MSME Optimism Eases Marginally in Q2FY26, Future Outlook Bright: SIDBI Survey

Micro, Small and Medium Enterprises (MSMEs) in India continue to show resilience despite a marginal decline in overall optimism during the July–September 2025 quarter. According to the fourth round of the MSME Outlook Survey conducted by the Small Industries Development Bank of India (SIDBI), business confidence remains strong across key sectors, even as short-term sentiment dipped slightly.

MSME optimism in India shows temporary slowdown

The survey, which covered 1,200 MSMEs from manufacturing, services, and trading sectors, revealed that the MSME Business Conditions Index (M-BCI) slipped to 61.64 from 63.75 in the previous quarter. However, the MSME Business Expectations Index (M-BEI) suggests a rebound ahead, projected to climb to 62.26 next quarter and 66.57 by next year. The improvement is linked to rising domestic demand, festive season momentum, and policy support such as recent GST rate cuts.

Manufacturing and services stay stable while trading sector fluctuates

Manufacturing and services MSMEs maintained steady optimism, while the trading sector saw greater fluctuations. Sales sentiment softened, with only half of trading MSMEs and 47% of manufacturing MSMEs reporting positive growth. Meanwhile, the services sector benefited from festive demand, helping it sustain revenue stability. Export sentiment declined marginally, with 43% reporting positive growth, though 56% expect improvement in the coming year.

Financial access and cost conditions improving for MSMEs

Access to finance showed positive signs, especially in manufacturing where 92% of firms reported credit availability compared to 88% in the previous quarter. Though adequacy of credit remains an issue, borrowing costs are easing as firms reporting higher finance costs dropped from 41% to 33%. In the services sector, however, 19% of MSMEs faced financing challenges, slightly up from 13% earlier.

Ease of Doing Business and workforce readiness on rise

Indicators of Ease of Doing Business (EoDB) improved across areas like permits, electricity, and compliance. Over 60% of respondents expect further gains next year. Capacity utilisation rose, with 25% of manufacturing firms reporting above-normal levels, expected to reach 36% next year. The services sector also reported strong expansion activity. While skilled labour availability improved, future expectations remain cautious due to continued workforce shortages.

The survey also noted that compliance with Quality Control Orders (QCOs) increased costs and time for some MSMEs, particularly in manufacturing and trading, underscoring the need for more awareness and guidance on regulatory norms.

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