India's SMEs Show Resilience Amid Challenges, Eye Growth in Capital Expenditure

The PHD Chamber of Commerce and Industry released the second round of findings from its SME Market Sentiment Index, indicating a persistent expansion in India's SME manufacturing sector. Despite growth, challenges such as declining demand and employment pressures prevail, as suggested by both the SME Business Activity Index (SME-BAI) and the SME Business Outlook Index (SME-BOI).

In the April-June 2025 period, the SME-BAI increased slightly to 58.3 from 57.7, thanks to improved supplier delivery times, easing logistics constraints. Nonetheless, a sharp drop in new orders and output—alongside weakened employment sentiment—reflects ongoing demand struggles and geopolitical uncertainties. Inventory build-up highlights anticipation of future demand spikes.

As the sector looks to the end of 2025, the SME-BOI indicates steady yet cautious optimism. Although many SMEs foresee stable activity levels, a significant number plan increased capital expenditure, signaling confidence spurred by GST 2.0 reforms. Challenges remain, including a muted hiring outlook and the need for faster payment processes.