Increased Optimism and Strength Prevail in Q1 FY2026 for MSMEs, With Over Half in Manufacturing and Trade Reporting Sales Growth, and Approximately 42% in Services Sector Showing Sales Increase, While Nearly Half in the Sector Remain Stable
Positive Outlook for India's MSMEs: SIDBI's Q1 FY2026 Survey Reveals Growing Confidence
The latest edition of the Small Industries Development Bank of India (SIDBI)'s quarterly MSME Outlook Survey, released for the April-June 2025 period (Q1 FY2026), indicates a continued positive momentum and growing confidence among India's Micro, Small, and Medium Enterprises (MSMEs).
Key trends and predictions include:
Sales and Profit Growth: Over half of MSMEs in manufacturing and trading reported sales growth during the quarter, with 42% of services MSMEs reporting improved sales and 48% stability. Despite rising input costs, profit margins improved across sectors, though services and trading expect higher cost pressures going forward.
Business Confidence and Expectations: The Composite MSME Business Confidence Index (M-BCI) rose to 63.75 from 60.82 in the previous quarter, indicating stronger business conditions. The forward-looking Business Expectations Index (M-BEI) stands at 62.19 for the next quarter and is projected to rise to 67.88 by Q1 FY2027, reflecting sustained optimism.
Access to Finance and Borrowing Costs: 88% of MSMEs reported improved access to finance compared to 79% previously, especially in the trading sector. Though borrowing costs remain a concern, recent RBI monetary easing with a 100-basis-point repo rate cut since February 2025 is easing pressures and improving credit conditions.
Availability of Skilled Labour and Capacity Utilisation: Skilled labour availability showed notable improvement, with about 25% of MSMEs reporting better access. Capacity utilization increased, with around 20% of MSMEs operating above normal capacity and nearly 29% expecting further utilization increases next year.
Ease of Doing Business (EoDB): Approximately 50% of MSMEs experienced better EoDB during Q1 FY2026, with improvements particularly in smoother return filing and compliance procedures. Over 60% expect further EoDB enhancements in the coming year.
Sector Outlook: Trading and services sectors show particularly strong sentiment and optimism, despite some expected cost pressures and global uncertainties that might slightly temper short-term growth projections.
Overall, the survey indicates a positive and resilient outlook for MSMEs in India, driven by improved operational conditions, financial access, and regulatory environment enhancements, supporting sustained growth and profitability in FY2026 and beyond.
- The trading sector, along with the services sector, exhibits a particularly strong sentiment and optimism, signifying a continued focus on business growth.
- The increasing access to finance and recent monetary easing by the RBI has helped alleviate borrowing costs, improving credit conditions for MSMEs.
- Despite rising input costs, many MSMEs across sectors experienced improved profit margins, a testament to their resilience and adaptability.
- Personal finance for MSME owners might also benefit from the positive outlook, as the sustained growth and optimism could translate into increased investments and wealth accumulation.
