MSME confidence rebounds but margin pressures persist: Survey
SIDBI's latest survey finds 49% of small businesses reporting better conditions even as trading firms continue to face sales and working-capital challenges
Rising input costs, margin pressures and uneven access to working capital continue to challenge India’s micro, small and medium enterprises (MSMEs), according to a Small Industries Development Bank of India (SIDBI) survey.
However, business confidence across the sector recovered in the July-September quarter of FY27, ending four consecutive quarters of moderation. The MSME Business Confidence Index (M-BCI) rose to 60.4 in the second quarter of FY27 from 59.3, with improvements in manufacturing, services and trading.
The recovery in sentiment has not resulted in uniform gains in sales and profitability.
The eighth round of SIDBI’s MSME Outlook Survey found that 49 per cent of surveyed enterprises reported improved business conditions, while 33 per cent said conditions were unchanged and 18 per cent reported a deterioration.
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Profitability remains a concern. According to the survey findings reported by ETBFSI, 20-30 per cent of MSMEs across sectors reported a decline in net profit margins, while 48-58 per cent said margins had remained broadly unchanged.
The findings underline a key challenge for small businesses: improving business sentiment does not mean they have room to absorb higher costs or finance expansion.
Trading firms lag behind
The improvement in confidence was broad-based, but trading enterprises continued to trail manufacturing and services.
The manufacturing M-BCI rose to 61.0 in July-September from 59.5 in the previous quarter. The services index increased to 61.3 from 60.4, while the trading index improved to 57.5 from 56.5.
Sales sentiment showed a similar divergence. Around 43 per cent of manufacturing firms and 45 per cent of services enterprises reported positive sales-growth sentiment. The share was 38 per cent among trading firms, where the proportion reporting pessimistic sales sentiment increased to 22 per cent from 15 per cent in the preceding survey round.
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Working-capital access remains another pressure point. While 47 per cent of manufacturing MSMEs and 44 per cent of services enterprises reported improved access to overall finance, trading firms fared worse specifically on working-capital finance, with 31 per cent reporting a decline in access.
Access to affordable and timely credit remains important for businesses operating with limited cash buffers. Deloitte India partner Deepa Seshadri has identified access to finance as a key bottleneck for MSMEs, alongside challenges in navigating the processes involved in setting up and operating smaller enterprises.
Business expectations improve
Despite these constraints, the outlook for the coming quarters remains positive.
SIDBI’s MSME Business Expectations Index (M-BEI) is projected at 61.7 for October-December 2026 and 62.2 for July-September 2027, suggesting businesses expect operating conditions to improve further.
The availability of skilled labour is also expected to improve in manufacturing. The share of firms anticipating better access to skilled workers is projected to rise from 25 per cent currently to 40 per cent over the next year.
However, the strength of the recovery will depend on whether improved sentiment translates into sustained sales growth, better margins and greater investment. For MSMEs, easing working-capital constraints and managing input costs will remain important to converting optimism into stronger business performance.
