MSME optimism dips slightly but credit and capacity outlooks improve, say experts

India’s micro, small and medium enterprises (MSMEs) continue to display resilience even as business optimism eased modestly in the September quarter, according to the latest findings from the Small Industries Development Bank of India (SIDBI) and sector experts.

SIDBI’s fourth MSME Outlook Survey for July-September 2025 showed a dip in its Business Conditions Index (M-BCI) to 61.64 from 63.75 in the previous quarter, signalling slightly lower sentiment.

However, expectations for the coming quarters remained upbeat— the Business Expectations Index (M-BEI) is projected to climb to 66.57 by July–September 2026, reflecting MSMEs’ confidence in improving domestic demand and supportive policies such as the recent GST rate cuts.

Manufacturing and services firms maintained steady optimism, while trading enterprises showed more volatility. Cost pressures eased in line with lower inflation, and profit margins remained largely stable.

Access to credit improved for manufacturing MSMEs, but smaller firms continued to find financing inadequate, with rising difficulty reported in the services sector.

Capacity utilisation and investment sentiment strengthened, with more firms planning to add capacity next year. Over 60% of respondents across sectors expect improvements in the ease of doing business, especially in permits, electricity supply and compliance.

Lakshmi Venkataraman Venkatesan, Founding and Managing Trustee of Bhartiya Yuva Shakti Trust, said India’s 67 million MSMEs, which contribute 30% to GDP and employ over 120 million people, still face a credit gap of $380 billion, as estimated by the World Bank.

“Fintechs and NBFCs have changed MSME lending by using GST data and digital payments to disburse loans faster, but affordability remains a challenge,” she said. “Public sector banks should expedite online loan processing within three to five days, while fintechs and NBFCs must work to lower borrowing costs to better serve small enterprises," Venkatesan said.

Experts say sustained optimism and improved credit flow will be key for MSMEs to build on this momentum, even as firms navigate uneven demand and compliance challenges.