India's SME Sector Shows Strong Growth and Optimism in Next Quarter: PHDCCI Report To gauge the pulse of this vital sector, PHDCCI has introduced two indices: the SME Business Activity Index (SME-BAI) and the SME Business Outlook Index (SME-BOI)

Thanks to a suite of government initiatives aimed at credit facilitation, digital transformation, infrastructure support, and workforce development, the backbone of India's economy—small and medium enterprises (SME) sector—is showing strong signs of growth and resilience. According to a recent report by the PHD Chamber of Commerce and Industry (PHDCCI), these proactive efforts are not just keeping SMEs afloat, but propelling them forward.

"Government's proactive and effective initiatives—including credit support, technological assistance, infrastructure development, and skill training—have significantly transformed small and medium-sized enterprises (SMEs) into a vibrant and dynamic sector of the Indian economy," said Hemant Jain, President of PHDCCI.

To gauge the pulse of this vital sector, PHDCCI has introduced two indices: the SME Business Activity Index (SME-BAI) and the SME Business Outlook Index (SME-BOI). These indices are designed to quantify the momentum and future outlook of SME manufacturing activity in India.

The SME-BAI captures real-time performance across key indicators (new orders, production, employment, and inventories) offering a clear snapshot of the current quarter's performance relative to the last. In contrast, the SME-BOI offers foresight into the upcoming quarter's business climate by evaluating market sentiment and expectations. Both indices operate on a 0 to 100 scale, with a value of 50 representing no change. Readings above 50 indicate expansion, while those below suggest contraction.

This quarter, the SME-BAI recorded 57.7, underscoring substantial growth in manufacturing activity. A particularly strong New Orders Index of 71.7 and Output/Production Index of 66.7 highlight the sector's rising momentum. Inventories are also being replenished in anticipation of further demand, with the index at 60, while employment remains steady at 55.

"SME Business Outlook Index (SME-BOI), which provides the outlook for the next quarter, stood at 60.3, signaling strong confidence in the economy," Jain noted. "Notably, 67 per cent of respondents expect an improvement in business activity, 47 per cent anticipate increased hiring, and 53 per cent plan to boost capital expenditure."

This optimism is echoed in the financial ecosystem surrounding the sector. Santanu Agarwal, Deputy Managing Director of Paisalo Digital Limited, pointed out that India's commercial credit portfolio posted a 13 per cent year-on-year increase, growing to INR 35 lakh crore in March 2025 from INR 31 lakh crore the previous year. "With improving sectoral demand and financial platforms such as ONDC and Udyam bettering capital availability, the horizon is shining bright," Agarwal said.

He added that Indian MSMEs are adapting by modifying supply chains and scaling production capacity, showing resilience amid input cost fluctuations. "Supported by initiatives from the government, including credit schemes, digitization, and incentives for local manufacturing, the sector seems transformed for steady growth," Agarwal added.

Beyond numbers, the report also underscores the strategic role SMEs play in India's broader economic framework. "These indices have been created to fulfill the need for a reliable, data-driven tool to assess the health and outlook of India's SME manufacturing sector, which is a backbone to the Indian economy," said Dr. Ranjeet Mehta, Secretary General and CEO of PHDCCI.

According to Dr. Mehta, more than five crore MSMEs have been formalized under recent government policies, significantly contributing to exports, job creation, and inclusive development. Looking ahead, PHDCCI plans to develop additional indices focused on exports and services to complement this initiative.

"Our findings highlight a positive outlook for growth, job creation, and investment in the SME manufacturing sector," said Sanat Kumar, Chief Economist at PHDCCI, summing up the sector's trajectory.

In an economy where SMEs account for about 30 per cent of GDP and employ millions, these developments point to India's next phase of economic expansion.