Are India’s Small and Medium Enterprises Set for Explosive Growth in Q1 FY2026?
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Synopsis
India's small and medium enterprises are witnessing a remarkable shift, with a positive trend in business activity and a strong growth outlook for the next quarter. Explore how government initiatives are reshaping this vital sector of the economy.
Key Takeaways
- Positive momentum in India's SME sector for Q4 FY2025.
- Robust growth outlook for Q1 FY2026.
- Government initiatives crucial for transformation.
- High demand reflected in New Orders Index.
- Employment and inventories are on the rise.
New Delhi, May 20 (NationPress) There has been a positive surge in business activities within India’s small and medium enterprise sector during the January-March quarter (Q4) of FY2025, showing improvement over the previous quarter (Q3). A strong growth forecast is anticipated for the upcoming quarter (Q1 FY2026), as indicated by the SME Market Sentiment Index released by the business chamber PHDCCI this Tuesday.
The survey involved 3,000 SMEs from various manufacturing sectors across India.
According to PHDCCI President Hemant Jain, government initiatives such as credit support, technological aid, infrastructure enhancements, and skill development have played a crucial role in transforming small and medium-sized enterprises (SMEs) into a vibrant part of the Indian economy. These measures have helped to foster entrepreneurship and create numerous job opportunities.
To gauge the SME market sentiment, two indices were formulated: the SME Business Activity Index (SME-BAI) and the SME Business Outlook Index (SME-BOI).
Jain noted that these indices will be instrumental for policymakers, industry participants, and investors in making well-informed decisions.
Both indices operate on a scale of 0 to 100, with 50 serving as the baseline distinguishing expansion from contraction. The SME Business Activity Index (SME-BAI) recorded an impressive 57.7 points, indicating significant expansion in manufacturing compared to the earlier quarter. This growth is fueled by a robust New Orders Index of 71.7, which reflects high demand and a strong project backlog, alongside an Output/Production Index of 66.7, signaling that business activities are gaining momentum.
The Employment Index remained stable at 55.0, in line with the rising economic activity, while the Inventories Index of 60.0 suggests that companies are actively replenishing stock to meet expected demand, according to the PHDCCI chief.
“We commend the policy reforms and initiatives launched by the government to support the SME sector. These will significantly impact the future of the MSME landscape,” he remarked.
The SME Business Outlook Index (SME-BOI), which provides projections for the forthcoming quarter, stood at 60.3, reflecting strong confidence in the economy. Notably, 67% of respondents foresee an uptick in business activity, 47% expect increased hiring, and 53% plan to enhance capital expenditure, Jain added.
PHDCCI Secretary General and CEO Ranjeet Mehta stressed that these indices have been designed to serve as a reliable, data-driven resource to evaluate the health and outlook of India’s SME manufacturing sector, which is crucial to the Indian economy. “The ongoing support from the government has resulted in the formalization of over 5 crore MSMEs, significantly contributing to exports, job creation, and inclusive development. As we look to promote the SME sector further, we plan to introduce indices related to exports and the services market,” he stated.
“Our findings underscore a promising outlook for growth, job creation, and investment in the SME manufacturing sector,” emphasized PHDCCI Chief Economist Sanat Kumar.
Point of View
I recognize the significant role small and medium enterprises play in India's economy. The positive trends highlighted in the recent PHDCCI report reflect resilient growth and the government's commitment to fostering this vital sector. It is crucial for us to support and promote initiatives that empower SMEs, as they are instrumental in job creation and sustainable economic development.
NationPress
09/09/2025
Frequently Asked Questions
What is the SME Market Sentiment Index?
The SME Market Sentiment Index is a measure developed by PHDCCI to gauge the business activity and outlook of small and medium enterprises in India, based on surveys conducted across various manufacturing sectors.
How many SMEs were surveyed for the report?
The report is based on feedback from 3,000 SMEs located throughout India.
What do the indices indicate?
The SME Business Activity Index and SME Business Outlook Index provide insights into the current business climate and future expectations for growth, helping stakeholders make informed decisions.
What factors are driving growth in the SME sector?
Growth in the SME sector is driven by government initiatives such as credit support, technological assistance, infrastructure development, and skill training.
What is the significance of the Employment Index?
The Employment Index reflects the employment trends within the sector; a stable or increasing index indicates that businesses are hiring in response to growing economic activity.
