial SMEs become ready for equity. The ₹10,000 crore commitment can provide a valuable demonstration effect, but its impact will depend on the number and quality of businesses it helps scale. 

 

"For illustration, an average investment of ₹10 crore would cover approximately 1,000 enterprises before fees, expenses and follow-on reserves. This is not a forecast; it shows why private capital mobilisation and investment readiness matter," Chhabra said. 

 

Shrikant Goyal, managing director, Getfive Funds said, “MSMEs often face the challenge of raising growth capital on reasonable terms. In this context, the approval of the ₹10,000 crore corpus can make a meaningful difference for the sector by providing long-term equity to manufacturing businesses.” It can also help build a stronger ecosystem, improve governance and reporting standards, and bring more professional investors into a segment that has been undercapitalised for too long. The move is also positive for private funds, which are constantly looking for a strong pipeline of investable, institution-ready businesses, he added.