Indian small businesses record strongest growth since COVID despite rising cost pressures

Indian small businesses delivered their strongest performance in 2025 since 2019 and remain highly confident about growth in 2026, according to CPA Australia’s Asia‑Pacific Small Business Survey 2025/26. However, rising costs continue to pose a significant challenge, potentially constraining future expansion.

The survey shows that 80 per cent of Indian small businesses grew last year, well above the Asia Pacific average of 63 per cent. Looking ahead, 87 per cent expect their business to grow in 2026 and 84 per cent anticipate growth in the local economy, outperforming regional peers and reinforcing India’s position as one of the most upbeat small business markets in the region. Improvements in customer experience, management skills and technology adoption were identified as key drivers supporting business growth in 2025. 

Despite strong sentiment, cost pressures remain the most significant headwind. The survey shows that 42 per cent of respondents cited increasing costs as their biggest challenge in 2025, with materials costs ranked as the most damaging cost pressure for the third consecutive year. 

Mr Aniket Talati, Fellow of CPA Australia (FCPA) and CPA Australia spokesperson in India, said Indian MSMEs had shown strong ambition to scale up on the back of strong domestic demand. “Supported by government policies aimed at encouraging more structured and growth oriented enterprises and unlocking key export markets through free trade agreements to offset tariff impacts, Indian MSMEs demonstrated impressive dynamism and confidence last year, and have entered 2026 with strong expansion ambitions,” Mr Talati said.

However, he cautioned that the operating environment is becoming increasingly complex. “Rising geopolitical uncertainty since March has added volatility to the business environment across many countries not just India. Higher energy prices and raw material costs may place additional pressure on sectors such as manufacturing and logistics. 

At the same time, a weakening rupee could help improve export margins, while India-made products, characterised by high quality and relatively competitive pricing, remain well positioned in international markets. Newly signed free trade agreements have further strengthened confidence in export prospects. Overall, I remain optimistic about the business outlook for MSMEs in India. To sustain growth and profitability in the period ahead, businesses should focus on careful planning, proactive cost and risk management, investment in renewable energy and alternative materials,” he said.

Over 50 per cent SMEs added new jobs

Indian MSMEs continue to play a vital role in job creation, supported by a new generation of younger business owners who are emerging as a powerful driver of growth and transformation across the sector. The survey shows that 52 per cent of Indian small businesses increased employee numbers in 2025, and 69 per cent plan to increase headcount in 2026, outpacing many regional peers.

Further, 56 per cent of Indian small business owners are aged under 40, well above the Asia Pacific average of 38 per cent. This younger profile is proving to be a competitive advantage, accelerating the adoption of digital technologies, innovation and new business models, and positioning Indian MSMEs for long term, sustainable growth.

March ahead in digital payments, e-commerce

Digital transformation is advancing rapidly across the sector. In 2025, 89 per cent of Indian small businesses generated more than 10 per cent of their revenue through digital payment platforms, the highest result in the Asia Pacific region. Further, 74 per cent earned more than 10 per cent of revenue from e commerce, while nine in ten businesses used social media for business purposes, highlighting the widespread integration of digital tools into daily operations.

Investments in AI rise 

Investment in artificial intelligence (AI) has also strengthened significantly. The proportion of Indian small businesses investing in AI rose from 26 per cent to 36 per cent in 2025, making it the top technology investment, followed by cloud computing (35 per cent) and customer relationship management systems (30 per cent). Notably, 41 per cent sought business advice from AI tools, up sharply from 25 per cent in 2024. Many businesses reported that technology investments had improved profitability over the past 12 months, underscoring the tangible value that digital adoption is creating for India’s MSME sector. This momentum is also fuelling innovation, with 44 per cent of MSMEs saying they will introduce new products or services in 2026, well above the survey average of 29 per cent.

Cyber security risks 

As digital adoption accelerates, cybersecurity risks are increasing. Though 59 per cent have reviewed the cybersecurity protections in the second half of 2025, 47 per cent reported lost time or money due to a cyber-attack during the year. Additionally, half of Indian MSMEs believe they are likely to experience a cyber-attack this year, both higher than the Asia Pacific average.

Mr Talati noted that government initiatives are helping MSMEs expand digitally and globally. “The Indian government is enabling a more user friendly and cost effective digital commerce ecosystem for MSMEs, reducing entry barriers and enabling global expansion. Initiatives such as the TEAM (Trade Enablement and Marketing) programme under RAMP (Raising and Accelerating MSME Performance) are helping MSMEs onboard onto ONDC, providing access to digital storefronts, payments and logistics without the need for heavy platform investment. At the same time, growing AI adoption can enhance productivity, strengthen financial performance and support innovation. With MSMEs largely using AI to amplify marketing and operational efficiency, AI will be a productivity enhancer rather than a job replacer. However, strengthening cyber defences and data protection awareness is essential for MSMEs to operate safely and sustainably in the digital economy,” he said.

80 per cent sought external finance

Demand for external finance remained strong in 2025, with four in five Indian MSMEs requiring external funding, up from 72 per cent in 2024. Fifty-three per cent reported that access to finance was easy or very easy, indicating improving financing conditions. Business growth was the primary reason for seeking finance, cited by 69 per cent of respondents. Banks remain the main source of funding, supplemented by finance from family, investors and non bank financial institutions.

“Access to external finance, combined with sound financial management, will be critical in supporting MSME expansion,” Mr Talati said. “Strategic investment in skilled talent and technology will help MSMEs remain competitive. Platforms such as TReDS (Trade Receivables Discounting System) are enabling faster access to working capital by discounting receivables from corporate and government buyers. The recently announced Emergency Credit Line Guarantee Scheme 5.0 can further ease access to funding and help MSMEs better navigate financial constraints stemming from the ongoing West Asia conflict.” 

The survey was conducted by CPA Australia in November and December 2025, gathering responses from 4,166 small businesses with fewer than 20 employees across 11 Asia Pacific markets, including 513 from India.

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