SIDBI MSME Outlook Survey Q2 FY26: Indian Small Businesses Show Resilience Amid Modest Dip in Confidence

The Small Industries Development Bank of India (SIDBI) has released the fourth edition of its MSME Outlook Survey, offering detailed insights into the evolving business sentiment among India's Micro, Small and Medium Enterprises (MSMEs). The quarterly report which covers firms across manufacturing, services and trading sectors, aims to fill critical data gaps through two key indicators: the MSME Business Conditions Index (M-BCI) and the MSME Business Expectations Index (M-BEI).

SIDBI's MSME Outlook Survey Reveals Mixed Sentiment

Both indices, ranging from 0 to 100, capture the confidence level of MSMEs, with scores above 50 reflecting a positive outlook. They are based on six key parameters - sales, profit margins, availability of skilled labour, access to working capital and overall finance, and the general business situation.

The survey also tracks trends in capacity utilisation, capital expenditure, cost of finance, and the ease of doing business. The current edition draws responses from 1,200 MSMEs across India, representing diverse industries and regions.

MSME Confidence Moderates Slightly in July-September 2025

According to the survey, the composite M-BCI for the July-September 2025 quarter slipped modestly to 61.64 from 63.75 in the previous quarter, indicating a slight softening in business sentiment. While manufacturing and services sectors maintained steady optimism, the trading segment displayed more volatility.

In contrast, forward-looking indicators remain strong. The M-BEI projects a positive business outlook, with the index expected to climb to 62.26 in the October-December 2025 quarter and further to 66.57 by July-September 2026. This optimism is driven by expectations of improved domestic demand and government support, including recent GST reductions on a wide range of products and services.

Sales, Exports and Profit Trends

Sales sentiment showed a moderate dip during July-September 2025, with 50% of trading MSMEs and 47% of manufacturing MSMEs reporting growth - slightly lower than the previous quarter. However, the services sector maintained steady performance. Looking ahead, most MSMEs anticipate stronger revenues in the festive quarter.

Export sentiment weakened temporarily, with only 43% of firms recording positive growth this quarter, but 56% expect a rebound next year as global demand stabilises. Despite softer sales, most businesses remain resilient - around one in five MSMEs even reported improved profit margins, while only 15-20% saw some pressure on earnings.

Easing Cost Pressures and Interest Burden

Cost pressures eased notably in manufacturing and trading, aligning with subdued wholesale inflation, while input costs in the services sector remained stable. There were also encouraging signs of easing finance costs, the share of manufacturing MSMEs reporting higher interest rates fell from 41% to 33%. However, concerns about future borrowing costs persist, with many respondents expecting interest rates to remain elevated in the near term.

Credit Availability and Labour Market Trends

Credit access presented mixed results. In manufacturing, 92% of MSMEs reported access to credit, up from 88% last quarter, though some found it inadequate. In contrast, 19% of service-sector MSMEs reported difficulty obtaining finance, up from 13%. Nonetheless, sentiment toward credit availability remains optimistic, supported by policy initiatives to strengthen MSME lending.

Skilled labour availability has improved consistently across all sectors since the survey's first edition. However, future expectations suggest this improvement may stabilise, with many firms still citing challenges in finding adequately trained workers.

The survey points to a steady increase in capacity utilisation. In manufacturing, firms reporting above-normal utilisation rose from 21% to 25%, with expectations of reaching 36% next year. Similarly, in the services sector, utilisation is projected to rise from 20% to 30%.

Many businesses are expanding capacity, 42% of manufacturers and 35% of service providers added new capacity this quarter, and even more plan to do so next year, signalling long-term confidence in demand recovery.

Debtor Realisation and Ease of Doing Business

While debtor realisation timelines remain a challenge, MSMEs expect gradual improvement. Respondents from services and trading sectors foresee better collection periods in the coming quarters, though manufacturing firms continue to face delays compared to earlier periods.

Ease of Doing Business (EoDB) indicators showed improvement across parameters such as permits, electricity supply, regulatory compliance, and the overall business environment. Over 60% of MSMEs across all sectors expressed optimism for further improvements in the coming year.

Quality Control Orders (QCO) Impact

The survey also examined the impact of Quality Control Orders (QCOs) on MSMEs. The findings indicate that QCO compliance requirements particularly in trading and manufacturing have increased operational costs and processing time for some firms.