PHDCCI SME Market Sentiment Index Signals Robust Growth Outlook for India’s SME Manufacturing Sector: PHDCCI

The 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. These efforts have fostered entrepreneurship and created numerous employment opportunities, said Mr. Hemant Jain, President, PHDCCI, in a press statement issued here today.

To capture the SME market sentiment, two indices, the SME Business Activity Index (SME-BAI) and SME Business Outlook Index (SME-BOI) were computed, said Jain.

The objective of the SME Business Activity Index (SME-BAI) index is to capture the direction and momentum of the SME manufacturing sector by assessing performance of key business activity relative to the previous quarter, while SME Business Outlook Index (SME-BOI) captures the business outlook for next quarter. 

Both these indices will serve as a valuable tool for policymakers, industry stakeholders, and investors to make informed decisions, he said.

The SME Business Activity Index (SME-BAI) reflects the expansion or contraction of SME manufacturing activity in the selected quarter as compared to the previous quarter. The SME Business Outlook Index (SME-BOI) indicates the anticipated momentum of SME manufacturing activity for the coming quarter, said the study. 

The value of SME Business Activity Index (SME-BAI) ranges from 0 to 100, where 50 is the base value. The index above 50 reflects expansion of manufacturing activities compared to previous quarter values below 50 reflects contraction in business activity. The index value of 50 suggests no change compared to the previous quarter, said the study. 

The values of the SME Business Outlook Index (SME-BOI) range from 0 to 100. The index above 50 reflects expansion of manufacturing activities for the next quarter while values below 50 reflects contraction in business activity for the next quarter. The index value of 50 suggests no change in outlook for the next quarter, said the study. 

The SME Business Activity Index (SME-BAI) recorded a robust 57.7 points, indicating significant expansion in manufacturing activities compared to the previous quarter. This growth is driven by a strong New Orders Index of 71.7, reflecting high demand and a strong work pipeline, along with an Output/Production Index of 66.7, pointing to business activities gaining momentum, said Hemant Jain.

The Employment Index stood steady at 55.0, aligning with the rising economic activity, while the Inventories Index of 60.0 suggests that firms are actively restocking to meet anticipated demand, said Jain.

We highly appreciate the policy reforms and array of programme initiatives undertaken by the government to support the SME sector. These proactive policies and programmes will go a long way to transform the MSME landscape, he said. 

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

Dr. Ranjeet Mehta, Secretary General and CEO of PHDCCI, emphasized that 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. The continuous handholding by the government has resulted in formalization of more than 5 crore MSMEs, contributing significantly to exports, creating millions of jobs and fostering inclusive development. Going forward, to fulfil our endeavor to promote the growth of the SME sector, we will add indices related to exports and services market. 

Our findings highlight a positive outlook for growth, job creation, and investment in the SME manufacturing sector, said  Sanat Kumar, Chief Economist, PHDCCI.