MSME confidence dips modestly on US tariffs; optimism steady for Q3

SIDBI survey shows the MSME Business Conditions Index eased slightly in Q2FY26 on US tariff concerns but points to stronger optimism for Q3 and FY27

The reading on the Business Conditions Index for MSMEs declined to 61.64 for the July–September 2025 quarter (Q2FY26) from 63.75 in the April–June period (Q1FY26), showing a modest dip in confidence, according to SIDBI’s Business Outlook Survey.

 

The survey, covering 1,200 micro, small, and medium enterprises (MSMEs), indicated a slight moderation in business optimism among Indian firms, which may be attributed to emerging global challenges such as US tariff measures and other external economic pressures. Nevertheless, MSMEs continue to show resilience, with all three sectoral indices — manufacturing, services, and trading — well above the expansion threshold of 50. Sector-wise, manufacturing and services maintained steady optimism, while trading showed more volatility, it added.

 

The survey conducted by SIDBI serves as a tool for monitoring business sentiment and future expectations among MSMEs in India and seeks to bridge the information gap within the sector.

 

Optimism builds for Q3 and FY27 despite external headwinds

 

The survey showed that the reading on the Business Expectations Index improved from 61.64 to 62.26 for the next quarter (Q3FY26) and further to 66.57 for the quarter one year ahead (July–September 2026). This reflects MSMEs’ anticipation of improved market conditions, driven by stronger domestic demand and supportive policies such as the cut in GST on a wide range of products and services. The services sector, in particular, showed robust expectations for future growth, it added.

 

Input cost pressures ease; profitability remains stable

 

Pointing to some conducive factors, the survey observed that cost pressures eased in manufacturing and trading, aligning with low wholesale inflation. The services sector saw stable input costs. Nonetheless, many MSMEs expect cost challenges to persist.

 

The outlook on profitability is largely stable. Most businesses continue to show resilience, with the majority experiencing steady profit margins and nearly one in five reporting improvements. Looking ahead, expectations for the next year are bright, especially in the manufacturing and services sectors, where positive momentum is expected to continue, it added.