MSME Sector Remains Optimistic in Q2 as Demand Rises, Costs Ease & Policy Support Grows, Says Report

Micro, small and medium enterprises (MSMEs) remain optimistic about future business prospects. The notable increase in positive sentiment is observed for the upcoming quarter is attributed to stronger domestic demand, easing cost pressures and policy measures such as goods and services tax (GST) rate cuts, according to a survey by Small Industries Development Bank of India (Sidbi).

The survey measured sales, profit margins, employment, overall business condition, and access to finance, based on responses from 1,200 MSMEs across sectors and regions.

Exports Dip, Optimism Remains

According to the Sidbi report, sales sentiment softened modestly in the July-September quarter (Q2), with 50% of trading and 47% of manufacturing MSMEs reported positive growth, moving slightly down from the previous quarter.

The services sector, however, maintained its earlier momentum and continued to perform strongly. Firms expect revenue momentum to pick up further during the festive season.

While the positive growth in export sales dipped to 43% this quarter, exporters expect a strong rebound, with 56% expecting healthy growth in 2026, stated the Sidbi report. Input cost pressures eased in manufacturing and trading in line with low wholesale inflation, while the services sector reported stable costs. However, many MSMEs expect future cost challenges to persist.

MSMEs Stay Hopeful

Profitability across MSMEs largely remained stable, with nearly one in five businesses reporting improved margins. While 15-20% of firms experienced some pressure on profits, overall optimism about next year remains high, especially in the manufacturing and services sectors.

The Sidbi report also indicated an easing interest burden, especially in manufacturing, where the share of MSMEs reporting higher financing costs fell from 41% to 33%. However, expectations of elevated borrowing costs remain amid uncertainty over interest rate trends.

Policy Boost

The MSME sector now contributes about 30.1% of India’s GDP and 45.73% of exports in the country, according to a news release by the Ministry of Micro, Small & Medium Enterprises.

Meanwhile, the July - September 2025 Sidbi report stated MSME credit availability shows mixed results. In manufacturing, more firms (92%, up from 88%) say credit is available, but many find it inadequate. In services, more MSMEs (19%, up from 13%) report difficulty in getting finance. Manufacturing MSMEs remain hopeful for better credit access due to supportive policies.

These developments reinforce how favourable policy changes and increased domestic demand are fostering optimism among MSMEs.