MSME Outlook Survey 2025 Reveals Mixed Business Sentiment Among India's Enterprises

The Small Industries Development Bank of India (SIDBI) has unveiled the fourth edition of its MSME Outlook Survey. This report provides a comprehensive view of the changing business sentiment among India's Micro, Small, and Medium Enterprises (MSMEs). The quarterly survey covers firms in manufacturing, services, and trading sectors, addressing data gaps through two main indicators: the MSME Business Conditions Index (M-BCI) and the MSME Business Expectations Index (M-BEI).

Both indices measure MSME confidence levels on a scale from 0 to 100, with scores above 50 indicating a positive outlook. They assess six key factors: sales, profit margins, skilled labour availability, access to working capital, overall finance, and the general business environment. The survey also examines trends in capacity utilisation, capital expenditure, finance costs, and ease of doing business. Responses were gathered from 1,200 MSMEs across various industries and regions in India.

The survey reveals a slight dip in MSME confidence for July-September 2025. The composite M-BCI decreased to 61.64 from 63.75 in the previous quarter, showing a minor decline in business sentiment. While manufacturing and services sectors maintained steady optimism, the trading segment showed more volatility. Despite this dip, forward-looking indicators remain strong.

The M-BEI anticipates a positive business outlook with the index expected to rise to 62.26 in October-December 2025 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 various products and services.

During July-September 2025, sales sentiment experienced a moderate decline. About 50% of trading MSMEs and 47% of manufacturing MSMEs reported growth, slightly lower than the previous quarter. However, the services sector maintained steady performance. Looking ahead, most MSMEs anticipate stronger revenues during the festive quarter.

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

Cost Pressures and Finance Costs

Cost pressures eased significantly in manufacturing and trading sectors due to subdued wholesale inflation. Input costs in the services sector remained stable. Encouragingly, finance costs showed signs of easing as well; 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 Access and Labour Market

Credit access presented mixed results across sectors. In manufacturing, 92% of MSMEs reported access to credit compared to 88% last quarter though some found it inadequate. Conversely, 19% of service-sector MSMEs faced difficulty obtaining finance up from 13%. Nonetheless sentiment towards credit availability remains optimistic supported by policy initiatives aimed at strengthening MSME lending.

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

Capacity Utilisation and Business Expansion

The survey indicates a steady increase in capacity utilisation among businesses. In manufacturing firms reporting above-normal utilisation rose from 21% to 25%, with expectations reaching 36% next year. Similarly in services sector utilisation is projected to rise from 20% to 30%. Many businesses are expanding capacity; this quarter saw new capacity additions by 42% of manufacturers and 35% of service providers with more planning expansions next year signalling long-term confidence in demand recovery.

Debtor Realisation and Ease of Doing Business

Debtor realisation timelines remain challenging but gradual improvement is expected by MSMEs. Respondents from services and trading sectors foresee better collection periods in coming quarters though manufacturing firms continue facing delays compared to earlier periods.

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

Impact of Quality Control Orders (QCOs)

The survey also examined Quality Control Orders' (QCOs) impact on MSMEs revealing increased operational costs and processing time for some firms particularly in trading and manufacturing due to compliance requirements.

The SIDBI survey highlights mixed sentiments among India's MSMEs but also points towards optimism for future growth driven by domestic demand improvements government support easing cost pressures credit availability skilled labour improvements capacity expansion plans debtor realisation timelines EoDB enhancements despite challenges posed by QCO compliance requirements.