India’s MSMEs on a Growth Trajectory: SIDBI Survey Reflects Resilience and Optimism

India’s Micro, Small, and Medium Enterprises (MSMEs) are showing renewed confidence and growth momentum, according to the latest MSME Outlook Survey (Round 2) by the Small Industries Development Bank of India (SIDBI). Covering the January–March 2025 quarter, the survey paints an encouraging picture of the sector's current performance and its outlook over the next year.

Rising Confidence in MSMEs

The survey’s headline index — the MSME Business Confidence Index (M-BCI) — rose to 60.82 in Q4 FY25, up from 58.30 in the previous quarter, indicating a healthy and improving business environment. This growth was broad-based across sectors:

• Manufacturing: 61.92
• Services: 62.40
• Trading: 55.79
   

While trading MSMEs trailed the other sectors in confidence, all three segments registered improvement from the previous round.

Future Outlook: Cautious but Positive

The MSME Business Expectations Index (M-BEI) continues to reflect optimism for the next four quarters, especially in manufacturing and services, where the one-year-ahead index stands at 62.48 and 61.74, respectively. Despite a slight dip due to global uncertainties like shifting U.S. tariff policies, MSMEs remain largely upbeat about their near-term growth prospects.

Sales, Profitability, and Investment on the Rise

Most MSMEs reported growth in sales, order books, and production volumes, especially in manufacturing. Over 50% of respondents across sectors expect sales to rise further in the coming year.

Though under pressure from rising input and salary costs, profit margins have largely remained stable. Around 90% of MSMEs expect to maintain or improve profitability, driven by increased selling prices and higher production output.

Importantly, investment in capacity expansion and technology is gaining momentum. Roughly 37% of MSMEs in manufacturing and services have added capacity during the current quarter, with similar proportions planning further expansion over the next year.

Employment and Sustainability Trends

The sector continues to create jobs, with about one-third of MSMEs in manufacturing and services reporting employment growth. Looking ahead, 40% of manufacturers and 37% of service providers expect to hire more in FY26.

In terms of sustainability, MSMEs are increasingly adopting green practices. Around 43% have already invested in environmentally friendly initiatives such as solar panels, EVs, and cleaner technologies, with expectations for continued adoption rising further.

Challenges: Credit and Skilled Labour

While 80% of MSMEs have access to finance, many — especially in manufacturing and trading — report that it remains inadequate for their growing needs. Around 40-50% of respondents cited concerns over insufficient working capital and CAPEX financing.

The cost of finance also remains a pain point, with nearly half of the MSMEs anticipating higher borrowing costs in the future.

Moreover, the availability of skilled labour continues to be a major challenge. Across sectors, many MSMEs expressed dissatisfaction with the current talent pool, underlining the need for more targeted skilling programs.

Digital and Green Transitions Gaining Ground

Digital transformation is accelerating, albeit with varying intensity. The use of digital platforms for sales and marketing has grown in both manufacturing and services, with up to 50% of MSMEs planning to increase digital adoption in the next year.

Similarly, the sector’s move towards environmental sustainability appears to be gaining traction, with nearly half of MSMEs planning investments in eco-friendly technologies and practices.

SIDBI’s latest survey reflects a robust recovery and growing optimism among Indian MSMEs. Despite ongoing challenges in finance and labour, the sector is marching forward, driven by domestic demand, increased digital and green adoption, and steady capital investments.

As India looks to strengthen its MSME backbone — a key driver of employment and innovation — sustained policy support, easier access to finance, and targeted skilling initiatives will be crucial to unlocking the sector’s full potential in the coming years.