MSME activity expands but loses steam as global headwinds bite: PHDCCI survey

New Delhi: The PHD Chamber of Commerce and Industry (PHDCCI) has released the findings of the SME Market Sentiment Index (SMESI) – Round 4, reflecting the performance of India’s manufacturing MSME sector for January–March 2026 and outlook for April–June 2026.

The SMESI, which comprises of the SME Business Activity Index (SME-BAI) and the SME Business Outlook Index (SME-BOI), is based on a quarterly survey of 3,000 manufacturing MSMEs across India and serves as a leading indicator of economic activity.

Key highlights
- SME Business Activity Index stood at 56.5 in Q4 FY26, indicating continued expansion, though moderating from 58.9 in the previous quarter.


- SME Business Outlook Index registered 58.7, reflecting a positive but softer outlook for Q1 FY27 (April–June 2026) with 60.7 in the previous quarter.

- Expansion in business activity continues to be driven by new orders and production, though at a slower pace.

- Employment and supplier delivery timelines remained largely unchanged, indicating cautious hiring and stable logistics conditions domestically.

SME Business Activity (Jan–Mar 2026)
The manufacturing MSME sector remained in expansion territory during the quarter, supported by an improvement in demand conditions. Around 37% of firms reported higher new orders, translating into increased production levels.

However, 60% of firms reported no change in employment and supplier delivery times, suggesting limited scaling in workforce and stable domestic supply chains.

Inventory levels showed moderate improvement, indicating gradual demand recovery but not broad-based acceleration.

Business Outlook (Apr–Jun 2026)

The outlook remains positive but reflects growing caution:

- 37% of firms expect expansion in business activity, while nearly half anticipate no change

- 47% expect an increase in capital expenditure, supported by demand expectations

- Hiring sentiment remains mixed, with 27% expecting an increase and 23% anticipating a decline

The moderation in outlook suggests uncertainty around external conditions despite underlying domestic resilience.

Impact of West Asia Crisis
Industry responses highlight significant external challenges affecting MSMEs:

- Logistics disruptions due to Red Sea and Strait of Hormuz rerouting have increased transit time by 15–20 days

- Freight costs and marine insurance premiums have surged, raising input and export costs

- MSMEs face working capital stress, as delayed shipments postpone receivables while fixed expenses continue

These factors are contributing to margin pressures, delayed cash flows, and cautious business sentiment.

Policy Recommendations
Industry stakeholders have highlighted the need for:

- Expansion of targeted credit guarantee schemes

- Introduction of working capital interest subvention

- Acceleration of logistics cost support measures

- Investments in energy diversification

The findings indicate that while India’s MSME manufacturing sector continues to expand, growth momentum is moderating due to external shocks, particularly from the West Asia crisis. The sector’s resilience is evident in sustained expansion, but policy support and external stabilization will be critical to maintain the growth trajectory in the coming quarters.