NEW DELHI, October 25: India’s micro, small and medium enterprises (MSMEs) reported stronger business confidence during the July-September quarter, with manufacturing firms emerging as the most optimistic segment despite continuing pressure from rising input costs, according to the latest survey by the Small Industries Development Bank of India (SIDBI).
The MSME Business Confidence Index (M-BCI) increased to 60.4 in the July-September period from 59.3 in the preceding quarter, reflecting an improvement in enterprises’ assessment of current business conditions. The findings indicate that sentiment across manufacturing, trading and services remained positive, with all three segments recording readings above the neutral threshold of 50.
According to SIDBI’s eighth round of the MSME Outlook Survey, approximately 49 per cent of the enterprises surveyed reported an improvement in business conditions compared with the previous quarter. Another 33 per cent said conditions remained broadly unchanged, while 18 per cent reported a deterioration.
The findings suggest that a substantial share of smaller businesses experienced stable or improving conditions during the quarter. However, the results also show that the recovery was not uniform, with a portion of enterprises continuing to face difficulties.
The survey’s forward-looking indicators pointed to further optimism. SIDBI projected the MSME Business Expectations Index (M-BEI) at 61.7 for October-December 2026 and 62.2 for July-September 2027, suggesting that businesses expected favourable conditions to continue over the coming quarters. <Cite refs={[“turn518059view0”]}/>
Manufacturing Emerges as the Most Optimistic Segment
Manufacturing businesses recorded the strongest confidence among the three major MSME categories. Their Business Confidence Index rose to 61.0 in July-September from 59.5 in the previous quarter.
The improvement was supported by better sales sentiment and expectations of continued demand. Around 43 per cent of manufacturing enterprises reported positive sales growth during the quarter, while the proportion expressing pessimism declined to 27 per cent.
The figures indicate that many smaller manufacturers were experiencing improved commercial conditions, although the survey does not suggest that every business had returned to strong growth.
Manufacturing MSMEs operate across a broad range of industries, including engineering components, textiles, food processing, packaging, metal products, chemicals and consumer goods. Their performance depends on domestic consumption, industrial investment, access to working capital and demand from larger companies.
Smaller manufacturers often supply components, materials and specialised services to larger industrial groups. When demand improves among these customers, orders can create additional opportunities for MSMEs to increase production and use existing capacity more efficiently.
However, higher raw-material prices can limit the benefits of improved sales. Businesses may struggle to pass all additional costs on to customers, particularly when they operate under long-term supply contracts or face competition from other producers.
The ability to manage inventories, negotiate supplier terms and maintain sufficient working capital therefore remains important to the sector’s financial health.
SIDBI’s forward-looking assessment showed particularly strong expectations among manufacturing enterprises. Their Business Expectations Index was projected at 63.3 for October-December 2026 and 64.8 for July-September 2027.
These projections indicate optimism about future conditions, although actual performance will depend on demand, input prices, credit availability and the wider economic environment. <Cite refs={[“turn518059view0”]}/>
Services and Trading Businesses Maintain Positive Outlook
The services sector also recorded an improvement in business confidence. Its M-BCI rose to 61.3 in July-September from 60.4 in the previous quarter.
Smaller service providers contribute to a wide range of economic activities, including logistics, information technology, professional services, maintenance, hospitality and business support. Their prospects depend on household spending, demand from companies and the availability of skilled workers.
An improvement in service-sector confidence can indicate that businesses expect customers to continue purchasing services and that commercial activity is generating opportunities for smaller operators.
Trading enterprises also retained a positive outlook. SIDBI projected their Business Expectations Index at 61.1 for October-December 2026, while the corresponding index for services was expected to reach 61.0.
For traders, business conditions are closely connected to consumer demand, stock turnover, wholesale prices and access to short-term financing. Higher inventory costs can absorb cash that would otherwise be available for expansion or routine payments.
Service providers face a different set of pressures. Labour expenses, technology investments, rental costs and customer payment delays can influence their margins, especially when they serve larger clients with long payment cycles.
The positive outlook across these categories suggests that confidence was not restricted to manufacturing. Nevertheless, businesses in individual industries and regions may experience different conditions depending on their customer base and operating expenses.
Rising Costs Remain a Challenge
Despite the improvement in sentiment, higher input costs remain a concern for MSMEs.
Small enterprises often have less bargaining power than larger corporations when purchasing raw materials, negotiating freight charges or securing favourable credit terms. Their ability to absorb cost increases can also be limited by modest cash reserves and narrow profit margins.
When suppliers increase prices, smaller businesses must decide whether to raise their own prices, accept lower margins, reduce expenses or seek alternative sources of materials.
Passing costs on to customers is not always straightforward. Buyers may resist price increases, particularly when demand is uncertain or alternative suppliers are available. In such circumstances, an enterprise can experience stronger sales volumes without a corresponding improvement in profitability.
Businesses that rely on imported components may also be affected by exchange-rate movements and international transportation expenses. Manufacturers using energy-intensive processes can face additional pressure when fuel and electricity costs rise.
For trading enterprises, higher purchase prices can increase the amount of money tied up in inventory. If sales do not keep pace, working capital becomes harder to manage.
These challenges explain why improving confidence does not automatically translate into stronger profits, higher investment or additional employment.
Credit Access and Cash Flow Remain Critical
Access to affordable and timely finance continues to be an important factor in the ability of MSMEs to expand operations.
Smaller firms require working capital to purchase materials, pay employees, maintain equipment and meet operating expenses while waiting for customers to settle invoices. Businesses seeking to enter new markets may also need funding for machinery, technology, certifications and distribution.
When financing is expensive or difficult to obtain, enterprises may postpone investment even when they expect demand to improve.
Delayed payments from customers can create further difficulties. A business may report healthy orders but still face a cash shortage if invoices remain unpaid for extended periods.
Such pressures can restrict the ability of smaller manufacturers to accept larger contracts, because fulfilling additional orders often requires spending money before the resulting revenue is received.
Financial institutions and specialised lenders therefore play an important role in supporting the sector’s development. Suitable credit products, transparent lending procedures and financing linked to verified invoices can help enterprises manage temporary cash-flow gaps.
However, borrowing must remain sustainable. Businesses that take on excessive debt to cover recurring losses or rising operating costs may become more vulnerable if demand weakens.
Enterprises can also strengthen their financial position by improving inventory management, monitoring customer payments, negotiating supplier arrangements and maintaining clearer financial records.
Hiring and Productivity Will Determine the Next Phase
The outlook for MSMEs also depends on whether stronger business sentiment translates into new jobs and higher productivity.
India’s preliminary October purchasing managers’ survey, released on October 23, showed that private-sector business activity had expanded at its fastest pace in four months. However, employment growth had nearly stalled as companies handled increased workloads using existing staff.
The HSBC flash India Composite Purchasing Managers’ Index, compiled by S&P Global, rose to 56.7 in October from 55.9 in September. The services sector led the acceleration, while manufacturing activity continued to expand at a slower pace. <Cite refs={[“turn518059view2”]}/>
Although the PMI survey covers a broader private-sector sample rather than only MSMEs, its findings highlight a relevant issue for businesses: stronger demand does not always lead immediately to additional recruitment.
Companies may first seek to improve productivity, extend working hours, reorganise operations or make better use of existing equipment before hiring additional workers.
For smaller enterprises, recruitment decisions also depend on the cost of training, the availability of skilled employees and the certainty of future orders.
If demand remains strong for an extended period, businesses may eventually need additional workers to expand production and meet delivery schedules. Investment in digital tools, employee training and modern machinery could also help smaller firms improve output and reduce waste.
The challenge will be to ensure that productivity improvements complement employment opportunities rather than leaving businesses unable to expand because of skill shortages or limited access to technology.
Outlook for the Coming Quarters
SIDBI’s latest survey presents an encouraging picture of business sentiment, particularly among manufacturers. The improvement in the confidence index and the positive expectations for the coming quarters suggest that many enterprises anticipate continued commercial activity.
However, the outlook remains dependent on several factors, including customer demand, input prices, access to credit and the ability to manage operating costs.
A sustained improvement in orders could encourage businesses to increase capacity, invest in equipment and explore new markets. Conversely, prolonged cost pressures or payment delays could weaken the financial position of firms that have limited reserves.
For policymakers, the survey highlights the importance of measures that improve access to finance, strengthen industrial supply chains and make it easier for smaller businesses to participate in domestic and international markets.
For enterprises themselves, maintaining financial discipline, diversifying customers and improving operational efficiency will be important as they navigate changing conditions.
The latest figures show that confidence among India’s MSMEs strengthened during the July-September quarter. Whether that optimism produces higher investment, stronger profitability and sustained job creation will depend on how businesses manage the challenges ahead.