India MSME Manufacturing Growth Slows Amid West Asia Crisis, Survey Shows

New Delhi: India's MSME manufacturing sector continued to remain in expansion mode during the January-March 2026 quarter, although growth momentum showed signs of moderation due to external challenges, particularly arising from the West Asia crisis, according to the SME Market Sentiment Index (SMESI) - Round 4 released by PHD Chamber of Commerce and Industry.

As per the findings, the SME Business Activity Index stood at 56.5 in Q4 FY26, indicating continued expansion, though it moderated from 58.9 recorded in the previous quarter. Similarly, the SME Business Outlook Index registered 58.7 for Q1 FY27 (April-June 2026), lower than 60.7 in the previous quarter, reflecting a positive but softer outlook.

The SMESI, based on a quarterly survey of 3,000 manufacturing MSMEs across the country, serves as a key indicator of business activity and outlook. It comprises the SME Business Activity Index (SME-BAI) and the SME Business Outlook Index (SME-BOI).

The survey report noted that expansion in business activity was largely driven by new orders and production, although at a slower pace. Around 37 per cent of firms reported higher new orders, which supported increased production levels during the quarter.

However, the survey highlighted cautious trends in employment and logistics. Nearly 60 per cent of firms reported no change in employment levels and supplier delivery timelines, indicating limited hiring and stable domestic supply chain conditions. Inventory levels showed moderate improvement, pointing to gradual demand recovery.

Looking ahead, the outlook remains positive but cautious. About 37 per cent of firms expect expansion in business activity in the April-June 2026 quarter, while nearly half anticipate no change. Around 47 per cent expect an increase in capital expenditure, while hiring sentiment remains mixed, with 27 per cent expecting an increase and 23 per cent anticipating a decline.

The report emphasised that external factors, particularly the ongoing West Asia crisis, are impacting MSME operations. It stated, "Red Sea / Strait of Hormuz disruptions re-routing has added 15-20 days' transit time has caused trouble in inventory management". It further added logistics disruptions due to rerouting through the Red Sea and Strait of Hormuz have increased transit time by 15-20 days. Freight costs and marine insurance premiums have also risen, adding to input and export costs.

The findings indicate that while the MSME manufacturing sector remains resilient with continued expansion, policy support and stabilisation of external conditions will be critical to maintain growth momentum in the coming quarters.